Question

3 Suppose selected financial data of Target and Wal-Mart for 2020 are presented here (in millions). Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income (expense) Income tax expense Net income Current assets Noncurrent assets Total assets Current liabilities Long-term debt Total stockholders' equity Total liabilities and stockholders' equity Target Wal-Mart Corporation Stores, Inc. Income Statement Data for Year $65,357 $408,214 45,583 304,657 15.101 79,607 707 2.065 (94) (411) 1,384 7.139 $2,488 $ 14,335 Balance Sheet Data (End of Year) $18,424 $48,331 26,109 122.375 $44,533 $170,706 $11.327 $55,561 17.859 44,089 15,347 71,056 $44,533 $170,706 Beginning-of-Year Balances $44,106 $163.429 13,712 65,682 10,512 55,390 30,394 97,747 Other Data $7,525 $4,025 6,942 33,836 5,881 26,249 1,729 12,184 496 4,217 Total assets Total stockholders' equity Current liabilities Total liabilities Average net accounts receivable Average inventory Net cash provided by operating activities Capital expenditures Dividends (a) For each company, compute the following ratios. (Enter free cash flow in millions, Round Current ratio to 2 decimal places, eg. 1.67. Round Debt to assets ratio to 0 decimal places, e.g. 18 or 18%. Round all other answers to 1 decimal place, eg. 1.6, or 1.6%. Use 365 days for

Answer 1

1) Current Ratio = Current Assets / Current Liabilities.

Target = $18,424 / $11,327 = 1.63 : 1

Wal-mart = $48,331 / $55,561 = 0.87 : 1

2) Accounts Receivables Turnover = Net Sales / Account Receivables

Taregt = $65,357 / $7,525 = 8.68 OR 8.7 times

Wal-mart = $408,214 / $4,025 = 101.41 OR 101.4 times

3) Average Collection Period = 365 / Account sreceivables turnover ratio

Target = 365 / 8.7 = 41.95 OR 41.9 days

Wal-mart = 365 / 101.4 = 3.6 days

4) Inventory Turnover = Cost of goods sold / Average Inventory

Target = $45,583 / $6,942 = 6.56 OR 6.6 times

Wal-mart = $304,657 / $33,836 = 9.0 times OR 9 times

5) Days in Inventory = 365 / Inventory Turnover

Target = 365 / 6.6 = 55.3 days

Wal-mart = 365 / 9 = 40.55 OR 40.5 days (40.6 if rounded up)

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%

7) Asset Turonver = Net Sales / Average Total Assets

AverageTotal Assets = (Begining Assets + Ending Assets) / 2

Target : Average Total Assets = ($44,106 + $44,533) / 2 = $44,319.5

Asset Turnover = $65,357 / $44,319.5 = 1.47 OR 1.5 times

Wal-mart : Average Total Assets = ($163,429 + $170,706) / 2 = $167,067.5

Asset Turnover = $408,214 / $167,067.5 = 2.44 OR 2.4 Times

8) Return on Assets = Net Income / Average Assets

Target = ($2,488 / $44,319.5) * 100 = 5.6%

Wal-mart = ($14,335 / $167,067.5) * 100 = 8.58 OR 8.6%

9) Return on common stockholder's equity = Net Income / Average Shareholder's Equity

Average Shareholder's Equity = (Begining shareholder's equity + Ending shareholder's equity) / 2

Target; Average Shareholder's Equity = ($13,712 + $15,347) / 2 = $14,529.5

Return on common stockholder's equity = ($2,488 / $14,529.5) * 100 = 17.1%

Wal-mart : Average shareholder's equity = ($65,682 + $71,056) / 2 = $68,369

Return on common stockholder's equity = ($14,335 / $68,369) * 100 = 20.96 OR 21% (20.9 rounded down)

10) Debt to Assets Ratio = AverageTotal Debt /Average Total Assets

Average Total Debt = (Begining Total Liabilities + Ending Total Liabilities) / 2

Target : Average Total Debt = [$30,394 + ($11,327 + $17,859)] / 2 = $29,790

Debt to assets ratio = ($29,790 / $44,319.5) * 100 = 67%

Wal-mart ; Average Total Debt = [$97,747 + ($55,561 + $44,089)] / 2 = $98,698.5

Debt to assets ratio = ($98,698.5 / $167,067.5) * 100 = 59%

[NOTE: Average Total Assets is calcualted in asset turnover (number 7) and is taken from there only]

11) Times Interest Earned = Earnings Before Interest and Tax (EBIT) / Interest Expense

EBIT = Net Income + Interest + Tax

Target : EBIT = $2,488 + $707 + $1,384 = $4,579

Times Interest Earned = $4,579 / $707 = 6.47 OR 6.5 times

Wal-mart; EBIT = $14,335 + $2,065 + $7,139 = $23,539

Times Interest Earned = $23,539 / $2,065 = 11.4 times

12) Free Cash Flow = Net Cash Provided by Operating Activities - Capital Expenditure - Dividends

Target = $5,881 - $1,729 - $496 = $3,656 millions

Wal-mart = $26,249 - $12,184 - $4,217 = $9,848 millions

[NOTE: Change in Working Capital is not considered as begining current assets are not given]

{No intermediate calculations are rounded off , just the final answers are rounded off as instructions were given . Any confusion do not hesitate to comment I will help you out, Do like,Thank You:) }