Question

Selected hypothetical financial data of Target and Wal-Mart for 2022 are presented here (in millions).

		Target Corporation				Wal-Mart Stores, Inc.
		Income Statement Data for Year
Net sales			$65,600			$410,000
Cost of goods sold			44,000			308,000
Selling and administrative expenses			14,600			75,000
Interest expense			690			2,100
Other income (expense)			(90	)		(420	)
Income tax expense			1,400			7,300
Net income			$ 4,820			$ 17,180
		Balance Sheet Data (End of Year)
Current assets			$17,000			$48,000
Noncurrent assets			26,700			120,000
Total assets			$43,700			$168,000
Current liabilities			$11,000			$56,000
Long-term debt			17,000			45,000
Total stockholders’ equity			15,700			67,000
Total liabilities and stockholders’ equity			$43,700			$168,000
		Beginning-of-Year Balances
Total assets			$45,000			$165,000
Total stockholders’ equity			13,600			66,000
Current liabilities			10,000			58,000
Total liabilities			31,400			99,000
		Other Data
Average net accounts receivable			$7,800			$4,000
Average inventory			6,900			34,500
Net cash provided by operating activities			5,700			26,900
Capital expenditures			1,800			12,400
Dividends			450			3,600

For each company, compute the following ratios. (Round current ratio answers to 2 decimal places, e.g. 15.50, debt to assets ratio and free cash flow answers to 0 decimal places, e.g. 5,275 and all answers to 1 decimal place, e.g. 1.8 or 1.83%.)

		Ratio		Target			Wal-Mart
(1)		Current ratio		enter the current ratio	:1		enter the current ratio	:1
(2)		Accounts receivable turnover		enter accounts receivable turnover in times	times		enter accounts receivable turnover in times	times
(3)		Average collection period		enter average collection period in days	days		enter average collection period in days	days
(4)		Inventory turnover		enter inventory turnover in times	times		enter inventory turnover in times	times
(5)		Days in inventory		enter days in inventory ratio	days		enter days in inventory ratio	days
(6)		Profit margin		enter percentages	%		enter percentages	%
(7)		Asset turnover		enter asset turnover in times	times		enter asset turnover in times	times
(8)		Return on assets		enter percentages	%		enter percentages	%
(9)		Return on common stockholders’ equity		enter percentages	%		enter percentages	%
(10)		Debt to assets ratio		enter percentages	%		enter percentages	%
(11)		Times interest earned		enter times interest earned	times		enter times interest earned	times
(12)		Free cash flow		$enter a dollar amount			$enter a dollar amount

Answer 1

1. CURRENT RATIO:

Current ratio = Current Assets / Current Liabilities

Target

Current ratio = $17,000 / $11,000 = 1.55 : 1

Wal-mart

Current ratio = $48,000 / $56,000 = 0.86 : 1

2. ACCOUNTS RECEIVABLE TURNOVER

Accounts receivable turnover = Net Sales / Average net accounts receivable

Target

Accounts receivable turnover = $65,600 / $7,800 = 8.4 times

Wal-mart

Accounts receivable turnover = $410,000 / $4,000 = 102.5 times

3. AVERAGE COLLECTION PERIOD

Average collection period = 365 days / Accounts receivable turnover

Target

Average collection period = 365 days / 8.4 times = 43.5 days

Wal-mart

Average collection period = 365 days / 102.5 times = 3.6 days

4. INVENTORY TURNOVER

Inventory Turnover = Cost of goods sold / Average inventory

Target

Inventory Turnover = $44,000 / $6,900 = 6.4 times

Wal-mart

Inventory Turnover = $308,000 / $34,500 = 8.9 times

5. DAYS IN INVENTORY

Days in Inventory = 365 days / Inventory turnover

Target

Days in Inventory = 365 days / 6.4 times = 57.0 days

Wal-mart

Days in Inventory = 365 days / 8.9 times = 41.0 days

6. PROFIT MARGIN

Profit Margin ratio = Net Income / Net Sales * 100

Target

Profit Margin ratio = $4,820 / $65,600 * 100 = 7.3%

Wal-mart

Profit Margin ratio = $17,180 / $410,000 * 100 = 4.2%

7. ASSET TURNOVER

Asset Turnover ratio = Net Sales / Average total assets

Target

Average total assets = ($45,000 + $43,700) / 2 = $44,350

Asset Turnover ratio = $65,600 / $44,350 = 1.5 times

Wal-mart

Average total assets = ($165,000 + $168,000) / 2 = $166,500

Asset Turnover = $410,000 / $166,500 = 2.5 times

8. RETURN ON ASSETS

Return on assets = Net Income / Average total assets * 100

Target

Average total assets = ($45,000 + $43,700) / 2 = $44,350

Return on assets = $4,820 / $44,350 * 100 = 10.9%

Wal-mart

Average total assets = ($165,000 + $168,000) / 2 = $166,500

Return on assets = $17,180 / $166,500 * 100 = 10.3%

9. RETURN ON COMMON STOCKHOLDERS' EQUITY

Return on common stockholders' equity = Net Income / Average total stockholders' equity * 100

Target

Average total stockholders' equity = ($13,600 + $15,700) / 2 = $14,650

Return on common stockholder's equity = $4,820 / $14,650 * 100 = 32.9%

Wal-mart

Average total stockholders' equity = ($66,000 + $67,000) / 2 = $66,500

Return on common stockholder's equity = $17,180 / $66,500 * 100 = 25.8%

10. DEBT TO ASSETS RATIO

Debt to assets ratio = Total Liabilities / Total Assets * 100

Target

Total Liabilities = $11,000 + $17,000 = $28,000

Debt to assets ratio = $28,000 / $43,700 * 100 = 64%

Wal-mart

Total Liabilities = $56,000 + $45,000 = $101,000

Debt to assets ratio = $101,000 / $168,000 * 100 = 60%

11. TIMES INTEREST EARNED

Times Interest Earned = Net Income + Interest expense + Income tax expense / Interest expense

Target

Times Interest earned = ($4,820 + $690 + $1,400) / $690 = 10.0 times

Wal-mart

Times Interest earned = ($17,180 + $2,100 + $7,300)  / $2,100 = 12.7 times

12. FREE CASH FLOW

Free Cash flow = Net cash provided by operating activities - Capital expenditure - Dividends

Target

Free Cash flow = $5,700 - $1,800 - $450 = $3,450

Wal-mart

Free Cash flow = $26,900 - $12,400 - $3,600 = $10,900

All the best...