Selected financial data of Target and Wal-Mart for 2017 are below (in millions).
ID: 2333973 • Letter: S
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:
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
Explanation / Answer
Liquidity-
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.
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