Respond to requirements a, b, c, and d. Following are selected account from the

Question

Respond to requirements a, b, c, and d.

Following are selected account from the income statement and the statement of cash flows for several retailers, for their fiscal years ended in 2013. Compute the ratio of net income to vales for each company. Rank the companies on the basis of this ratio. Do their respective business models give insight into these differences? 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 pail a? Suggest one or more reasons for any differences you observe. Compute net cash flow s 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 o? Suggest one or more reasons for any differences you observe. All of these companies report negative cash flows from financing activities. What does it mean for a company to have net cash outflow from financing?

Explanation / Answer

a. Ratio of net income to sales

Rank:

1. Home Depot Inc.

2. Macy's

3. Target Corp.

4. Wal-Mart Stores

5. Staples, Inc.

b. Net cash flows from operating activities as a percentage of sales:

Rank:

1. Home Depot Inc.

2. Macy's

3. Target Corp.

4. Wal- Mart Stores

5. Staples Inc.

Home Depot Inc. leads in both ratios, and Staples Inc. is ranked last in both the evaluations.

c. Cash flows from investing activities as apercentage of sales:

Rank:

1. Target Corp.

2. Macy's

3. Wal-Mart

4. Home Depot Inc.

5. Staples Inc.

There are differences. The differences could be owing to differences in ongoing expansion, diversification and investment activities, or nonoperating revenues.

d. If a company has net cash outflows from financing activities, it could mean the following:

Net income Sales Net income/Sales Macy's 1,335 27,686 4.82% Home Depot, Inc. 4,535 74,754 6.07% Staples, Inc 24,381 (211) -0.87% Target Corp. 73,301 2,999 4.09% Wal-Mart Stores 469,162 16,999 3.62%

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