Computation of Ratios:
Particulars | Formula | Target | Wal-Mart | |
(a) | Working Capital | current assets-current liabilities |
22560-12000 =$10560 |
39900-57000 = $-17100 |
(b) | Current ratio | current assets /current liabilities |
22560/12000 =1.88 |
39900/57000 =0.7 |
(C) | Debt to assets ratio | Debt / total assets |
(12000+22164)/52560 =0.65 =65% |
(57000+33422) /155900 =0.58 =58% |
(D) | Free cash flow | Net cash provided by operating activitiesactivities- capital expenditure- dividends |
5200-3200-460 =$1540 |
24300-11300-3500 =$9500 |
(E) | Earnings per share | Net income / weighted average shares |
3757/850 =$4.42 |
26390/4550 =$5.8 |
F) Therefore,
- Target company has better liquidity
Reason: Higher the current ratio implies high liquidity, since Target company current ratio is higher than walmart, target company has better liquidity.
- Walmart has better solvency
Reason: Lower the debt to total assets ratio implies lower risk and solvency of business. Since walmart company's debt to total Assets ratio is less than target company, walmart has better solvency
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