Selected financial data of Target Corporation and Wal-Mart Stores, Inc. for a re

Question

Selected financial data of Target Corporation and Wal-Mart Stores, Inc. for a recent year are presented here (in millions). Target Wal-Mart Corporation Stores, Inc Income Statement Data for Year Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income (expense) Income tax expense Net income $61,471 41,895 16,200 647 1,896 1,776 $ 2,849 $374,526 286,515 70,847 1,798 4,273 6,908 $12,731 Balance Sheet Data (End of Year) Current assets Noncurrent assets Total assets Current liabilities Long-term debt Total stockholders' equity Total liabilities and stockholders' equity $18,906 25,654 $44,560 $11,782 17,471 15,307 $44,560 $ 47,585 115,929 $163,514 $ 58,454 40,452 64,608 $163,514

Explanation / Answer

The ratios are calculated as below:

Asset Turnover Ratio:

The formula for calculating asset turnover ratio is given as below:

Asset Turnover Ratio = Net Sales/Average Total Assets

Using the values provided in the question in the above formula, we get,

Target Corporation = 61,471/[(44,560 + 37,349)/2] = 1.5 times

Wal-Mart Stores, Inc. = 374,526/[(163,514 + 151,587)/2] = 2.4 times

______

Return on Assets:

The return on assets can be calculated with the use of following formula:

Return on Assets = Net Income/Average Total Assets*100

Using the values provided in the question in the above formula, we get,

Target Corporation = 2,849/[(44,560 + 37,349)/2]*100= 7.0%

Wal-Mart Stores, Inc. = 12,731/[(163,514 + 151,587)/2]*100 = 8.1%

______

Return on Stockholder's Equity:

The formula for calculating return on stockholder's equity is provided as follows:

Return on Common Stockholder's Equity = Net Income/Average Common Stockholder's Equity*100

Using the values provided in the question in the above formula, we get,

Target Corporation = 2,849/[(15,307 + 15,633)/2]*100= 18.4%

Wal-Mart Stores, Inc. = 12,731/[(64,608 + 61,573)/2]*100 = 20.2%

______

Debt to Assets:

The formula for calculating debt to assets is given as follows:

Debt to Assets = Debt/Total Assets*100

Using the values provided in the question in the above formula, we get,

Target Corporation = (11,782 + 17,471)/44,560*100 = 65.6%

Wal-Mart Stores, Inc. = (58,454 + 40,452)/163,514*100 = 60.5%

______

Times Interest Earned

The value of times interest earned can be arrived with the use of formula provided as below:

Times Interest Earned = EBIT/Interest Expense

Using the values provided in the question in the above formula, we get,

Target Corporation = (61,471 - 41,895 - 16,200 + 1,896)/647 = 8.1 times

Wal-Mart Stores, Inc. = (374,526 - 286,515 - 70,847 + 4,273)/1,798 = 11.9 times

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