The document provides an introduction to McKesson Corporation, describing its two business segments of pharmaceutical distribution and healthcare information technology solutions. It then states that a financial analysis of McKesson and one of its competitors, Cardinal Health, will be conducted using financial statements from 2013, 2012 and 2011 to determine which company would provide a better return on investment for investors. Descriptions of both McKesson and Cardinal Health are also provided.

1. 1
INTRODUCTION
McKesson Corporation delivers pharmaceuticals, medical supplies and healthcare information
technology. Its goal is to make healthcare safer while reducing costs. McKesson Corporation operates in
two segments. The McKesson Distribution Solutions segment distributes drugs, medical-surgical
supplies and equipment and health and beauty care products throughout North America. The McKesson
Technology Solutions segment delivers enterprise –wide clinical, patient care, financial, supply chain,
strategic management software solutions, pharmacy automation for hospitals, as well as connectivity,
outsourcing and other services, including remote hosting and managed services, to healthcare
organizations.
Team JRDR has been hired as consultants to perform a financial statement analysis on McKesson
Corporation. Statements from 2013, 2012 and 2011 will be used to carry out the analysis. The team will
use vertical analysis to gain insight on McKesson’s intra-company performance and compare it to one of
its competitors, Cardinal Health. Horizontal and ratio analysis will also be conducted on both companies
to help determine which company will grant a better return on investment and therefore be the better
choice for investors.

2. 2
2011-2013
*We compared
Cardinal Health and
McKesson between
these fiscal years*
Company Descriptions
Cardinal Health
Cardinal Health, Inc. is a
Fortune 500 health care
services company based in
Dublin, Ohio. The firm
specializes in distribution
of pharmaceuticals and
medical products, serving
more than 60,000 locations.
McKesson Corporation
McKesson Corporation is
an American company
distributing
pharmaceuticals at a
wholesale level and
providing health
information technology,
medical supplies, and care
management tools.
“The current pharmaceutical industry business model is both economically unsustainable and
operationally incapable of acting quickly enough to produce the types of innovative treatments
demanded by global markets. In order to make the most of these future growth opportunities,
the industry must fundamentally change the way it operates.” PricewaterhouseCoopers
Which stock looks like the most attractive MFI investment? The
statistics are relatively close for the two stocks. Both have similar
profiles for debt as well. The statistics don't show a clear winner.
So, we need to dig a little bit into business prospects. The
following are MagicDiligence's ranking of the two stocks in order of
increasing attractiveness based on assumed business prospects:
2. Cardinal (CAH)
Although it is the cheapest of the three and paying the best
dividend, Cardinal also has the least attractive profile going
forward. The bulk of Cardinal's business is to big customers like
CVS and Walgreen (45%), and an increasing amount of business
is coming from bulk sales to the drug-by-mail providers. The
problem with this is that bulk sales generate margins below 0.5%,
not where you want to be. Cardinal's customer base is just not that
attractive, and the company has no other businesses to fall back
on after it spun off CareFusion (CFN).
1. McKesson (MCK)
McKesson has similar problems, with nearly 30% of business
coming from CVS and Rite Aid (RAD - a misnomer). There are two
concerns with this. One, McKesson's CVS business comes from a
legacy contract with since-acquired Caremark, and CVS could
decide to consolidate under its legacy supplier, Cardinal. Second,
Rite Aid has been losing ground to its competitors for years and is
by far the weakest national chain, possibly facing bankruptcy. On
the other hand, McKesson also has an attractive medical software
business, a sweet spot in the discussion over health care reform.
This segment had good growth prospects, higher margins, and
has decent moat potential stemming from high switching costs.
WEBSITE WHERE ARTICLE WAS FOUNDED
http://articles.mercola.com/sites/articles/archive/2008/04/19/shocking-facts-about-the-pharmaceutical-
industry.aspx

3. 3
Comparative Balance Sheets
McKessonCORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per shareamounts) Change % Change % Change $ Change $
2013 2012 2011 2013-
2012
2012-
2011
2013-
2012
2012-
2011
ASSETS
Current Assets
Cash and cashequivalents $2,456 $3,149 $3,612 -22% -13% $(693) $(463)
Receivables, net 9,975 9,977 9,187 0% 9% $(2) $790
Inventories, net 10,335 10,073 9,225 3% 9% $262 $848
Prepaid expenses and other 404 404 333 0% 21% - $71
Total CurrentAssets 23,170 23,603 22,357 -2% 6% $(433) $1,246
Property, Plant and Equipment,Net 1,321 1,043 991 27% 5% $278 $52
Goodwill 6,405 5,032 4,364 27% 15% $1,373 $668
Intangible Assets, Net 2,270 1,750 1,456 30% 20% $520 $294
Other Assets 1,620 1,665 1,718 -3% -3% $(45) $(53)
Total Assets $34,786 $33,093 $30,886 5% 7% $1,693 $2,207
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Drafts and accountspayable $16,108 $16,114 $14,090 0% 14% $(6) $2,024
Short-termborrowings - 400 - - - - -
Deferred revenue 1,359 1,423 1,321 -4% 8% $(64) $102
Deferred taxliabilities 1,626 1,092 1,037 49% 5% $534 $55
Current portion of long-termdebt 352 508 417 -31% 22% $(156) $91
Other accruedliabilities 1,912 2,149 1,861 -11% 15% $(237) $288
Total CurrentLiabilities 21,357 21,686 18,726 -2% 16% $(329) $2,960
Long-Term Debt 4,521 3,072 3,587 47% -14% $1,449 $(515)
Other NoncurrentLiabilities 1,838 1,504 1,353 22% 11% $334 $151
Other Commitments and Contingent Liabilities (Note 22)
Stockholders’ Equity
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued
or outstanding
- - - - - - -
Common stock, $0.01 par value, 800 shares authorized at March 31,
2013 and 2012,
376 and 373 shares issued at March 31, 2013 and2012 4 4 4 0% 0% - -
Additional Paid-inCapital 6,078 5,571 5,339 9% 4% $507 $232
Retained Earnings 10,402 9,451 8,250 10% 15% $951 $1,201
Accumulated Other Comprehensive Income(Loss) (65) 5 87 -1400% -94% $(70) $(82)
Other 14 4 10 250% -60% $10 $(6)
Treasury Shares, at Cost, 149 and 138 at March 31, 2013 and2012 (9,363) (8,204) (6,470) 14% 27% $(1,159) $(1,734)
Total Stockholders’ Equity 7,070 6,831 7,220 3% -5% $239 $(389)
Total Liabilities and Stockholders’Equity $34,786 $33,093 $30,886 5% 7% $1,693 $2,207

4. 4
Comparative Balance Sheets
CARDINAL HEALTH
CONSOLIDATED BALANCE SHEETS
(in millions, except per shareamounts) Change % Change %
Change
$
Change
$
2013 2012 2011 2013-
2012
2012-
2011
2013-
2012
2012-
2011
ASSETS
Current Assets
Cash and cashequivalents $1,901 $2,274 $1,929 -16% 18% $(373) $345
Trade Receivables,net 6,304 6,355 6,156 -1% 3% $(51) $199
Inventories, net 8,373 7,864 7,334 6% 7% $509 $530
Prepaid expenses and other 1,192 1,017 897 17% 13% $175 $120
Total CurrentAssets 17,770 17,510 16,316 1% 7% $260 $1,194
Property, Plant and Equipment,Net 1,489 1,551 1,512 -4% 3% $(62) $39
Goodwill 5,574 4,392 4,259 27% 3% $1,182 $133
Other Assets 986 807 759 22% 6% $179 $48
Total Assets $25,189 $24,260 $22,846 4% 6% $929 $1,414
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable $12,295 $11,726 $11,332 5% 3% $569 $394
Current Portion of long-term obligations and other short-term
borrowings 168 476 327 -65% 46% $(308) $149
Other accruedliabilities 2,127 1,972 1,711 8% 15% $155 $261
Total CurrentLiabilities 14,590 14,174 13,370 3% 6% $416 $804
Long-Term-term obligations, less currentportion 3,686 2,418 2,175 52% 11% $1,268 $243
Deferred income taxes and otherliabilities 1,568 1,424 1,452 10% -2% $144 $(28)
Stockholders’ Equity
Preferred Shares, without ParValue
Authorized-500 thousand shares,Issued-none
Common Shares, without parvalue:
Authorized-755 million shares, Issued-364 million shares at June
30, 2013 and 2012 2,953 2,930 2,898 1% 1% $23 $32
Retained Earnings 4,038 4,093 3,331 -1% 23% $(55) $762
Common Shares in treasury at cost: 25 million shares and 21 million
shares at June 30, 2013, and 2012respectively (1,084) (816) (457) 33% 79% $(268) $(359)
Accumulated other comprehensiveincome 68 37 77 84% -52% $31.00 $(40.00)
Total Stockholders’ Equity 5,975 6,244 5,849 -4% 7% $(269) $395
Total Liabilities and Stockholders’Equity $25,819 $24,260 $22,846 6% 6% $1,559 $1,414

5. 5
Comparative Income Statements
McKesson CORPORATION
CONSOLIDATED STATEMENTS OFOPERATIONS
(in millions, except per shareamounts)
Change % Change % Change $ Change $
2013 2012 2011
2013-
2012
2012-
2011
2013-
2012
2012-
2011
Revenues $122,455 $122,734 $112,084 -0.23% 9.50% $(279) $10,650
Cost of Sales (115,471) (116,167) (106,114)
-0.60% 9.47%
$696 $(10,053)
Gross Profit $6,984 $6,567 $5,970 6.35% 10.00% $417 $597
Operating Expenses
Selling (805) (764) (767) 5.37% -0.39% $(41) $3
Distribution (1,042) (997) (920) 4.51% 8.37% $(45) $(77)
Research and development (480) (440) (407) 9.09% 8.11% $(40) $(33)
Administrative (2,351) (2,068) (1,842) 13.68% 12.27% $(283) $(226)
Litigation Charges(Credit) (72) (149) (213) -51.68% -30.05% $77 $64
Gain on business combination
81 - - - -
$81
-
Total OperatingExpenses
(4,669) (4,418) (4,149) 5.68% 6.48%
$(251) $(269)
Operating Income 2,315 2,149 1,821 7.72% 18.01% $166 $328
Other Income, Net 35 21 36 66.67% -41.67% $14 $(15)
Impairment of an EquityInvestment (191) - - - - $(191) -
Interest Expense (240) (251) (222) -4.38% 13.06% $11 $(29)
Income from Continuing OperationsBefore
Income Taxes
1,919 1,919 1,635 0.00% 17.37%
- $284
Income Tax Expense (581) (516) (505) 12.60% 2.18% $(65) $(11)
Income from ContinuingOperations 1,338 1,403 1,130 -4.63% 24.16% $(65) $273
Discounted Operation - gain on sale, net oftax
- - 72 - - -
$(72)
Net Income $1,338 $1,403 $1,202 -4.63% 16.72% $(65) $201
Earnings Per Common Share
Diluted
Continuing Operations 5.59 5.59 4.29 0.00% 30.30% - $1.30
Discontinued Operation - gain onsale
- - 0.28 - - -
$(0.28)
Total
$5.59 $5.59 $4.57 0.00% 22.32%
- $1.02
Basic
Continuing Operations 5.71 5.70 4.37 0.18% 30.43% $0.01 $1.33
Discontinued Operation - gain onsale
- - 0.28 - - -
$(0.28)
Total 5.71 5.70 4.65 0.18% 22.58% $0.01 $1.05
Weighted Average Diluted CommonShares
Diluted 239 251 263 -4.78% -4.56% $(12.00) $(12.00)
Basic 235 246 258 -4.47% -4.65% $(11.00) $(12.00)

6. 6
Comparative Income Statements
CARDINAL HEALTH
CONSOLIDATED STATEMENTS OFOPERATIONS
(in millions, except per shareamounts)
Change % Change % Change $ Change $
2013 2012 2011
2013-
2012
2012-
2011
2013-
2012
2012-
2011
Revenues $101,093 $107,552 $102,644
-6.01% 4.78%
$(6,459) $4,908
Cost of product sold 96,172 103,011 98,482 -6.64% 4.60% $(6,839) $4,529
Gross Profit 4,921 4,541 4,169 8.37% 8.92% $380 $372
Operating Expenses
Distribution, selling, general, andadministrative
expenses
2,875 2,677 2,528 7.40% 5.89%
$198 $149
Restructuring and employeeseverance 71 21 15 238.10% 40.00% $50 $6
Acquisition-relatedcosts 158 33 90 378.79% -63.33% $125 $(57)
Impairments and loss on disposal ofassets 859 21 9 3990.48% 133.33% $838 $12
Litigation Charges (recoveries)/changes,net (38) (3) 6 1166.67% -150.00% $(35) $(9)
Total OperatingExpenses 3,925 2,749 2,648 42.78% 3.81% $1,176 $101
Operating Income 996 1,792 1,514 -44.42% 18.36% $(796) $278
Other income, net (15) (1) (22) 1400.00% -95.45% $(14) $21
Interest expense, net 123 95 93 29.47% 2.15% $28 $2
Gain on sale of investment inCareFusion - - (75) - -100.00% - $75
Earnings before income taxes and discontinued
operations
888 1,698 1,518 -47.70% 11.86%
$(810) $180
Provisions for income taxes 553 628 552 -11.94% 13.77% $(75) $76
Earnings from continuingoperation 335 1,070 966 -68.69% 10.77% $(735) $104
Loss from discontinued operations, net oftax (1) (1) (7) - - - $(72)
Net Income $334 $1,069 $959 -68.76% 11.47% $(735) $110
Basic earnings/(loss) per commonshare:
Continuing operations $0.98 $3.10 $2.77 -68.39% 11.91% $(2.12) $0.33
Discontinued operations - - (0.02) - -100.00% - $0.02
Net basic earnings per commonshare $0.98 $3.10 $2.75 -68.39% 0.00% (2.12) $0.35
Diluted earnings/(loss) per commonshare:
Continuing operations $0.97 $3.06 $2.74
Discontinued operations - - (0.02) - -100.00% - $0.02
Net diluted earnings per commonshare $0.97 $3.06 $2.72 - - - $(0.28)
Weighted Average Diluted Common Sharesoutstanding:
Basic 341 345 349 -1.16% -1.15% $(4.00) $(4.00)
Diluted 344 349 353 -1.43% -1.13% $(5.00) $(4.00)

7. 7
Horizontal Analysis
McKesson has purchased various businesses between December 2010 and October 2012. These
acquisitions have influenced Balance Sheet and Income Statement financial data for fiscal years 2011,
2012 and 2013.
In December of 2010, McKesson purchased US Oncology to expand to cancer care andmedicines.
This acquisition strengthened McKesson’s position in cancer drug distribution. The following year,
McKesson bought System C Healthcare and Portico Systems. System C Healthcare was a strategic move
to expand its presence in the U.K., while the Portico Systems purchase was a response to a 2010 health
reform law that required the healthcare industry to transform its financial management and payment
systems. In January of 2012, McKesson acquired another two companies, Drug Trading Co. and Medicine
Shoppe Canada, Inc. With these purchases, McKesson expanded its business in Canada. PeerVue, Inc. was
also purchased in 2012. It helped broaden McKesson’s portfolio of enterprise imaging and information
management systems. Finally, in October of 2012, McKesson bought PSS World Medical with the goal of
securing annual cost savings of $100 million by the fourth year after thepurchase.
Cardinal Health also acquired businesses that influenced financial data on their Balance Sheet and
Income Statement. The most significant purchase was in March of 2013, when it acquired AssuraMed for
$2.07 billion to enter into the home-health supply market. Cardinal Health funded the purchase through
the issuance of notes and cash on hand. In July of 2010, Cardinal Health also purchased P4 Healthcare.
The company is also going through a huge restructuring of their Nuclear Pharmacy Services divisionand
a planned restructuring of their Medical segment.
Balance Sheet
Assets
From 2011 to 2012, McKesson’s Total Assets increased by 7%, or $1,693 million. This was slightly
higher than the 5% increase ($2,207 million) it experienced from 2012 to 2013. Significant offsets were
reported within McKesson’s various asset accounts. Most notably Cash and cash equivalents, Property,
Plant and Equipment, Goodwill and Intangibleassets.
Cardinal Health experienced a 6% increase in Total Assets from 2011 to 2012 and a 4% increase
from 2012 to 2013. The lower percentage change in 2013 was partial due to decreases in Cash & Cash
Equivalents. It also realized increases in Goodwill and OtherAssets.

8. 8
Cash & Cash Equivalents
From fiscal years 2012 to
2013, McKesson experienced a 22%
decrease in Cash & Cash Equivalents.
This is larger than its 13% decrease
from fiscal years 2011 to 2012. To
determine why the big difference,
we must look at the Statement of
Cash Flows.
In 2013, 2012 and 2011
McKesson showed a net decrease in cash and cash equivalents of $693 million, $463 million and $119
million, respectively. The decreases in Cash and cash equivalents were created by increases in Net cash
used by investing activities, specifically Acquisitions, net of cash and cash equivalents acquired.
Acquisitions, net of cash and cash equivalents acquired grew from $292 million in 2011 to $1,156million
in 2012 to $1,873 million in 2013. This increase trend reflects McKesson’s strategy of purchasing
businesses to expand into other markets andregions.
Cardinal Health’s Cash and Cash Equivalents balance was $1,901 million in 2013 and $2,274
million in 2012. The decrease in 2013 was due to acquisitions, share repurchases and dividendspaid.
Property, Plant and Equipment
McKesson experienced a 27% increase
in Property, Plant and Equipment from 2012 to
2013. This is a huge difference when
compared to the increase of 5% from 2011 to
2012. This difference is partially due to the
fact that on April 6, 2012, McKesson purchased
the remaining 50% ownership interest in their
corporate headquarters building located in San Francisco, California for $90 million, which was funded
from cash on hand. In addition, it acquired further property, plant and equipment when it purchased PSS
World Medical.

9. 9
Goodwill and Intangible Assets
McKesson has $6,405 million and $5,032 million of goodwill in 2013 and 2012, as well as $2,270
million and $1,750 million of intangible assets in 2013 and 2012. From 2011 to 2012, McKesson realized
a 15% increase in Goodwill after purchasing Portico Systems, Drug Trading Co. and Medicine Shoppe
Canada. It doesn’t, however, compare to its 27% increase from fiscal years 2012 to 2013 after purchasing
PSS World Medical. Regarding Intangible Assets, McKesson experienced a 30% increase from 2012 to
2013. From 2011 to 2012, however, they only experienced a 20% increase. These changes are also as a
result of acquiring the businesses.
Cardinal Health experienced a 3% increase in Goodwill during 2011 and 2012. From 2012 to
2013 this increase grew to 27%. Regarding Other Assets, Cardinal Health experienced a growth of 22%
from 2012 to 2013. This was a much larger growth than the previous years 2011 to 2012, which was
only 6%. The increase in Goodwill and Other Assets was due to Cardinal Health’s purchase ofAssuraMed.
Liabilities and Stockholders Equity
From 2011 to 2012, McKesson’s Total Liabilities and Stockholders Equity increased by 7%,or
$1,693 million. This was slightly higher than the 5% increase ($2,207 million) it experienced from 2012
to 2013. Within its various Liability and Stockholders Equity accounts, McKesson experienced significant
changes, specifically in Deferred Tax Liabilities, Current Portion of Long-Term Debt, Long-Term Debt,
Other Noncurrent Liabilities, and Accumulated Other Comprehensive Income(Loss).
Deferred Tax Liability
In 2012, McKesson sold their 49% equity interest in Nadro, S.A. de C.V., a wholesale
pharmaceutical distribution business in Mexico. The company would have had to pay the taxes on the
income received from the sale under its regular financial accounting but may have elected to defer
payment to the future by way of the tax code. This may explain the 49% increase in Deferred Tax
Liability from 2012 to 2013.
Current Portion of Long-Term Debt
From 2011 to 2012, McKesson realized a 22% increase in Current Portion of Long-Term Debt.
From 2012 to 2013, it experienced a 31% decrease. McKesson increased its Current Portion ofLong-

10. 10
Term Debt when it acquired businesses in 2011 and 2012. The decrease in 2012 to 2013 is due to
McKesson paying off the redemption of notes due in February of2013.
Long-Term Debt and Other Noncurrent Liabilities
From 2012 to 2013, McKesson experienced a 47% increase in Long-Term Debt and a 22%
increase in Other Noncurrent Liabilities. These increases are likely due to the purchase of PSS World
Medical, which it financed through cash at hand and the issuance of long-term debt. Furthermore, the
deal to purchase PSS World Medical included the assumption of a $480 million debt.
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income decreased by 1400% from 2012 to 2013 and
decreased by 94% from 2011 to 2012 for McKesson. These changes are as a result of losses yet to be
realized from a variety of sources.
Income Statement
Net Income
Net Income for McKesson increased by 17% from 2011 to 2012. From 2012 to 2013, it decreased
by 5%. Net Income for 2013 was offset by a large decrease in Litigation Charges and a large increase in
Other Income.
From 2011 to 2012, Cardinal Health’s Net Income increased by 11%. Unfortunately, from 2012 to
2013, it decreased by 69%. The 69% decrease was caused by huge increases in Restructuring and
Employee Severance, Acquisition-related Costs, and LitigationCharges.
Litigation Charges
From 2012 to 2013, McKesson experienced a 52% decrease in Litigation Charges. This is larger
than the 30% decrease from 2011 to 2012. These decreases were partially due to lower Average
Wholesale Price (AWP) litigation charges. AWP litigation charges were $72 million, $149 millionand
$213 million in 2013, 2012 and 2011. As the AWP litigation charges decreased so did Litigation Charges
for McKesson.

11. 11
Litigation Charges for Cardinal Health decreased from 2011 to 2012 by 150%. From 2012 to 2013,
they increased by a whopping 1,167%. During fiscal year 2013, Cardinal Health experienced a $38
million increase in income resulting from settlements of class action antitrustclaims.
Other Income
For McKesson, Other Income fluctuated from year to year. In 2011 it was, $36 million. It
decreased from there to $21 million in 2012 but then went back up to $35 million in 2013. The increase
in 2013 was due to an impairment of an asset in 2012. Other Income decreased in 2012 compared to
2011 because McKesson in 2011 received a $16 million reimbursement of post-acquisition interest
expense by former shareholders of US Oncology.
Current Portion of Long-Term Obligations and Other Short-TermBorrowings
Here, Cardinal Health experienced a 65% decrease from 2012 to 2013. From 2011 to 2012, it was
a 46% increase. In February of 2013, Cardinal Healthy used cash on hand to repay $300 million of notes
that were due on June 15,2013.
Long-Term Obligations, Less CurrentPortion
From 2011 to 2012, there was an 11% increase in Cardinal Health’s Long-Term Obligations, Less
Current Portion. This is much smaller than the 52% increase they experienced from 2012 to 2013. The
increase is most likely due to the fact that Cardinal Health purchased AssuraMed with cash on hand and
by acquiring long-term debt.
Restructuring and Employee Severance
Regarding Restructuring and Employee Severance, Cardinal Health experienced huge increases:
40% from 2011 to 2012 and 238% from 2012 to 2013. The large increase is partly due to a
recognized$11 million of employee-related costs related to a restructuring of their Nuclear Pharmacy
Services division. Also, in January of 2013, Cardinal Health announced a restructuring plan within their
Medical segment. The estimated total cost of the restructuring plan is approximately $79million.
Acquisition-Related Costs
Cardinal Health experienced large changes in Acquisition-Related Costs. From 2011 to 2012, they
decreased by 63% and from 2012 to 2013 they increased by 379%. The increase in 2013 was partly due

12. 12
to the acquisition of AssuraMed. Acquisition-Related Costs for fiscal year 2012 included income
recognized upon adjustment of the contingent consideration obligation incurredin connection with the
P4 Healthcare acquisition.
Impairments and Loss on Disposal of Assets
Cardinal Health experienced large increases in Impairments and Loss on Disposal of Assets. 2011
to 2012 showed an increase of 133%. This doesn’t compare to the staggering 3,990% increase from
2012 to 2013. In 2013, Cardinal Health recognized an $829 million goodwill impairmentcharge.
Conclusion
Both McKesson and Cardinal Health have made strategic choices to expand into markets and
regions by acquiring different businesses. McKesson has done a better job of acquiring more of the
market by expanding its presence in the U.K. and Canada. Both companies purchased their new
businesses by cash on hand and by taking on long-term debt. As a result, both experienced decreases in
Cash and Cash Equivalents, and increases in Goodwill and Intangible Assets. They both also recognized
increases in acquisition related accounts and long-term debt. These offsets made it so that there was
little change to Total Assets of both companies.
Net Income for both companies was negatively affected, specifically in 2013. However, Cardinal
Health experienced the larger decrease from 2012 to 2013, 69%, whereas McKesson only experienced a
5% decrease in the same period. It seems like McKesson has done a better job at not allowing business
acquisitions to negatively affect their Net Income. Plus, Cardinal Health’s decision to go through a
restructuring during this fiscal year has negatively affected its NetIncome.

13. 13
Common-Size Comparative Balance Sheets
McKesson CORPORATION
CONSOLIDATED BALANCESHEETS
(In millions, except per shareamounts)
Change % Change % Change %
2013 2012 2011 2013 2012 2011
ASSETS
Current Assets
Cash and cashequivalents $2,456 $3,149 $3,612 7.06% 9.52% 11.69%
Receivables, net 9,975 9,977 9,187 28.68% 30.15% 29.74%
Inventories, net 10,335 10,073 9,225 29.71% 30.44% 29.87%
Prepaid expenses and other 404 404 333 1.16% 1.22% 1.08%
Total CurrentAssets 23,170 23,603 22,357 66.61% 71.32% 72.39%
Property, Plant and Equipment,Net 1,321 1,043 991 3.80% 3.15% 3.21%
Capitalized Software Held for Sale,Net 126 144 152 0.36% 0.44% 0.49%
Goodwill 6,405 5,032 4,364 18.41% 15.21% 14.13%
Intangible Assets, Net 2,270 1,750 1,456 6.53% 5.29% 4.71%
Other Assets 1,620 1,665 1,566 4.66% 5.03% 5.07%
Total Assets $34,786 $33,093 $30,886 100.00% 100.00% 100.00%
LIABILITIES AND STOCKHOLDERS’EQUITY
Current Liabilities
Drafts and accountspayable $16,108 $16,114 $14,090 75.42% 74.31% 75.24%
Short-termborrowings - 400 - - 1.84% -
Deferred revenue 1,359 1,423 1,321 6.36% 6.56% 7.05%
Deferred taxliabilities 1,626 1,092 1,037 7.61% 5.04% 5.54%
Current portion of long-termdebt 352 508 417 1.65% 2.34% 2.23%
Other accruedliabilities 1,912 2,149 1,861 8.95% 9.91% 9.94%
Total CurrentLiabilities 21,357 21,686 18,726 61.40% 65.53% 60.63%
Long-Term Debt 4,521 3,072 3,587 13.00% 9.28% 11.61%
Other Noncurrent Liabilities 1,838 1,504 1,353 5.28% 4.54% 4.38%
Other Commitments and Contingent Liabilities (Note 22)
Stockholders’ Equity
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or
outstanding - - - - - -
Common stock, $0.01 par value, 800 shares authorized at March 31, 2013
and 2012,
376 and 373 shares issued at March 31, 2013 and2012 4 4 4 0.01% 0.01% 0.01%
Additional Paid-inCapital 6,078 5,571 5,339 17.47% 16.83% 17.29%
Retained Earnings 10,402 9,451 8,250 29.90% 28.56% 26.71%
Accumulated Other Comprehensive Income(Loss) (65) 5 87 -0.92% 0.07% 0.28%
Other 14 4 10 0.04% 0.01% 0.14%
Treasury Shares, at Cost, 149 and 138 at March 31, 2013 and2012 (9,363) (8,204) (6,470) -26.92% -24.79% -20.95%
Total Stockholders’ Equity 7,070 6,831 7,220 20.32% 20.64% 23.38%
Total Liabilities and Stockholders’Equity $34,786 $33,093 $30,886 100.00% 100.00% 100.00%

14. 14
Common-Size Comparative Balance Sheets
CARDINAL HEALTH
CONSOLIDATED BALANCE SHEETS
(In millions, except per shareamounts)
Change % Change % Change %
2013 2012 2011 2013 2012 2011
ASSETS
Current Assets
Cash and cashequivalents $1,901 $2,274 $1,929 7.36% 9.37% 8.44%
Trade Receivables,net 6,304 6,355 6,156 24.42% 26.20% 26.95%
Inventories, net 8,373 7,864 7,334 32.43% 32.42% 32.10%
Prepaid expenses and other 1,192 1,017 897 4.62% 4.19% 3.93%
Total CurrentAssets 17,770 17,510 16,316 68.83% 72.18% 71.42%
Property, Plant and Equipment,Net 1,489 1,551 1,512 5.77% 6.39% 6.62%
Goodwill and other intangibles,net 5,574 4,392 4,259 21.59% 18.10% 18.64%
Other Assets 986 807 759 3.82% 3.33% 3.32%
Total Assets $25,819 $24,260 $22,846 100.00% 100.00% 100.00%
LIABILITIES AND STOCKHOLDERS’EQUITY
Current Liabilities
Accounts payable $12,295 $11,726 $11,332 47.62% 48.33% 49.60%
Current portion of long-term debt obligations and other short-term
borrowings 168 4,756 327 1.15% 33.55% 1.43%
Other accruedliabilities 2,127 1,972 1,711 8.24% 8.13% 12.80%
Total CurrentLiabilities 14,590 14,174 13,370 56.51% 58.43% 58.52%
Long-term obligations, less currentportion 3,886 2,418 2,175 15.05% 9.97% 9.52%
Deferred income taxes and otherliabilities 1,568 1,424 1,452 6.07% 5.87% 6.36%
Stockholders’ Equity
Preferred shares, without parvalue: - - - - - -
Authorized-500 thousand shares,Issued-none
Common Shares, without parvalue:
Authorized-755 million shares, Issued-364 million shares at June 30, 2013
ad 2012 2,953 2,930 2,898 11.44% 12.08% 12.68%
Retained Earnings 4,038 4,093 3,331 15.64% 16.87% 14.58%
Common shares in treasury, at cost 25 million shares and 21 million shares at
June 30, 2013 and 2012,respectively (1,084) (816) (457) -4.20% -3.36% -2.00%
Accumulated other comprehensiveincome 68 37 77 0.26% 0.15% 0.34%
Total Stockholders’ Equity 5,975 6,244 5,849 23.14% 25.74% 25.60%
Total Liabilities and Stockholders’Equity $25,819 $24,260 $22,846 100.00% 100.00% 100.00%

15. 15
Common-Size Comparative IncomeStatements
McKesson CORPORATION
CONSOLIDATED STATEMENTS OFOPERATIONS
(in millions, except per shareamounts)
Change % Change % Change %
2013 2012 2011 2013 2012 2011
Revenues $122,455 $122,734 $112,084 100.00% 100.00% 100.00%
Cost of Sales $(115,471) $(116,167) $(106,114) -94.30% -94.65% -94.67%
Gross Profit $6,984 $6,567 $5,970 5.70% 5.35% 5.33%
Operating Expenses
Selling (805) (764) (767) -0.66% -0.62% -0.68%
Distribution (1,042) (997) (920) -0.85% -0.81% -0.82%
Research and development (480) (440) (407) -0.39% -0.36% -0.36%
Administrative (2,351) 2,068 1,842 -1.92% 1.68% 1.64%
Litigation Charges(Credit) (72) (149) (213) -0.06% -0.12% -0.19%
Gain on business combination
81 - - 0.07% - -
Total OperatingExpenses
(4,669) (4,418) (4,149) -3.81% -3.60%
-3.70%
Operating Income 2,315 2,149 1,821 1.89% 1.75% 1.62%
Other Income, Net 35 21 36 0.03% 0.02% 0.03%
Impairment of an EquityInvestment (191) - - -0.16% - -
Interest Expense (240) (251) (222) -0.20% -0.20% -0.20%
Income from Continuing Operations BeforeIncome
Taxes
1,919 1,919 1,635 1.57% 1.56%
1.46%
Income Tax Expense (581) (516) (505) -0.47% -0.42% -0.45%
Income from ContinuingOperations 1,338 1,403 1,130 1.09% 1.14% 1.01%
Discounted Operation - gain on sale, net oftax
- - 72 - -
0.06%
Net Income $1,338 $1,403 $1,202 1.09% 1.14% 1.07%
Earnings Per Common Share
Diluted
Continuing Operations 5.59 5.59 4.29
Discontinued Operation - gain onsale
- - 0.28
Total
$5.59 $5.59 $4.57
Basic
Continuing Operations 5.71 5.70 4.37
Discontinued Operation - gain onsale
- - 0.28
Total 5.71 5.70 4.65
Weighted Average Diluted CommonShares
Diluted 239 251 263
Basic 235 246 258

16. 16
Common-Size Comparative IncomeStatements
CARDINAL HEALTH
CONSOLIDATED STATEMENTS OFOPERATIONS
(in millions, except per shareamounts)
Change % Change % Change %
2013 2012 2011 2013 2012 2011
Revenues $101,093 $107,552 $102,644 100.00% 100.00% 100.00%
Cost of Products Sold 96,172 103,011 98,482 95.13% 95.78% 95.95%
Gross Profit 4,921 4,541 4,162 4.87% 4.22% 4.05%
Operating Expenses
Distribution, selling, general andadministrative
expenses
2,875 2,677 2,528 2.84% 2.49%
2.46%
Restructuring and employeeseverance 71 21 15 0.07% 0.02% 0.01%
Acquisition-relatedcosts 158 33 90 0.16% 0.03% 0.09%
Impairments and loss on disposal ofassets 859 21 9 0.85% 0.02% 0.01%
Litigation (recoveries)/charges,net (38) (3) 6 -0.04% 0.00% 0.01%
Total OperatingExpenses
3,925 2,749 2,648 3.88% 2.56%
2.58%
Operating Income 996 1,792 1,514 0.99% 1.67% 1.48%
Other Income, Net (15) (1) (22) -0.01% 0.00% -0.02%
Interest Expense 123 95 93 0.12% 0.09% 0.09%
Gain on sale of investment inCareFusion - - (75) 0.00% 0.00% -0.07%
Earnings before income taxes and discontinued
operations
888 1,698 1,518 0.88% 1.58%
1.48%
Provisions for income taxes
553 628 552 0.55% 0.58%
0.54%
Earnings from continuingoperations 335 1,070 966 0.33% 0.99% 0.94%
Loss from discontinued operations, net oftax
(1) (1) (7) 0.00% 0.00%
0.01%
Net Income $334 $1,069 $959 0.33% 0.99% 0.93%
Basic earnings/(loss) per commonshare:
Continuing operations $0.98 $3.10 $2.77
Discontinued operations
- - (0.02)
Net basic earnings per commonshare
$0.98 $3.10 $2.75
Diluted earnings/(loss) per commonshare:
Continuing operations $0.97 $3.06 $2.74
Discontinued operations - - (0.02)
Net diluted earnings per commonshare
$0.97 $3.06 $2.72
Weighted Average Diluted CommonShares
Diluted 341 345 349
Basic 344 349 353

17. 17
Vertical Analysis
Income Statement
Cost of Goods Sold & Operating Expenses for McKesson
Looking at McKesson’s Income Statement, Cost of Goods Sold makes up a major portion of
expenses for the company; its expenses decreased by 0.35% in 2013 from 94.65% in 2012 to 94.30% in
2013. The decrease was associated with the acquisition of cheaper products during the year as the
company switched its purchasing plan from brand-name product to generic product. This switch had a
positive impact on McKesson as its Gross Profit for 2013 grew to 5.70% from 5.35% in 2012. Another
item that made up a large percent of expenses for McKesson, but not as much as Cost of Goods Sold,were
Operating Expenses in 2012. Operating Expenses were 3.60% of expenses and in 2013 it was3.81%.
That is an increase of 0.21 percent. The increase was primarily driven by the acquisition of PSS World
Medical of 1.9 billion in 2013, higher employee compensation, higher benefit costs, 40 million charge for
legal disputes, and 36 million charges for goodwill impairment. This was offset in 2013 primarily by
market growth in drug utilization, expanded volume with existing customers, and new customers
obtained in 2012. In the end, McKesson managed to bring down its Cost of Goods Sold by 0.35% but its
Operating Expenses went up 0.21%, therefore diminishing its expense to a decrease of only 0.14%.
Costs of Goods Sold & Operating Expenses for Cardinal Health
If we look at Cardinal Health’s Income Statement, its Cost of Goods Sold constitutes a major
portion of expenses for the company. In 2012, 95.78% of expenses were attributed to Cost of Goods Sold.
However in 2013, expenses went down to 95.13%. That is a decrease of 0.65%. Cardinal Health’s change
from brand to generic drugs impacted its revenue for 2013 as it decreased 6% from 107,552 million in
2012 to 101.093 million in 2013. The decrease in revenue was caused by a decrease in customers who
decided to source their generic products directly from generic drug manufacturers as opposed to
Cardinal Health and the fact that generic drugs generally sell at a lower price. The second item that made
up a large percent of expenses was Operating Expenses. Operating Expenses made up 2.56% in 2012 and
3.88% in 2013. The increase in expenses for 2013 was caused by a 2.07 billion acquisition of privately
held AssuraMed. The acquisition will allow Cardinal Health to offer medical supplies to patients in the
home. In the end, while Cardinal Health managed to bring down its Cost of Goods Sold by 0.65% its
Operating Expenses when up by 1.32% and revenue decrease by6%.

18. 18
Comparison of COGS & Operating Expenses between MCK/CAH
Both McKesson and Cardinal Health’s major expenses were Cost of Goods Sold and Operating
Expenses but unlike Cardinal Health who managed to bring down its expenses for the year by 0.67%
McKesson only brought down its expenses by 0.14 percent. A switch caused the decrease in expenses by
both companies from brand name pharmaceuticals to generic products. On the other hand, Cardinal
Health saw a larger impact on its sales as they decreased by 6,459 million as opposed to McKesson with a
decrease in sales of 279 million. The ability to absorb the change in products reflects the fact that
McKesson is a more established company than its competitor Cardinal Health, a growing global company.
Balance Sheet
Accounts Receivable, Accounts Payable, Long-Term Liabilities & Acquisitions forMcKesson
If we move on to the Balance Sheet to see how each company is allocating its resources, we cansee
that McKesson Accounts Receivables makes up 28.68% in 2013 as opposed to 30.15% in 2012, which
was caused by a decrease in Canadian pharmaceutical distribution in 2013. Moreover, McKesson
Account Payables make up 75.42% of Liabilities and Stockholder’s Equity, which was primarily driven by
expenses to acquire inventory according to the 10-K footnotes. The asset section reflects the use of
Accounts Payable to purchase inventory as it makes up 29.71% in 2013 and 30.44% in 2012. McKesson’s
Long-term Liabilities increased by 3.72% from 9.28% in 2012 to 13.00% in 2013. The increase was
driven by a 900 million dollar loan borrowed from Bridge Loan that was used for PSS World Medical
acquisition to expand McKesson Medical-Surgical business. If we move on to Total Assets we can see that
that the amount of Total Current Assets decreased from 71.32% to 66.61%, that’s a decrease of4.71%.
However, Goodwill increased from 15.21% in 2012 to 18.41% 2013 due to the acquisition of PPSWorld
Medical Inc.
Long-Term Obligations & Acquisitions for CardinalHealth
If we move on to Cardinal Health and examine how the company has allocated its resources to
acquire assets we can see that Cardinal Health’s Long Term Obligations makes 15.64% of Liabilities and
Stockholder’s Equity; Cardinal Health issued 1.3 billion in fixed rate notes to acquired AssureMed in an
attempt to provide medical supplies to homecare providers and patients in the home. As a result of these
acquisitions, Cardinal Health’s Goodwill and Other Intangible Assets makes up 21.59% of TotalAssets,

19. 19
which is an increase of 3.49% from 18.10% in 2012 to 21.69% in 2013. Moreover, Cardinal Health’s
receivables like McKesson had similar increases and decreases inaccounts.
An in-depth analysis on MCK & CAH Assets
When we contrast both companies’ Balance Sheets to determine how each company has allocated
its resources we can see that McKesson’s Balance Sheet reflects that it is more efficient and has a more
established presence in the market. To begin with, McKesson’s asset section has a high Account
Receivable account of 28.68% for 2013 as opposed to Cardinal Health’s lower Accounts Receivable of
24.42% of Total Assets. In dollar amounts, that’s a difference of 3,031million dollars. The reason why
McKesson has a high Accounts Receivable is because as a better-established company it is able to takeon
more risks by offering its competitors a higher credit limit than Cardinal Health. If we look at McKesson
and Cardinal Health’s ratio we can see that the Accounts Receivable turnover for McKesson was 12.28 as
opposed to Cardinal Health’s low turnover of 3.99. The turnover difference for McKesson is three times
higher than Cardinal Health’s in spite of its large Accounts Receivable account that has more reliable
buyers and higher demand. Moreover, the Inventory account also shows McKesson’s efficiency in the
market against its competitor by having a low Total Asset Inventory account of 29.7% in 2013 to meets
its buyers demands as opposed to Cardinal Health’s Inventory account of 32.4%; Cardinal Health’s high
inventory account might seem to be great from the naked eye but if we consider both companies’
turnover ratio we can see that McKesson is the better competitor. The Inventory turnover ratio for
McKesson was 11.32 as opposed to Cardinal Health’s low 2.96 and like the Account Receivable turnover
McKesson has a better advantage. To summarize this section McKesson’s high Accounts Receivables and
low Inventory depicts the demand buyers have for itsproducts.
Goodwill
If we move on to examine both companies Goodwill account we can see that Cardinal Health’s
Balance Sheet reflects its presence in the market as a growing company and McKesson as a more mature
rival. The Goodwill for Cardinal Health increased from 18.21% percent of Total Assets in 2012 to 21.59%
percent in 2013 due to its new acquisition of AssureMed. On the other hand, McKesson’s Goodwill is
lower both years with Total Asset percent of 15.21% in 2012 and 18.41% in2013.

20. 20
An in-depth analysis on MCK & CAH Liabilities and Equity
McKesson’s liability section, like its asset section, once again shows its overall well performance
and establishment in the market as opposed to Cardinal Health. McKesson’s Account Payable section for
2013 makes up a total of 75.42% of Total Liabilities and Stockholders’ Equity, which has been consistent
since 2011, as opposed to Cardinal Health’s low and consistent 47.62%. This finding leads us to believe
that McKesson as a more well establish company has better trust from its suppliers and creditors to meet
its yearly responsibilities as opposed to Cardinal Health. For example, McKesson’s prepaid expenses for
2013 only make up 1.16% percent of Total Assets as opposed to Cardinal Health’s 4.62%, which signifies
that McKesson has chosen to pay its immediate responsibilities using credit as opposed to cash like
Cardinal Health. This tactic frees McKesson’s cash for investment and the trend can be seen since 2011
starting with the acquisition of US Oncology in 2011, that was acquired with cash on hand, the acquisition
of Drug Trading Company Limited and Medicine Shoppe Canada Inc. (both located in Canada) in 2012 also
acquired with cash on hand, and the acquisition PSS World Medical also funded with cash on hand and
long-term debt in 2013. This tactic is a luxury not many companies are able to take. If we look at Cardinal
Health’s cash sections its trend has been to keep less cash than McKesson to meet its immediate
responsibilities and use less credit. For example, Cardinal Health’s cash total assets trend has been to
keep, starting in 2011, and 8.44%, 9.37%, and 7.36% cash of total assets. On the other hand, McKesson’s
trend has been, starting in 2011, 11.69%, 9.52%, and 7.06% cash of total asset, which concurs with our
assumption that McKesson’s tactic has been to use credit as a leverage to invest more. If we look at
Cardinal Health’s acquisitions in 2012 of P4 Healthcare and Assure Med in 2013 both have been funded
using long-term debt and short-term borrowings. For example, the short-term debt for Cardinal Health in
2012 was 33.55% and 1.15% in 2013 and its long-term debt was 9.97% in 2012 and 2013% in2013.
In comparison, McKesson’s short-term borrowing was 6.56% in 2012 and 6.36% in 2013 and long-term
debt 9.28% in 2012 and 13.00% in 2013. This data supports our hypothesis that McKesson has been
using short-term credit to free its cash forinvestments.
An in-depth analysis on MCK & CAH RetainedEarnings
Moreover, not only has McKesson outperformed its rival in sales, investment strategies, and
controlling long-term debt, but also in Retained Earnings. McKesson’s Retained Earnings for 2012 and
2013 have been 28.56% and 29.90% of Total Liabilities and Stockholders’ Equity compared toCardinal

21. 21
Health’s low 16.87% in 2012 and 15.64% in 2013; in 2013 that is a difference of 6,364 million more
Retained Earnings for McKesson than Cardinal Health. Equally important, McKesson’s Treasury Stock
made up in 2013 26.92% percent of Total Liabilities and Stockholders’ Equity compared to Cardinal
Health’s minimal 4.20%. The high amount of Retained Earnings and Treasury Stock that McKesson has
attained shows the stability McKesson has in the market and assertive behavior that its company has
been undervalue in the stock market by purchasing backs stocks. As of November 16, 2013 the stock
market price for McKesson is 160.15 dollars per share and Cardinal Health’s is 64.84 dollars per share
according to Yahoo Finance. In the end, McKesson outperformed Cardinal Health in all areas by double or
triple amounts and allocation of resources. Both McKesson and Cardinal Health are fortune 500
companies according to CNN Money website and should be compared at equal levels even though
Cardinal Health is a younger company that is growing andexpanding.
The Affordable Care Act and PharmaceuticalCompanies
Lastly, we will describe the reasons why both pharmaceutical companies had to convert from
name brand product to generic products. As we know the Affordable Care Act will enter into action in
2014. The Affordable Care Act will impact pharmaceutical companies by requiring them to offer rebates
to Medicaid for prescription drugs, which will cost the industry about 20 billion over the next ten years
according to Daily Finance. The Affordable Car Act will also require pharmaceutical companies to pay a
new excise tax on name brand products, which has been implemented already over the past two years
and amounted to 5.3 billion in costs according to Daily Finance. Lastly, the Affordable Care Act will
require pharmaceutical companies to offer a 50% discount to senior citizens who reach the level of
spending that is require to get the 50% discount, unfortunately Daily Finance did not comment on what
the level was. If we sum up all the economic activity that both McKesson and Cardinal Health have
performed to avoid name product taxes, McKesson has been able to absorb this impact at a much higher
level than Cardinal Health. McKesson’s sales have only decrease 279 million compared to Cardinal
Health’s decrease of 6,459 million. This is due to decreases in inventory sale prices as generic drugs sale
at a lower price and customers opt to buy directly from manufactures. The bottom line of McKesson was
also affected less, as its net earnings only decrease 4.63% compared to Cardinal Health’s bottom line that
decreased 68.76%.

22. 22
Ratio Analysis
Ratio Analysis consists of determining three aspects of a business from the information in their financial
statements; liquidity, solvency and profitability. The liquidity ratios of a business demonstrate its ability
to cover the cost it incurs during business operations. The solvency ratios, express a business’s long-term
fiscal health. The profitability ratios identify operating success from a company’s ability to produce
income from its operation or services rendered. Through these ratios, we will determine which company
between McKesson and Cardinal Health hold the stronger position in the pharmaceutical drug wholesale
industry.
Liquidity Ratios
McKesson
2013 2012
Liquidity Ratios
Current Ratio 1.08 1.09
Acid-Test Ratio 0.58 0.61
Receivable Turnover 12.28 12.81
Inventory Turnover 11.32 12.04
Cardinal Health
2013 2012
Liquidity Ratios
Current Ratio 1.22 1.24
Acid-Test Ratio 0.56 0.61
Receivable Turnover 3.99 3.54
Inventory Turnover 2.96 3.39
Liquidity Analysis
McKesson and Cardinal Health ratios that will be focused upon are receivables turnover and
inventory turnover.
Receivable Turnover Ratio
Pharmaceutical firms intend on maintaining accounts receivable because they are indirectly
extending interest-free loans to their clientele. When it comes to receivable’s turnover, a higherratio
implies either that the company operates strictly on a cash basis or that its extension of credit and
collection of accounts receivable is efficient.

23. 23
However if the firm contains a lower ratio, it would imply that McKesson or Cardinal Health;
should re-assess its credit policies, in order to ensure collection of the imparted credit that is not earning
interest for them. For McKesson, it has been able to consistently collect at a rate of 12 times a year. From
2012 to 2013, it has rates of turnover of 12.81 and 12.28. This ratio is running a higher rate than its
competitor Cardinal Health. Cardinal Health (CAH) has a receivable turnover rate of 3.54 for 2012 and a
rate of 3.99 in 2013.
McKesson having a higher ratio would lead me to believe that the reasoning behind this is their
ability to provide interest-free loans to their clientele basis. Also, the cash and cash equivalents is much
higher in McKesson than Cardinal Health. The reason I bring this up is perhaps McKesson operates with a
more liquid business model because it has a higher ratio and it is able to do so with an efficient accounts
receivable.
Inventory Turnover
We also analyzed the Inventory Turnover for both McKesson and Cardinal Health. A low Inventory
turnover implies that the firm had poor sales and, therefore, excess inventory. A high ratio implies that the
firm either had strong sales or inefficient purchasing of goods. When the inventory levels become high
within a firm it is unhealthy because their rate of return of an investment is zero.
Cardinal Health’s inventory ratio had a minimal loss comparatively from 2012 to 2013. The rate
for 2012 was 3.39 and the rate for 2013 came to 2.96. Even though the rate went down from the previous
year, the difference was small enough to say that Cardinal Health was able to maintain a reliable turnover
of their inventory.
Recievable Turnover
McKesson Cardinal Health

24. 24
McKesson inventory ratio was higher than Cardinal Health’s. All though from 2012 to 2013 there
was a slight drop in its rate of turnover the difference is minimal. In 2012 the company was able to
turnover at a rate of 12.04 times while in 2013 was at a rate of 11.32. The high ratio of Inventory
Turnover is due its distribution clientele being larger and their efficient marketing creates an easier
method to distribute their goods during the fiscal year than CardinalHealth.
We can also make the conclusion that based on these rates McKesson is able to turnover its inventory
at a faster rate but also collect on its receivables more often than CardinalHealth.
Solvency Ratios
McKesson
2013 2012
Solvency Ratios
Debt to Total Assets Ratio 61% 66%
Times Interest Earned 3.3 3.72
Cardinal Health
2013 2012
Solvency Ratios
Debt to Total Assets Ratio 77% 74%
Times Interest Earned 7.2 17.87
Solvency Analysis
After evaluating McKesson and Cardinal Health’s debt to total assets ratio and times interest earnedratio,
we conclude that McKesson is the more solvent company. McKesson has a more favorable debt to total
assets ratio and Cardinal Health has a more favorable times interest earned ratio.
Inventory Turnover
McKesson Cardinal Health

25. 25
Debt to Total Assets
Debt to total assets ratio measures the percentage of total assets that is provided by creditors. In
2012, McKesson’s debt to total assets ratio was 66%. This was reduced to 61% in 2013. Cardinal Health
had a much higher debt to total assets ratio in 2012 and 2013, 74% and 77%, respectively. McKesson
and Cardinal Health managed to lower their debt to total assets ratio from 2012 to 2013.
For both McKesson and Cardinal Health, most of their assets are financed through debt, indicating
greater risk with business operations. It is not surprising to see high numbers due to the fact that both
companies took on more debt to purchase businesses during these fiscal periods. Both companies could
be in danger if creditors start to demand repayment of the debt. However, because McKesson is the
larger, more stable and established company, it can take on more debt without adding too much risk for
investors. Furthermore, McKesson’s cash flow is more predictable and stable which makes it easier and
cheaper for it to borrow money. Cardinal Health must be very careful not to allow its debt to total assets
ratio to get too high because it may find it difficult to obtain loans for future projects or acquisitions.
Although both companies have high debt to total assets ratios, McKesson is in a better position with a
lower ratio.
Times Interest Earned
Times interest earned ratio measures a company’s ability to meet interest payments as they come
due. For both 2012 and 2013, McKesson had a smaller times interest earned ratio (3.72 and 3.3,
respectively) compared to Cardinal Health. Cardinal Health was able to lower there times interest earned
ratio from 17.87% to 7.2% from 2012 to 2013.
McKesson’s lower times interest earned ratio means that it has fewer earnings available to meet
interest payments. This also means that it is in a more vulnerable position if interest rates go up.
Debt to Total Assets
McKesson Cardinal Health

26. 26
Cardinal Health has the greater ability to repay interest anddebt.
Profitability Ratios
McKesson
2013 2012
Profitability Ratios
Payout Ratio 0.16 0.15
Profit Margin 0.13% 0.14%
Return on Assets 0.04 0.04
Asset Turnover 3.61 3.84
Return on Common Stockholder's Equity 0.19 0.2
Earnings Per Share 5.59 5.59
Price-Earnings Ratio 25.43 25.43
Cardinal Health
2013 2012
Profitability Ratio
Payout Ratio 1.12 0.29
Profit Margin 0.33% 0.99%
Return on Assets 0.0033 0.011
Asset Turnover 1.01 1.14
Return on Common Stockholder's Equity 0.01 0.08
Earnings Per Share 0.98 3.1
Price-Earning Ratio 51.98 8.84
Profitability Analysis
The Profitability Ratios measure the income or operating success of a company. Creditors and
investors focus on these ratios when deciding the potential for growth in a company. The ratios that will
be highlighted are the Profit Margin and Return on Assets. Profit Margin is read as the percentage of each
dollar of sales that results in net income. Return on Assets is a measure of overall profitability for the
company.
Profit Margin
The reason why we chose to discuss Profit Margin is because when we look at the earnings of a
company often doesn't the true valuation of its profit is not explained. Now, increased earnings are good for
McKesson or Cardinal Health, but the increase does not mean that the profit margin of eithercompany

27. 27
is improving. For instance, if McKesson or Cardinal Health’s costs have increased at a greater rate thanits
sales, than that would lead to a lower profit margin for either company. This would then provide the
indication from a consultant’s aspect of the company that its costs need to be under bettercontrol.
McKesson had profit margins of 0.13% for 2013 and 0.14% for 2012. McKesson was able to
maintain a consistent profit margin in line with the previous year. Cardinal Health had a higher profit
margin than McKesson with 0.33% for 2013 and 0.99% for2012.
Return on Assets
We also analyzed McKesson and Cardinal Health’s profitability using the Return on Assets Ratio
(ROA) or Return on Investment (ROI). ROA gives an idea as to how efficient management is at using its
assets to generate earnings.
ROA tells you what earnings were generated from the firm’s investments. ROA for public
companies can vary substantially and will be highly dependent on the industry. This is why when using
ROA as a comparative measure; it is best to compare it against a company's previous ROA numbers or the
ROA of a similar company.
The Return on Assets of McKesson and Cardinal Health’s figure provides investors with an ideaof
how effectively the company is converting the money it has to invest into net income. The higher the
amount is for ROA, the better, because the company is earning more money on lessinvestment.
The Return on Asset ratio for McKesson was respectively 0.4 for 2013 and 0.4 for 2012.McKesson
had a higher ROA, which is great for the company because it demonstrates it’s efficient on obtaining solid
returns on their investments on a consistent basis. From an investment perspective in acomparative
Profit Margin
McKesson
Cardinal Health

28. 28
analysis between McKesson and Cardinal Health, the ROA amount remaining consistent since 2012 to
2013, you would undoubtedly choose to invest within McKesson. When we examine Cardinal Health’s
Return on Assets, we see that they have lower ROA rates of .011 and .0033 for the years 2012 and 2013.
The data shows that Cardinal Health is able to generate a much higher profit margin than McKesson,
with the difference in 2013 being .20% but that McKesson is able to neutralize that advantage by having a
higher return on assets by a rate of 2.
Return on Assets (ROA)
McKesson
Cardinal Health

29. 29
CONCLUSION
Based on our analysis using comparative, common-size, and ratio analysis, we conclude that
McKesson compared to Cardinal Health has a more efficient business model and therefore be a better
choice for investors. Both McKesson and Cardinal Health acquired new businesses during the fiscal years
2012 and 2013. McKesson has done a better job of acquiring more of the market by expanding its
presence in the U.K. and Canada. Net income for both companies was negatively affected. However,
Cardinal Health experienced the larger decrease from 2012 to 2013, 69%, whereas McKesson only
experienced a 5% decrease in the same period. McKesson has been more efficient in acquiring
businesses than Cardinal Health. Both companies would benefit from paying off more of its long-term
debt to decrease their debt to total assets ratio, making it more attractive to investors. Both companies
lost revenue due to their conversion from brand name to generic pharmaceutical drugs. Cardinal Health
lost more revenue than McKesson. Both companies also lost customers. But McKesson was able to
absorb.

30. 30
REFERENCES
1. Accounting Principles, 10th edition, by Weygandt, Kieso and Kimmel. Published by John Wiley &
Sons, 2011.
2. McKesson 10K
http://www.mckesson.com/
3. Cardinal Health 10K
http://www.cardinal.com/
4. McKesson to Purchase US Oncology in Deal Valued at $2.16 Billion
http://www.bloomberg.com/news/2010-11-01/mckesson-agrees-to-buy-us-oncology-in-
transaction-valued-at-2-16-billion.html
5. McKesson Plans to Buy PSS World Medical for $1.62 Billion
http://www.bloomberg.com/news/2012-10-25/mckesson-agrees-to-buys-pss-world-for-2-1-
billion.html
6. McKesson Absorbs Drug Trading Co.
http://www.zacks.com/stock/news/72064/McKesson-Absorbs-Drug-Trading-Co
7. McKesson Buys Portico To Gain ACO Financial Tools
http://www.informationweek.com/healthcare/admin-systems/mckesson-buys-portico-to-gain-
aco-financ/231000348
8. MFI Article Used for Introduction of Cardinal and McKesson
http://articles.mercola.com/sites/articles/archive/2008/04/19/shocking-facts-about-the-
pharmaceutical-industry.aspx
9. Cardinal Health Completes Acquisition Of AssuraMed, Leading Direct-To-Home Medical Supplies
Distributor
http://ir.cardinalhealth.com/releasedetail.cfm?releaseid=749252
10. Is Obamacare a Disaster Waiting to Happen for Big Pharma?
http://www.dailyfinance.com/2013/03/23/is-obamacare-a-disaster-waiting-to-happen-for-big/
11. Why Cardinal Health?
http://www.cardinal.com/mps/public/!ut/p/c0/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gjA3cDAwtfZ18f
V2NTA09HL_dAYz8TQ4NQM_2CbEdFADfU32U!/?WCM_PORTLET=PC_7_20G008MCMLCQD0I6KL912K3
005_WCM&WCM_GLOBAL_CONTEXT=/mps/wcm/connect/us/en/Careers/WhyCardinalHealth/
12. Yahoo! Finance Stock Portfolio - McKesson
http://finance.yahoo.com/q?s=MCK&ql=1
13. Yahoo! Finance Stock Portfolio – Cardinal Health
http://finance.yahoo.com/q?s=CAH&ql=1
14. Fortune 500 Rankings – Cardinal Health
http://money.cnn.com/magazines/fortune/fortune500/2013/snapshots/3052.html
15. Fortune 500 Rankings – McKesson
http://money.cnn.com/magazines/fortune/fortune500/2012/snapshots/2219.html