Question

Suppose selected financial data of Target and Wal-Mart for 2020 are presented here (in millions). 

Income Statement Data for Year

	Target Corporation	Wal-Mart Stores, Inc.
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 ofYear)

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

(b) Compare the liquidity, solvency, and profitability of the two companies.

Answer 1

Ans. 1	Current ratio   =   Total current assets / Total current liabilities
	Target	$18,424 / $11,327	1.63 : 1
	Wal - mart	$48,331 / $55,561	0.87 : 1
Ans. 2	Accounts receivable turnover ratio   = Net sales / Average accounts receivable
	Target	$65,357 / $7,525	8.7	times
	Wal - mart	$408,214 / $4,025	101.4	times
Ans. 3	Average collection period   =   No. of days in year / Net credit sales * Average accounts receivables
	Target	365 / $65,357 * $7,525	42.0	days
	Wal - mart	365 / $408,214 * $4,025	3.6	days
Ans. 4	Inventory turnover = Cost of goods sold / Average inventory
	Target	$45,583 / $6,942	6.6	times
	Wal - mart	$304,657 / $33,836	9.0	times
Ans. 5	Days in inventory   =   No. of days in year / Cost of goods sold * Average inventory
	Target	365 / $45,583 * $6,942	55.6	days
	Wal - mart	365 / $304,657 * $33,836	40.5	days
Ans. 6	Profit margin = Net income / Net sales * 100
	Target	$2,488 / $65,357 *100	3.8%
	Wal - mart	$14,335 / $408,214 * 100	3.5%
Ans. 7	Asset turnover = Net sales / Average assets
	Target	$65,357 / $44,319.50	1.5	times
	Wal - mart	$408,214 / $167,067.50	2.4	times
	*Average assets = (Beginning assets + Ending assets) / 2
	Target	($44,106 + $44,533) / 2	$44,319.50
	Wal - mart	($163,429 + $170,706) / 2	$167,067.50
Ans. 8	Return on assets =   Net income / Average assets * 100
	Target	$2,488 / $44,319.50 *100	5.6%
	Walmart	$14,335 / $167,067.50 * 100	8.6%
Ans. 9	Return on Common stockholder's equity =   Net income / Average Common stockholder's equity * 100
	Target	$2,488 / $14,529.50 *100	17.1%
	Walmart	$14,335 / $68,369 * 100	21.0%
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	Target	($13,712 + $15,347) / 2	$14,529.50
	Walmart	($65,682 + $71,056) / 2	$68,369.00
Ans.10	Debt to assets ratio =   Total liabilities / Total assets * 100
	Target	$29,186 / $44,533 * 100	66%
	Walmart	$99,650 / $170,706 * 100	58%
	*Total liabilities = Current liabilities + Long term debt
		Target	Walmart
	Current liabilities	$11,327	$55,561
	Long term debt	$17,859	$44,089
	Total liabilities	$29,186	$99,650
Ans. 11	Time interest earned = Income before interest and taxes / Interest expenses
	Target	$4,673 / $707	6.6	times
	Walmart	$23,950 / $2,065	11.6	times
	*Calculation of income before interest and taxes:
		Target	Walmart
	Net sales	$65,357	$408,214
	Cost of goods sold	($45,583)	($304,657)
	Selling & administrative expenses	($15,101)	($79,607)
	Income before interest and taxes	$4,673	$23,950
Ans. 12	Free cash flow =   Net cash provided by operating activities - Capital expenditures - Dividends
	Target	$5,881 - $1,729 - $496	$3,656	million
	Walmart	$26,249 - $12,184 - $4,217	$9,848	million

Answer 2

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