Question

For the year ended January 2015, Walmart (WMT) had sales of $485.7 billion, net income of $16.2 billion, assets of $203.7 billion, and a book value of equity of $85.9 billion. For the same period, Target (TGT) had sales of $73.1 billion, net income of $2.5 billion, total assets of $41.4 billion, and a book value of equity of $14 billion. Compare the profitability, asset turnover, equity multipliers, and return on equity of these firms during this period. If Target had been able to match Walmart’s asset turnover during this period, what would its ROE have been?

Answer 1

	WMT	TGT
Sales	485.7	73.1	billion
Net income	16.2	2.5	billion
Assets	203.7	41.4	billion
Book Value of Equity	85.9	14	billion
Profitability
Return on Assets = Net Profit / Total Assets	16.2/203.7	2.5/41.4
	7.95	6.04	%
Net Profit = Net Profit / Sales*100	16.2/485.7	2.5/73.1
	3.34	3.42	%
Assets turnover
Revenue / Assets	485.7/203.7	73.1/41.4
	2.38	1.77	Times
Equity multipliers
Assets / Share holders Equity	203.7/85.9	41.4/14
	2.37	2.96	Times
Return on Equity = (Net Profit Margin) (Asset Turnover) (Equity Multiplier)
	3.34% * 2.38 * 2.37	3.42% * 1.77 * 2.96
	0.19 or 19%	0.18 or 18%