Question

Financial ratios are the principal tool of financial analysis. Ratios standardize the financial information of firms so comparisons can be made between firms of varying sizes. Choose two firms in the same sector; locate their current financial information both in terms of current financial statements and stock market prices. How liquid are the firms? Are the firm's managers generating adequate operating profits on the company's assets? How are the firms financing their assets? Are the firm's managers providing a good return on the capital provided by the shareholders? Are the firms’ managers creating shareholder value?

Answer 1

Answer: I am choosing two companies of Retail sector in the USA. These are: Walmart and Target.

We can see the major ratios of companies with the help of following table:

(This data has been taken as on January 31, 2019.)

	Walmart	Target	Analysis
Share price	$113.81	$86.58
Operating profit ratio	4.26%	5.45%	Target's operating profit is slight higher than Walmart's.
Current ratio	.7989	.8338	Target's current ratio is slight higher than Walmart's. It shows that Target is more liquid than Walmart.
Asset turnover ratio	2.34 times	1.82 times	Walmart's Asset turnover is higher than Target's. It shows that Walmart's assets are utilized more efficiently to generate the sales rather than Target's.
Debt-Equity ratio	.73	1.17	Walmart's debt-equity ratio is lower than Target's. it is good. Lower debt equity ratio is better because Walmart has less debt than Target.
Return on Equity	9.01%	25.93%	Target's ROE is higher than Walmart's. Target provides higher return to its shareholder's equity.
Return on Assets	3.27%	7.09%	Target's ROA is higher than Walmart's. Target's assets are more efficient to generate returns.