Rite Aid is a U.S. retail drugstore chain.
|Most recent||Growth rate (CAGR)|
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|Book value of equity per share||$22.02||-26.6%||—||—|
|BV including aggregate dividends||-26.6%||—||—|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
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A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On December 12, 1996, Thrifty PayLess Holdings, Inc., (Thrifty PayLess) was merged with and into the company. Pursuant to the merger agreement, as amended each share of Thrifty PayLess common stock was converted to Rite Aid common stock at the exchange ratio of 0.65 shares of Rite Aid common stock for each share of Thrifty PayLess common stock. Total Rite Aid common stock exchanged in connection with this transaction was approximately 38,676,000 shares. The fair market value per share of the Rite Aid common stock exchanged in consideration of the Thrifty PayLess common stock was $34.58.
As of February 27, 1999, the company had a $1,000,000,000 unsecured revolving credit facility, expiring in July 2001, to support its commercial paper program and a $1,300,000,000 unsecured revolving credit facility, expiring in October 1999, to support commercial paper borrowings to complete the acquisition of PCS. In September 1999, the company determined it was in default of certain financial covenants in the credit agreements. On October 27, 1999, the company's banks agreed to extend and restructure $2,700,000,000 of its outstanding credit facilities. As a result, the due dates of the $1,300,000,000 of bank debt scheduled to mature on October 29, 1999 and an additional $300,000,000 of bank debt that was due on demand have been extended to November 1, 2000. The company's $1,000,000,000 credit facility, which was also restructured, terminates on July 19, 2001. Accordingly, these borrowings are reflected as noncurrent liabilities in the condensed balance sheet as of August 28, 1999. Borrowings under the credit facilities carry higher interest costs than commercial paper. The interest rates under the company's credit facilities are based on prime or LIBOR that adjusts with changes to the company's credit rating. At the company's current credit ratings, borrowings under the $1,300,000,000 facility are at LIBOR plus 3.0% and borrowings under the $1,000,000,000 facility and the $300,000,000 bank note are at LIBOR plus 3.5%. In connection with obtaining waivers of compliance with certain of the covenants in September and October 1999 and the subsequent extensions and restructuring described above, the company paid fees and transaction costs of approximately $43,000,000. Additionally, the company issued three year warrants to purchase 2,500,000 shares of common stock at $11 per share and has agreed to a one year financial services advisory contract for a monthly fee of $2,000,000.
After filing the 2000 10-K, Rite Aid initiated the process of posting the $1.6 billion of restatement adjustments previously reported to the company's detailed books and records for each of the periods involved.
On July 12, 2000, the company announced that it had entered into an agreement to sell PCS, its PBM segment, to Advance Paradigm, Inc. for $1.0 billion. The sale was consummated on October 2, 2000. The selling price of PCS consisted of $675.0 million in cash; $200.0 million in principal amount of Advance Paradigm's unsecured 10 year senior subordinated notes (with warrants attached) and $125.0 million in liquidation preference of Advance Paradigm's 11% series A preferred stock. The senior subordinated notes bear interest at the rate of 11% per annum for the first 18 months after their date of issuance (October 2, 2000), 12% for the next six months and 13% thereafter until maturity. The warrants attached to the senior subordinated notes are not exercisable for the first 24 months after the date the senior subordinated notes are issued. Once exercisable, they will be transferable separately from the senior subordinated notes and entitle the holders collectively to purchase, for $20 per share, 780,000 shares of Advance Paradigm's class A common stock. The senior subordinated notes may be prepaid by Advance Paradigm in whole at any time; however, if less than the entire outstanding principal amount is prepaid not more than an aggregate of $75.0 million principal amount may be prepaid from the date of issuance. Upon any prepayment prior to October 2, 2002, a ratable portion of the warrants attached to the senior subordinated notes will expire. The fair value of the senior subordinated notes is estimated at 75% of their principal amount. The fair value of the series A preferred stock is estimated at its stated value. The Company is in the process of obtaining an appraisal to determine the fair value of the Series A Preferred Stock and warrants at the consummation date.
On May 16, 2001, we issued a press release announcing the details of a comprehensive $3.0 billion refinancing package... In the $527 million in new debt and equity securities that has already been committed is a $149 million private placement comprised of 22.7 million shares of common stock committed on March 22, 2001 at $5.50 per share and 3.8 million shares of common stock committed on May 2, 2001 at $6.50 per share.
On June 27, 2001, we completed a major refinancing that extended the maturity dates of the majority of our debt to 2005 or beyond, provided additional equity, converted a portion of our debt for equity and reclassified capital leases to operating leases... We issued 80.1 million shares of our common stock for net proceeds of $528.5 million.
Subsequent to our first quarter, on June 4, 2007, we completed our acquisition of all of the membership interests of JCG (PJC) USA, LLC ("Jean Coutu, USA") from The Jean Coutu Group (PJC) Inc. As consideration for the acquisition of Jean Coutu, USA (the "Acquisition"), we paid $2.36 billion in cash and issued 250 million shares of Rite Aid common stock. Included in the cash payment is a preliminary working capital adjustment of $58.3 million, which is based upon the working capital (as defined in the Agreement) of Jean Coutu USA as of the closing date of the transaction.
On February 28, 2009, the carrying value of our net assets, before goodwill impairment testing, was $610.6 million and the market capitalization of our outstanding shares, assuming conversion of outstanding preferred shares, was $255.4 million. Accordingly, we performed a goodwill impairment test and concluded that because of the length of time in which the carrying value of our net assets exceeded the market value of our outstanding shares, an impairment of goodwill was required under the accounting rules set forth in SFAS No. 142. After determining that an impairment of goodwill was necessary, we performed a step two test which values the total company net assets at fair value as if a purchase business combination had occurred. The fair value of our net assets utilizing this test indicated that the entire balance of our goodwill should be impaired as of February 28, 2009 and therefore we recorded a goodwill impairment charge of $1.81 billion in fiscal 2009.
On June 24, 2015, the Company completed its previously announced acquisition of TPG VI Envision BL, LLC and Envision Topco Holdings, LLC ("EnvisionRx"), pursuant to the terms of an agreement dated February 10, 2015. EnvisionRx, which was a portfolio company of TPG Capital L.P. prior to its acquisition by the Company, is a full-service pharmacy services provider. EnvisionRx provides both transparent and traditional pharmacy benefit manager ("PBM") options through its EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through Orchard Pharmaceutical Services; access to the nation's largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through EIC's EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx is headquartered in Twinsburg, Ohio and operates as 100 percent owned subsidiary of the Company. Pursuant to the terms of the Agreement, as consideration for the Acquisition, the Company paid $1,883,405 [K] in cash and issued 27,754 [K] shares of Rite Aid common stock. The Company financed the cash portion of the Acquisition with borrowings under its senior secured revolving credit facility, and the net proceeds from the April 2, 2015 issuance of $1,800,000 [K] aggregate principal amount of 6.125% senior notes due 2023 (the "6.125% Notes"). The consideration associated with the common stock was $240,907 based on a stock price of $8.68 per share, representing the closing price of the Company's common stock on the closing date of the Acquisition.