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Polytechnic University Of Puerto Rico Industrial Engineering Department Hato Rey, Puerto Rico 00919

Homework: Chapter 13 Financial Analysis: The Big Picture

Ruset Rosa Torres 80428 Prof. H. Soto IE-2110: Financial and Cost Accounting 12/16/2013

P13-5A- Suppose selected financial data of Target and Walmart for 2014 are present here (in millions) Target Corporation Walmart Stores, Inc.

Income Statement Data for Year Net Sales Cost of good sold Selling and administrative expenses interest expense Other income (expense) Income tax Expense Net income $65,357 45,583 15,101 707 (94) 1,384 $2,488 $408,214 304,657 79,607 2,065 (411) 7,139 $14,335

Balance Sheet Data (end of year) Current assets noncurrent assets Total Assets Current Liabilities Long-Term debt Total stockholders' equity Total Liabilities and stockholders' equity $18,424 26,109 44,533 $11,327 17,859 15,347 $44,533 $48,331 122,375 170,706 $55,561 44,089 71,056 $170,706

Beginning-of-Year Balance Total assets Total stockholders' equity Current Liabilities $44,106 13,712 10,512 $163,429 65,682 55,390

Total Liabilities

30,394

97,747

Other Data Average net accounts receivable Average inventory Net Cash provided by operating activities Capital expenditures Dividends $7,525 6,942 5,881 1,729 496 $4,025 33,836 26,249 12,184 4,217

a- For each company, compute the following ratios 1. Current ratio 2. Accounts receivable turnover 3. Average collection period 4. Inventory turnover 5. Days in inventory 6. Profit margin 7. Assets turnover 8. Return on assets 9. Return on common stockholders equity 10. Debt to assets ratio 11. Times interested ratio 12. Current cash debt coverage 13. Cash debt coverage 14. Free cash flow b- Compare the liquidity, solvency, and profitability of the two companies.
(a)

Ratios
Current Ratio

Target
1.6:1

Wal-Mart
.86:1

Accounts receivable turnover Average collection period Inventory Turnover Days in inventory Profit Margin Asset turnover Return on assets Return on common stockholders equity Debt to assets ratio Times interest earned Current cash debt coverage Cash debt coverage Free cash flow

8.6

101.4

42.44

3.6

6.5 55.58 3.8% 1.475 5.6% 13.71%

9.0 40.55 3.5% 2.493 8.5% 14.79%

68.91% 6.476 53.66%

59.8% 11.39 47.31%

15.6% 3656

19.5% 9848

(b)

The Comparing liquidity with both companies we can establish that Target is a better choice just on the fact that its current ratio is 1.6:1 vs. Wal-Marts .86:1. This means that Wal-Mart has more liabilities than current assets. The solvency we compare Debt to asset ratio where we found that Target is a better choice than Wal-Mart because of its low score of 68.91% compared to WalMarts 59.8%. . Concluding, the higher the percentage of the debt, it means the company is risky for business. The profitability, the Asset turnover ratio shows that in this case Wal-Mart is more efficient when using its assets to produce sales. When we compare Targets 1.4 to Wal-Marts 2.4, it is clear that Wal-Mart is operating more efficiently. WalMart is generating more sales per dollar invested in assets.