Walgreen Company and CVS Corporation operate national chains of drugstores that sell prescription drugs, over-the-counter drugs, and other general merchandise such as greeting cards, beauty and cosmetics, household items, food, and beverages. Walgreen operates 4,579 stores, while CVS Corporation operates 5,375 stores. The following operating data (in thousands) were adapted from the 2004 SEC 10-K filings of Walgreen and CVS. 142 Chapter 3 Accrual Accounting Concepts Case 3-1 Analysis of income statements Case 3-2 Cash basis income statement FINANCIAL ANALYSIS AND REPORTING CASES CVS Walgreen Net sales $30,594,300 $37,508,200 Cost of sales 22,563,100 27,310,400 Gross profit $ 8,031,200 $10,197,800 Selling, general, and administrative expenses 6,079,700 8,055,100 Operating income $ 1,951,500 $ 2,142,700 Other income and (expense) (555,100) 33,600 Income before taxes $ 1,396,400 $ 2,176,300 Income taxes 477,600 816,100 Net income $ 918,800 $ 1,360,200 1. Prepare common-sized income statements for CVS and Walgreen. 2. Compute the average sales per store for CVS and Walgreen. Round to the thousands. 3. Analyze and comment on your results in (1) and (2). 4. Broker recommendations are reported on Yahoo.com’s financial Web site. The recommendations are ranked as follows: Strong Buy 1 Buy 2 Hold 3 Sell 4 Strong Sell 5 Based upon your answers to (2) and (3), would you expect the average broker recommendation for CVS to be higher (less favorable), the same, or lower (more favorable) than for Walgreen? Compare your assessment with the average broker recommendation on Yahoo.com’s financial Web site (http://finance.yahoo.com/). To find the broker recommendation, enter the stock symbols for CVS (CVS) and Walgreen (WAG) and click on “research.”