Question

Selected financial data of two competitors, Target and Wal-Mart, are presented here. (All dollars are in millions.) Suppose the data were taken from the 2022 financial statements of each company. Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income Income taxes Net income Target Wal-Mart (1/31/22) (1/31/22) Income Statement Data for Year $64,000 $405,000 41,600 291,600 16,000 72,900 640 4,050 20 4,150 2,023 14,210 $ 3,757 $ 26,390 Target Wal-Mart Balance Sheet Data (End of Year) $22,560 $ 39,900 30,000 116.000 Current assets Noncurrent assets

Answer 1

a) Working Capital = Current assets - Current Liabilities

Description	Target ($)	Wal-mart ($)
Current assets	22,560	39,900
Current Liabilities	12,000	57,000
Working Capital	10,560	(17,100)

b) Current Ratio = Current assets /Current Liabilities

Description	Target ($)	Wal-mart ($)
Current assets	22,560	39,900
Current Liabilities	12,000	57,000
Current Ratio	1.88	0.70

c) Debt to asset ratio = Total debt/ Total assets

Description	Target ($)	Wal-mart ($)
Total Debt	34,164	90,422
Total Assets	52,560	155,900
Debt to asset ratio	65.0%	58.0%

d) Free cash flow = sales revenue - (operating costs + taxes) - required investments in operating capital

Description	Target ($)	Wal-mart ($)
Sales Revenue	64,000	405,000
Operating costs	57,600	364,500
Taxes	2,023	14,210
Required investments in operating capital	3,200	11,300
Free cash flow	1,177	14,990

e) EPS = (Net Income-Preferred Dividend)/Outstanding shares

Description	Target ($)	Wal-mart ($)
Net Income	3,757	26,390
Preferred Dividend	-	-
Outstanding shares	850	4,550
EPS	4.42	5.80

f) The current ratio measures a company's ability to pay off its current liabilities with its current assets. The higher the ratio, the better the company's liquidity position. Thus as the Current ratio of Target is higher it has better liquidity.