Question

Table 1: Financial Results
Wal-Mart	Macy's
Net operating revenues	469,162	27,686
Cost of goods sold	352,488	16,538
Gross profit	116,674	11,148
Selling, general, and administrative expense	88,873	8,482
Operating income	27,801	2,661
Interest expense	2,251	425
Other income (loss) - net	187	(134)
Income before income taxes	25,737	2,102
Income taxes	7,981	767
Net income	17,756	1,198
Assets
Cash and cash equivalents	7,781	1,836
Net receivables	6,768	371
Inventories	43,803	5,308
Total current assets	59,940	7,876
Property, plant and equipment	116,681	8,196
Goodwill	20,497	3,743
Other assets	5,987	615
Total assets	203,105	20,991
Liabilities and Stockholder Equity
Accounts payable	59,099	4,951
Short-term debt	12,719	124
Total current liability	71,818	5,075
Long-term debt	41,417	6,806
Total liabilities	126,243	14,940
Stockholder equity	76,343	6,051
Note: Tax Rate is 35%

7) Walmart

ROA= 9.46%

ROE= 23.26%

ROFL=13.8

PM= 5.49%

AT= 2.31

APT= 5.96

ART= 69.32

INVT= 8.05

PPET= 4.02

C2C= 72.75

Macy’s

ROA= 7.02%

ROE= 19.8%

ROFL= 12.78

PM=7.6%

AT=1.32

APT= 3.34

ART= 74.63

INVT= 3.12

PPET= 3.38

C2C= 1.8

In the guidance of the financial ratios you calculated in question 7, discuss the differences you see in Walmart’s and Macy’s performance in terms of overall financial efficiency, operational efficiency, and competitive strategic positioning? (Hint: For instance, discuss the difference between profit margins of Wal-Mart and Macy’s. How do interpret the difference in profit margins? What does this difference reflect? Repeat this discussion for the metrics in Table 2 as necessary.)

Answer 1

1. Financial Efficiency

Return on Assets - ROA depicts the ratio a company earns on employing ts assets in whole. It is the percentage derived by dividing the returns for the year ended by the total assets as on the last day of the year. ROA of Walmart is 9.46% and that of Macy's is 7.02%. This depicts the profit earned by the company on employing 100% of its assets. The ratio of Walmart is higher as compared to Macy's and it can be interpreted as Walmart applied its assets more efficiently and effectively in earning the returns.

Return on Equity - ROE denotes the percentage of profit earned by the company for its equity. It can be referred to as the amount of profit erned for $1 of the shareholder's funds. ROE of Walmart is 23.26% and that of Macy's is 19.8%. It can be interpreted as for investing $1 in equity of Walmart the ernings are $0.2326 and for equity in Macy's is $0.198. The results can be said as more profitable for the equity holders of Walmart.

Return on Financial Liability - ROFL denotes the return a company earns from employing various financial liabilities such as loans, credits, derivatives etc. The ROFL of Walmart is 13.8% and of Macy's is 12.78%. The profit earned by the company percentaged with the financial liability provides the ratio. The higher ratio of Walmart depicts that the financial sources re more efficiently employed by Walmart as compared to Macy

2. Operational Efficiency

Profit Margin - PM is the ratio of profits earned by the sales for the year ended. This is the most used benchmark for analyzing the operational efficiency of a company. It denotes how much of the revenue is earned by the company after paying all the expenses. PM of Walmart is 5.49% and that of Macy's is 7.6%. The operational efficiency of Macy is higher than that of Walmart on the basis of Profit Margin. The revenue of Macy is converted into profits more as compared to Walmart.