Question

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

1. Current ratio

Current ratio = Current Assets / Current Liabilities

Current ratio	Target Corporation	Wal-Mart Stores, Inc
Current ratio	$18,424 / $11,327 = 1.63 : 1	$48,331 / $55,561 = 0.87 : 1

2. Accounts receivable turnover

Accounts receivable turnover = Credit Sales / Average net accounts receivable

Accounts receivable turnover	Target Corporation	Wal-Mart Stores, Inc
Accounts receivable turnover	$65,357 / $7,525 = 8.7 times	$408,214 / $4,025 = 101.4 times

3. Average collection period

Average collection period = 365 days / Accounts receivable turnover

Average collection period	Target Corporation	Wal-Mart Stores, Inc
Average collection period	365 days / 8.7 times = 42.0 days	365 days / 101.4 times = 3.6 days

4. Inventory turnover

Inventory Turnover = Cost of goods sold / Average Inventories

Inventory turnover	Target Corporation	Wal-Mart Stores, Inc
Inventory Turnover	$45,583 / $6,942 = 6.6 times	$304,657 / $33,836 = 9.0 times

5. Days in Inventory

Days in Inventory = 365 days / Inventory Turnover

Days in Inventory	Target Corporation	Wal-Mart Stores, Inc
Days in Inventory	365 days / 6.6 times = 55.3 days	365 days / 9.0 times = 40.6 days

6. Profit Margin

Profit Margin = Net Income / Net Sales * 100

Profit Margin	Target Corporation	Wal-Mart Stores, Inc
Profit Margin	$2,488 / $65,357 * 100 = 3.8%	$14,335 / $408,214 * 100 = 3.5%

7. Asset Turnover

Asset Turnover = Net Sales / Average total assets

Asset Turnover	Target Corporation	Wal-Mart Stores, Inc
Average total assets	($44,106 + $44,533) / 2 = $44,319.50	($163,429 + $170,706) / 2 = $167,067.50
Asset Turnover	$65,357 / $44,319.50 = 1.5 times	$408,214 / $167,067.50 = 2.4 times

8. Return on assets

Return on assets = Net Income / Average total assets * 100

Return on assets	Target Corporation	Wal-Mart Stores, Inc
Average total assets	($44,106 + $44,533) / 2 = $44,319.50	($163,429 + $170,706) / 2 = $167,067.50
Return on assets	$2,488 / $44,319.50 * 100 = 5.6%	$14,335 / $167,067.50 * 100 = 8.6%

9. Return on common stockholders' equity

Return on common stockholders' equity = Net Income / Average total stockholders' equity * 100

Return on common stockholders' equity	Target Corporation	Wal-Mart Stores, Inc
Average total stockholder's equity	($13,712 + $15,347) / 2 = $14,529.50	($65,682 + $71,056) / 2 = $68,369
Return on common stockholders' equity	$2,488 / $14,529.50 * 100 = 17.1%	$14,335 / $68,369 * 100 = 21.0%

10. Debt to assets ratio

Debt to assets ratio = Total Liabilities / Total Assets * 100

Debt to assets ratio	Target Corporation	Wal-Mart Stores, Inc
Debts to assets ratio	($11,327 + $17,859) / $44,533 * 100 = 66%	($55,561 + $44,089) / $170,706 * 100 = 58%

11. Times Interest earned

Times Interest earned = (Net Income + Income tax expense + Interest expense) / Interest expense

Times Interest earned	Target Corporation	Wal-Mart Stores, Inc
Times Interest earned	($2,488 + $1,384 + $707) / $707 = 6.5 times	($14,335 + $7,139 + $2,065) / $2,065 = 11.4 times

12. Free Cash flow

Free Cash Flow = Net cash provided by operating activities - Capital expenditure - Dividends

Free cash flow	Target Corporation	Wal-Mart Stores, Inc
Free cash flow	$5,881 - $1,729 - $496 = $3,656 million	$26,249 - $12,184 - $4,217 = $9,848 million

All the best...