Question

For the following chart, the left column is Walmart and the right column is CVS. Both have been in business for 10 years with steady growth but each business has a different viewpoint in many respects. Walmart is more conservative, and as its president has said, “We avoid what we consider to be undue risk.” Neither company is publicly held. Create a schedule that shows ratio analysis for Walmart and CVS (show work if needed).

Balance sheet: Cash Accounts receivable (net) Inventory Property & equipment (net) Other assets Total assets Current liabilities Long-term debt (interest rate: 10%) Capital stock ($10 par value) Additional paid-in capital Retained earnings Total liabilities and stockholders' equity Income statement : Sales revenue (1/3 on credit) Cost of goods sold Operating expenses Net income Other data: Per share stock price at end of current year Average income tax rate Dividends declared and paid in current year $ 41,000 38,000 99,000 140,000 84,000 $ 402,000 $ 99,000 65,000 148,000 29,000 61,000 $ 402,000 $ 21,000 31,000 40,000 401,000 305,000 S 798.000 $ 49,000 60,000 512,000 106,000 71,000 $ 798,000 $ 447,000 (241,000) (161,000) $ 45,000 $ 802,000 (400,000) (311,000) $91,000 $ 22 304 $ 15 30% $ 148,000 $ 33,000

			WALMART	CVS
	Profitability Ratio
1.		Return on equity	%	%
2		Return on assets	%	%
3		Gross profit percentage	%	%
4		Net profit margin	%	%
5		Earnings per share
6		Quality of income
	Asset Turnover Ratio
7		Total asset turnover
8		Fixed asset turnover
9		Receivable turnover
10		Inventory turnover
	Liquidity Ratio
11		Current ratio
12		Quick ratio
13		Cash ratio
	Solvency Ratio
14		Times interest earned ratio
15		Cash coverage ratio
16		Debt/equity ratio
	Market Ratio
17		Price/earnings ratio
18		Dividend yield ratio	%	%

Answer 1

Profitability Ratio	Formula	Walmart		CVS
		Calculation (Figures in $)	Ratio	Calculation	Ratio
Return on equity	Net Income/Average Shareholders' equity	45000/(148000+29000+61000)	18.91%	91000 / (512000+106000+71000)	13.21%
Return on Asset	Net Income / Average Total Assets	45000/ 402000	11.19%	91000 / 798000	11.40%
Gross Profit percentage	(Net Sales - Cost of goods sold)/Net sales	(447000-241000)/447000	46.09%	(802000-400000)/802000	50.12%
Net Profit Margin	Profit after tax / Net Sales	[45000x(1-30%)]/447000	7.05%	(91000(1-30%))/802000	7.94%
Earning Per Share	Profit After Tax / Number of common stock outstanding	[45000x(1-30%)]/(148000 / 10)	2.13	(91000(1-30%))/(512000/10)	1.24
Quality of income	Cash Flow from operating activities / Net Income
Asset Turnover Ratio	Formula
Total Asset Turnover	Net sales / average total asset	447000/402000	1.11	802000/798000	1.01
Fixed Asset Turnover	Net sales / average fixed asset	447000/140000	3.19	802000/401000	2.00
Receivable Turnover	Credit Sales / Average Accounts Receivable	[(1/3)x447000]/38000	3.92	[(1/3)x802000]/31000	8.62
Inventory Turnover	Cost of goods sold / average inventory	241000/99000	2.43	400000/40000	10.00
Liquidity Ratio	Formula
Current Ratio	Current Assets / Currrent Liabilities	(41000+38000+99000)/99000	1.80	(21000+31000+40000)/49000	1.88
Quick Ratio	(Cash + Cash equivalents + Marketable securities + Accounts receivable)/ current liabilities	(41000+38000)/99000	0.80	(21000+31000)/49000	1.06
Cash Ratio	(Cash + Cash Equivalents)/ Current Liabilites	41000/99000	0.41	21000/49000	0.43
Solvency Ratio	Formula
Times Interest Earned Ratio	Earning Before Interest and tax / Interest Expense
Cash Coverage Ratio	(Earnings Before Interest and Taxes + Non-Cash Expenses) ÷ Interest Expense
Debt/Equity ratio	Total Liabilities / Shareholders' Equity	(99000+65000)/(148000+29000+61000)	0.69	(49000+60000)/(512000+106000+71000)	0.16
Market Ratio	Formula
Price Earning Ratio	Market price per share / EPS	22/2.13	10.33	15/1.24	12.10
Dividend Yield Ratio	Dividend Per Share / Market Value per share	(33000/14800) / 22	0.10	(148000/51200)/15	0.19

Note:

For Walmart:

Credit Sales = 1/3 x $4,47,000 = $1,49,000

Number of common stock outstanding = $1,48,000 / $10 = 14,800

Dividend Per Share = $33,000 / 14,800 = $2.23

Profit after tax = $45,000 x (1 - 30%) = $31,500

Current Assets = Cash + Accounts Receivable (net) + Inventory = $41,000 + $38,000 + $99,000 = 1,78,000

For CVS:

Credit Sales = 1/3 x $8,02,000 = $2,67,333

Number of common stock outstanding = $5,12,000 / $10 = 51,200

Dividend Per Share = $1,48,000 / 51,200 = $2.89

Profit after tax = $91,000 x (1 - 30%) = $63,700

Current Assets = Cash + Accounts Receivable (net) + Inventory = $21,000 + $31,000 + $40,000 = 92,000

a) In absence of information ratios involving interest expense could not be calculated

b) For quality ratio cash form operation is required to be calculate by using the following formula:

Cash form operating activities = Net income + depreciation (and other non cash expenses) + change in working capital.

In absence of the above information quality ratio could not be computed