The following operating data (in thousands) were adapted from the 2004 SEC 10-K filings of Walgreen and CVS:

1. Using the preceding data, adjust the operating income for CVS and Walgreen shown in Case 3-1 to an adjusted cash basis.
2. Compute the net difference between the operating income under the accrual and cash bases.
3. Express the net difference in (2) as a percent of operating income under the accrual basis.
4. Which company€™s operating income, CVS€™s or Walgreen€™s, is closer to the cash basis?
5. Do you think most analysts focus on operating income or net income in assessing the long-term profitability of a company?Explain.

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CVS Walgreen 2004 2003 2004 2003 Accounts receivable Accounts payable $2,007,300 1,601,700 3,166,000 $1,169,100 $1,017,800 4,077,900 3,420,500 3,942,600