Question

Selected hypothetical financial data of Target and Wal-Mart for 2022 are presented here (in millions).

		Target Corporation				Wal-Mart Stores, Inc.
		Income Statement Data for Year
Net sales			$67,000			$413,000
Cost of goods sold			44,000			301,000
Selling and administrative expenses			14,000			75,000
Interest expense			660			2,200
Other income (expense)			(70	)		(410	)
Income tax expense			1,400			7,000
Net income			$ 6,870			$ 27,390
		Balance Sheet Data (End of Year)
Current assets			$17,000			$49,000
Noncurrent assets			26,000			123,000
Total assets			$43,000			$172,000
Current liabilities			$10,000			$54,000
Long-term debt			17,400			43,000
Total stockholders’ equity			15,600			75,000
Total liabilities and stockholders’ equity			$43,000			$172,000
		Beginning-of-Year Balances
Total assets			$43,000			$162,000
Total stockholders’ equity			14,100			64,000
Current liabilities			10,800			54,000
Total liabilities			28,900			98,000
		Other Data
Average net accounts receivable			$7,800			$3,800
Average inventory			7,100			33,400
Net cash provided by operating activities			5,700			27,400
Capital expenditures			1,800			12,000
Dividends			450			4,400

For each company, compute the following ratios. (Round current ratio answers to 2 decimal places, e.g. 15.50, debt to assets ratio and free cash flow answers to 0 decimal places, e.g. 5,275 and all answers to 1 decimal place, e.g. 1.8 or 1.83%.)

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

Answer 1

1) Current ratio= Current assets/ Current liabilities

Target= $17000/10000= 1.70:1

Wal-Mart= $49000/54000= 0.91:1

2) Accounts receivable turnover= Net Sales/ Average account receivable

Target= $67000/7800= 8.6 times

Wal-Mart= $413000/3800= 108.7 times

3) Average collection period= 365 days/ Accounts receivable turnover

Target= 365/8.6 times= 42.4 days

Wal-Mart= 365/108.7 times= 3.4 days

4) Inventory turnover ratio= Cost of goods sold/ Average inventory

Target= $44000/7100= 6.2 times

Wal-Mart= $301000/33400= 9.0 times

5) Days in inventory= 365 days/ Inventory turnover ratio

Target= 365/6.2= 58.9 days

Wal-Mart= 365/9.0= 40.6 days

6) Profit margin= Net income/ Net sales

Target= $6870/67000= 10.3%

Wal-Mart= $27390/413000= 6.6%

7) Asset turnover= Net sales/ Average total assets

Target= $67000/(43000+43000/2)= 1.6 times

Wal-Mart= $413000/(172000+162000/2)= 2.5 times

8) Return on assets= Net Income/ Average total assets

Target= $6870/(43000+43000/2)= 16%

Wal-Mart= $27390/(172000+162000/2)= 16.4%

9) Return on common stockholders' equity= Net income- Preferred dividend/ Average common stockholders' equity

Target= $(6870-450)/(15600+14100/2)= 43.2%

Wal-Mart= $(27390-4400)*100/(75000+64000/2)= 33.1%

10) Debt to assets ratio= Total debt/ Total assets

Target= $(10000+17400)/43000= 64%

Wal-Mart= $(54000+43000)/172000= 56%

11) Time interest ratio= Income before Interest and taxes/ Interest expense

Target= $(6870+1400+660)/660= 13.5 times

Wal-Mart= $(27390+7000+2200)/2200= 16.6 times

12) Free cash flow= Net cash provided by operating activities-Capital expenditures

Target= $5700-1800= $3900

Wal-Mart= $27400-12000= $15400

		Ratio		Target			Wal-Mart
(1)		Current ratio		1.70	:1		0.91	:1
(2)		Accounts receivable turnover		8.6	times		108.7	times
(3)		Average collection period		42.4	days		3.4	days
(4)		Inventory turnover		6.2	times		9.0	times
(5)		Days in inventory		58.9	days		40.6	days
(6)		Profit margin		10.3	%		6.6	%
(7)		Asset turnover		1.6	times		2.5	times
(8)		Return on assets		16.0	%		16.4	%
(9)		Return on common stockholders’ equity		43.2	%		33.1	%
(10)		Debt to assets ratio		64	%		56	%
(11)		Times interest earned		13.5	times		16.6	times
(12)		Free cash flow		$3900			$15400