Question

Selected financial data of Target and Wal-Mart for 2017 are below (in millions).

	Target	Wal-Mart
	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.

Ratio	Target	Wal-Mart
(1) Current ratio.	1.626556017	0.869872752
(2) Accounts receivable turnover.	8.685315615	101.4196273
(3) Average collection period.	42.02495525	3.598908906
(4) Inventory turnover.	6.566263325	9.003930725
(5) Days in inventory.	55.58717066	40.53785076
(6) Gross profit margin %	4%	4%
(7) Return on assets (use net income).	6%	9%
(8) Debt to assets ratio.	66%	58%

Note: Gross profit margin % = (Revenues - COGS)/Revenues, or gross margin/revenues

(b) Below, briefly compare the two companies in terms of liquidity (items 1-5), solvency (item 8), and profitability (items 6, 7). By briefly, I mean 1 -3 sentences per category.

Liquidity:

Solvency:

Profitability:

Answer 1

Liquidity-

1. Target company's current ratio is higher than Walmart company's current ratio that clearly indicates that Target compani is more liquid than Walmart.
2. Account receivable turnover ratio tells how efficiently company is collecting credit that it issued to its shareholders. Walmart company is able to collect its credit from customer faster than Target.
3. Target company takes higher days to receive its payment from customers rather than Walmart.
4. Target company's inventory is sold in 55 days while Walmart company's inventory is sold in 40 days so Walmart takes less days to sell its inventory.

Solvency- Target company's debt to asset ratio is higher than Walmart company's debt to asset ratio that indicates, Target company finances more assets by debt rather than Walmart. Target has more debt than Walmart. Debt brings interest burden with it.

Profitability- Gross profit margin same, both companies work on low margins. ROA is higher in case of Walmart, Walmart is more efficiently using its assets to generate return over it.