Question

RATIOS	RETAIL	WALMART	TARGET
Profitability Ratios (%)
Gross Margin	16.94	25.37	25.82
EBITD Margin	4.66	9.53	7.15
Operating Margin	2.51	4.32	5.16
Pretax Margin	2.97	3.02	4.07
Effective Tax Rate
Financial Strength
Quick Ratio	0.22	0.20	0.30
Current Ratio		0.76	0.95
LT Debt to Equity		47.29	96.65
Total Debt to Equity	0.15	59.70	98.96
Interest Coverage
Valuation Ratios
P/E Ratio		26.56	11.47
Price to Sales (P/S)	0.4	0.64	0.56
Price to Book (P/B)	5.42	4.04	3.37
Price to Tangible Book
Price to Cash Flow	6.83	11.32	5.80
Price to Free Cash Flow
Management Effectiveness (%)
Return On Assets	8.96	4.89	7.66
Return On Investment	27.25	8.41	13.01
Return On Equity	34.98	12.67	25.84
Dividends
Dividend Yield
Payout Ratio	30.81
Efficiency
Revenue/Employee	444,526	217,540	208,345
Net Income/Employee	11,545	4,288	8,487
Receivable Turnover	81.03	87.40	85.67
Inventory Turnover	15.2
Asset Turnover	3.45	2.48	1.88

Based on the ratio analysis above, in which company would you be willing to invest and why?

Answer 1

A.On the basis of profitability ratio:

Walmart is better for investment on the basis of following analysis:

in present case there are three companies ratios are given. In first view investor may think Target is better for investment,but if we closely analysis the ratios Walmart is better on the basis of net profit ratio(EBITD Margin)

Net profit ratio is on of the mostly followed ratio in finance.

the reason behind to follow net profit ratio is "it shows the amount which is available for distribution to stakeholders"

in present case Walmart having highest Net profit ratio 9.53%.

B.On the basis of financial strength

Walmart is better for investment on the basis of following analysis:

Debt to equity ratio is best for analysis because it having direct impact on shareholders risk,earning and tax benefit.

in present case retail company having lowest debt equity ratio .15% it indicate that company is not able to generate debt fund as well advantage of low cost fund therefore company is not good for investment.

Target company having highest debt equity ratio 98.96% A high debt/equity ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt.high ratio also indicate that company is total depend upon debt capital not able to raise equity capital.

Walmart company having debt equity ratio 59.70%, it means company is deploy sufficient debt fund to take the advantage of low fund as well company is not fully depend upon debt fund there is low risk as compare to target company therefore Walmart is better for investment.

C.On the basis of management effectiveness.

Retail is better for investment on the basis of following analysis:

1.Return on assets is a ratio, indicating how well company is able to utilize its assets.

Return on Assets = Net Income Before Non controlling Interest of Earnings and Nonrecurring Items ÷ Average Total Assets

Obviously, the higher ratios are preferable for a firm.

2.Return on investment.

This ratio is an important evaluating factor of company’s performance, since it reflects the ability of a business to provide the reward for its investors Obviously, the higher ratios are preferable for a firm.

3.Return on equity.

this is a measurement of how effectively money from stockholders is being used for the profits generation

by analysis three of the above ratios it can be conclude that Retail company is best for investment.

D.On the basis of Dividend.

Retail company is better

in present case only retail company pays the dividend, rest of the two companies does not paid any dividend.

E.On the basis of efficiency

Retail company is better

As compare to Walmart and Target, retail company having more efficiency which is beneficial in long term therefore we can conclude that Ratail is better for investment.

Summary.

If total point taken in consideration it is better to invest in retail because of following reason.

1.As it provide highest return at lower risk.

Retail company having highest return on investment ratio and payout ratio as compare to rest of two companies and most important point is without any debt capital.

2.highest efficiency ratio.

as retail having highest efficiency ratio in the long run company may give more better performance therefore it os more beneficial to invest in this company.