Question

Problem 14-5A a

Suppose selected financial data of Target and Wal-Mart for 2020 are presented here (in millions).

		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

(a)

For each company, compute the following ratios. (Enter free cash flow in millions. Round Current ratio to 2 decimal places, e.g. 1.67. Round Debt to assets ratio to 0 decimal places, e.g. 18 or 18%. Round all other answers to 1 decimal place, e.g. 1.6, or 1.6%. Use 365 days for calculation.)

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

Answer 1

Answer of Part 1:

For Target:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $18,424 / $11,327
Current Ratio = 1.63:1

For Wal-Mart:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $48,331 / $55,561
Current Ratio = 0.87:1

Answer of Part 2:

For Target:

Accounts Receivable Turnover = Sales / Average Net Accounts Receivable
Accounts Receivable Turnover = $65,357 / $7,525
Accounts Receivable Turnover = 8.7 times

For Wal-Mart:

Accounts Receivable Turnover = Sales / Average Net Accounts Receivable
Accounts Receivable Turnover = $408,214 / $4,025
Accounts Receivable Turnover = 101.4 times

Answer of Part 3:

For Target:

Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 / 8.7
Average Collection Period = 42 days

For Wal-Mart:

Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 / 101.4
Average Collection Period = 3.6 days

Answer of Part 4:

For Target:

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $45,583 / $6,942
Inventory Turnover = 6.6 times

For Wal-Mart:

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $304,657 / $33,836
Inventory Turnover = 9 times

Answer of Part 5:

For Target:

Days in Inventory = 365 days / Inventory turnover
Days in Inventory = 365 / 6.6
Days in Inventory = 55.3 days

For Wal-Mart:

Days in Inventory = 365 days / Inventory turnover
Days in Inventory = 365 / 9
Days in Inventory = 40.6 days