Question

P13-5A ONLY

Ratio Situation 1. 18.000 shares of common stock were Return on common stockholders sold at par on July 1, 2015 equity 2. All of the notes payable were paid in 2015. Debt to assets ratio 3. The market price of common stock was $9 Price-carnings to and $12 on December 31, 2014 and 2015 respectively P13-5A Suppose selected financial data of Target and Wal-Mart for 2014 are presented here in millions). Target Wal-Mart Corporation Stores, Inc. Income Statement Data for Year Net sales 565,357 $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 Com m and compare liquid propo ny 14,385 Balance Sheet Data (End of Year) $18.424 $ 48,331 26,109 122375 544 533 $170,706 Current assets Noncurrent assets Total assets Current liabilities Long-term debt Total stockholders' equity Total liabilities and stockholders' equity $11.327 17.859 15.147 544 533 $55.561 44 089 71.056 $120.706 Total assets Total stockholders' equity Current liabilities Total liabilities Beginning-of-Year Balances $44,106 $163429 13,712 65,682 10,512 30,394 97,747 55.390 4,025 496 Other Data Average net accounts receivable $ 7,525 Average inventory 6,942 33,836 Net cash provided by operating activities 5.881 26.249 Capital expenditures 1,729 12.184 Dividends 4,217 Instructions (a) For each company, compute the following ratios. (1) Current ratio. (8) Return on assets (2) Accounts receivable turnover (9) Return on common stockholders' equity. (3) Average collection period (10) Debt to assets ratio (4) Inventory turne (11) Times interest earned. (5) Days in inventory (12) Current cash debt coverage (6) Profit margin (13) Cash debt coverage (7) Asset turnover (14) Free cash flow. (b) Compare the liquidity, solvency, and profitability of the two companies

Answer 1

Ans a.1 Current ratio= Current Assets÷ Current Liabilities

Current ratio for Target Corporation = $18,424÷ $11,327 = 1.62

Current ratio for Wal-Mart Stores, Inc = $48,331 ÷ $55,561 =0.869

2.Accounts receivable turnover = Net credit sales ÷ Average accounts receivable

Here, Net credit sales is not mentioned. Assuming the net sales value is the sales value on credit to the customers.

For Target Corporation, Accounts receivable turnover ratio = $65,357÷ $7525 = 8.68

For Walmart Stores, Inc, Accounts receivable turnover ratio =

4,08,214÷4025= 101.41

3. For Target Corporation, Average collection period = (Average accounts receivable ÷ Net sales)*365 = (7,525 ÷ 65,357)*365 = 42 days

For Walmart Stores, Inc,

Average collection period = $4,025 ÷ $408, 214 = 3.6 days

4. Inventory Turnover ratio = Cost of Goods sold ÷ Average Inventory

For Target Corporation, it is= $45,583 ÷ $6,942 = 6.6

For Walmart Stores, Inc, it is = 304, 657 ÷ 33,836 = 9.0

5. Days in Inventory = 365 ÷ Inventory Turnover

For Target Corporation, it is = 365 ÷ 6.6 = 55 days approx.

For Walmart Stores, it is= 365÷ 9 = 40.5 days approx.

6. Profit Margin calculations can be done as:

Gross Profit Margin = (Net Sales - COGS)/Net Sales

For Target Corporation, it is = (65, 357 - 45,583)/65,357 =0.302 =30.2%

For Walmart Stores, it is = (408, 214 - 304, 657)/408,214 =0.253 =25.3%

7. Asset Turnover = Total Sales/ Average assets = Total Sales ÷ [( Assets at beginning of year + assets at ending of year)/2]

Total Sales value = Net Sales + (Adjustments for return from customers or sales adjustments, if any)

Here, we will assume total Sales = Net sales

For Target Corporation, asset turnover = 65,357/((44,106 + 44,533)/2) = 65,357/44,319 = 1.47

For Walmart, it is = 408,214/((163,429 + 170,706)/2)

= 408,214/167,067 = 2.44

8. Return on assets, ROA = Net Income ÷ total assets

For Target Corporation, it is= ( 2,488/44,533)*100 = 0.0558*100= 5.58%

For Walmart, it is = (14,335/170,706)*100 = 8.39%

9. Return on Common Stock Equity, =(Net Income - Preferred Dividends)/average common equity)*100

Average common equity = (Beginning Shareholders' equity + Ending shareholders' equity)÷ 2

For Target Corporation, it is = (2,488-496)/((13,712+ 15,347)/2) = 1992/14,529.5 = 0.137= 13.7%

For Walmart Stores, it is = (14,335 -4,217)/((65,682+71,056)/2)= 0.147= 14.7%