Question

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

Compute selected ratios, and compare liquidity, profitability, and solvency for two companies.

		Target Corporation		Wal-Mart Stores, Inc.
		Income Statement Data for Year
Net sales		$65,357		$408,214
Cost of goods sold		45,583		304,657
Selling and administrative expenses		15,101		79,607
Interest expense		707		2,065
Other income (expense)		(94)		(411)
Income tax expense		1,384		7,139
Net income		$ 2,488		$ 14,335
		Balance Sheet Data (End of Year)
Current assets		$18,424	$ 48,331
Noncurrent assets		26,109	122,375
Total assets		$44,533	$170,706
Current liabilities		$11,327	$ 55,561
Long-term debt		17,859	44,089
Total stockholders' equity		15,347	71,056
Total liabilities and stockholders' equity		$44,533	$170,706
		Beginning-of-Year Balances
Total assets		$44,106	$163,429
Total stockholders' equity		13,712	65,682
Current liabilities		10,512	55,390
Total liabilities		30,394	97,747
		Other Data
Average net accounts receivable		$ 7,525	$ 4,025
Average inventory		6,942	33,836
Net cash provided by operating activities		5,881	26,249
Capital expenditures		1,729	12,184
Dividends		496	4,217

Instructions

a. For each company, compute the following ratios.

• 1. Current ratio.
• 2. Accounts receivable turnover.
• 3. Average collection period.
• 4. Inventory turnover.
• 5. Days in inventory.
• 6. Profit margin.
• 7. Asset turnover.
• 8. Return on assets.
• 9. Return on common stockholders' equity.
• 10. Debt to assets ratio.
• 11. Times interest earned.
• 12. Free cash flow.

b. Compare the liquidity, solvency, and profitability of the two companies.

Answer 1

Particular	Target Corporation	Wal-Mart Stores, Inc.
Current ratio(Current assets÷current liabilities)	1.63	0.87
Accounts receivable turnover(net credit sales÷ Avg.debtors)	8.68	101.42
Average collection period(365÷Acc.recievable T/O ratio)	42.1days	3.6 days
Inventory turnover(net sales÷avg.inventory)	9.41	12.06
Days in inventory(365÷invt.T/O ratio)	38.7 days	30.3 days
Profit margin(net earnings÷sales)	0.04	0.035
Asset turnover(net sales÷net assets)	1.47	2.40
Return on assets(net income÷total assets)	0.06	0.08
Return on common stockholders equity (net income÷ stockholders equity)	0.16	0.20
Debt to assets ratio(total liabilities÷total assets)	0.65	0.58
Time interest earned ratio(Ebitda÷interest exp)	6.48	11.39
Free cash flow(net cash after investing exp.)	4152	14065

When it comes to liquidity of the company target corporation is the best. But Walmart store has high range of liquid cash reserves.

When it comes to solvency of the company Walmart store is the best

When it comes to profitability of the company both the companies have a slight difference not much more.

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