Question

25.65% is Google’s Long Term Assets as % of Total Assets 2018.

70.82% is Walmart’s Long Term Assets as % of Total Assets 2018.

-What are the possible reasons for the difference in Long Term Assets value between the two companies?

-Which company has the stronger asset turnover in 2018?  What does Asset turnover indicate?

Answer 1

Reasons for difference in Long Term Assets value between the two companies - Google and Walmart.

Google is a Software company whose main revenue is generated from providing services (Cloud, Advertising etc) whereas Walmart is a company whose main revenue is generated from trading of goods on its retail outlets.

Clearly, there is a difference in the nature of business or operations of both the company. Since both have different operations the requirement of Assets for business operations is also very different. Google, since it is a software company does not require many physical (Long term) assets like plant and machinery, buildings, Vehicles as much as Walmart needs.

Also

Walmart needs much more Long term assets than Google to run its operations smoothly whereas Google doesn't need that many assets for its functioning.

Hence Long term assets of Google would be much lower than those of Walmart.

2.

We know the asset turnover ratio =

From the above formula, we can see that Asset turnover means the Amount of sales or revenue generated in relation to the assets of the company. The company with a higher ratio means it was able to generate more sales per asset($), hence it means assets are being utilized more efficiently and effectively.

In 2018 Asset turnover of Google was 0.59 whereas Asset turnover of Walmart was 2.33 (Source: Internet).

Therefore since Walmart has higher Asset turnover ratio than Google, it indicates that Walmart's assets are being used more efficiently and effectively than Google.

But as Walmart is a retail outlet it would have more revenue due to the nature of the operation as sales volume of retail outlet is much higher than that of the service industry and as a result, its asset turnover ratio is bound to be higher than Google, therefore the clear winner of Asset turnover between Google and Walmart can't be judged based on this ratio alone.

But if only asset turnover ratio is considered Walmart has Stronger Asset turnover than google.

Regards