Question

Comparing Cash Flows Across Retailers

Following are selected accounts from the income statement and the statement of cash flows for several retailers, for their fiscal years ended in 2016.

$ millions: Sales Net Income Operating Investing Financing

Macy’s . . . . . . . . . . . . . . . . . . . . . . $ 27,079 $ 1,072 $ 1,984 $ (1,092) $ (2,029)

Home Depot Inc.. . . . . . . . . . . . . . 88,519 7,009 9,373 (2,982) (5,898)

Staples Inc. . . . . . . . . . . . . . . . . . . 21,059 379 978 (374) (406)

Target Corp. . . . . . . . . . . . . . . . . . 73,785 3,363 5,844 508 (4,516)

Walmart Stores . . . . . . . . . . . . . . . 478,614 14,694 27,389 (10,675) (17,144)

A. Compute the ratio of net income to sales for each company. Rank the companies on the basis of this ratio. Do their respective business models give insight into these differences?

B. Compute net cash flows from operating activities as a percentage of sales. Rank the companies on the basis of this ratio. Does this ranking coincide with the ratio rankings from part a? Suggest one or more reasons for any differences observed.

C. Compute net cash flows from investing activities as a percentage of sales. Rank the companies on the basis of this ratio. Does this ranking coincide with the ratio rankings from part a? Suggest one or more reasons for any differences observed.

Answer 1

A)		Macy's	Home Depot Inc	Staples Inc	Target Corp	Wallmart Stores
	Ratio of net income to sales	3.96%	7.92%	1.80%	4.56%	3.07%
	Rank	3	1	5	2	4
	Yes, the profit percentages differ which may be the result of their business models.
B)	Net cash flow from operating activites as a % of sales:	7.33%	10.59%	4.64%	1.14%	5.72%
	Rank	2	1	4	5	3
	No, excepting Rank 1, others do not coincide.
	Reasons for differences would be:
	*Credit and collection policies and their effective implementation would differ.
	*Payment terms would differ.
C)	Net cash flow from investing activites as a % of sales:	-4.03%	-3.37%	-1.78%	0.69%	-0.94%
	Rank	1	2	3	5	4
	No, excepting Rank 5, others do not coincide.
	Reasons for differences would be:
	*Investing refers to investment in long term assets, which may be different
	due to difference in replacement policies.
	*Capital expenditure for new projects undertaken will not be the same.