Target vs.

Walmart
FinancialStatementAnalysis

John Gomes
Morgan Kass

Ava DeMarco
Jonel Williams

BUS 201-0006 Financial Accounting

Roberta Newell
University of Rhode Island
November 5, 2015

COMPANY DATA SHEET Complete a data sheet for each company

1. Name of company chosen:
Target Corporation

2. Information about the company:

What is the industry classification for the company (according to Fortune or the Internet
site you are using)?
Retail
Describe the nature of the companys business.
The nature of Target's business is an American retailer that operates large retail stores
primarily across North America.
List the companys primary products or services (use brand names where available).
Household Essentials, Food & Pet Supplies, Apparel & Accessories, Hardlines, Home
Furnishings & Decor
What is the address of the companys corporate headquarters?
1000 Nicollet Mall, Minneapolis, Minnesota
What is the address of the companys Web site?
http://www.target.com/
What were the companys revenues for the most recent fiscal year?
$72,618,000,000
Who is the chairman of the companys board of directors?
Brian Cornell
Who is the companys CEO?
Brian Cornell
3. Provide the following market data:
On what stock exchange is the companys stock traded?
New York Stock Exchange

What is the ticker symbol for the company?

TGT
What was the price of the companys stock at the end of one day during this past week?
Price: $76.23
Date: October 28, 2015
What were the lowest and highest stock prices during the past year?
52-week low:
$60.65 on October 28, 2014
52-week high:
$85.01 on July 16, 2015

COMPANY DATA SHEET Complete a data sheet for each company

1. Name of company chosen:

Wal-Mart Stores, Inc.

2. Information about the company:

What is the industry classification for the company (according to Fortune or the Internet
site you are using)?
Retail
Describe the nature of the companys business.
The nature of Walmarts business is an American multinational retail corporation that
operates a chain of discount department stores and warehouse stores.
List the companys primary products or services (use brand names where available).
Household Essentials, Food & Pet Supplies, Apparel & Accessories, Hardlines, Home
Furnishings & Decor
What is the address of the companys corporate headquarters?
702 S.W 8th St. Bentonville, AK
What is the address of the companys Web site?
http://www.walmart.com/
What were the companys revenues for the most recent fiscal year?
$485,651,000,000
Who is the chairman of the companys board of directors?
S. Robson Walton
Who is the companys CEO?
Doug McMillon

3. Provide the following market data:

On what stock exchange is the companys stock traded?
New York Stock Exchange
What is the ticker symbol for the company?
4

WMT
What was the price of the companys stock at the end of one day during this past week?
Price: $57.64
Date: October 28, 2015
What were the lowest and highest stock prices during the past year?
52-week low:
$58.64 on October 21, 2015
52-week high:
$90.47 on January 8, 2015

The Annual Report - Walmart

1. Review the annual report for each company. It will contain several sections.
Complete the following information for each company.
a. FINANCIAL HIGHLIGHTS. This section provides a summary of selected
financial results over a number of years. You may find two schedules providing
highlights: one brief summary near the front of the annual report and a more detailed
summary in the financial section.
Page(s) 18
This second schedule may be called Five-Year Summary of Selected Financial Data.
Note its page number here.
Page 18
b. THE CHAIRMANS LETTER. This letter provides the chairmans overview of the
past year and developments which will affect the next year.
Page 14
c. THE COMPANY, ITS PRODUCTS, ITS EMPLOYEES. This section may contain a
number of color photographs and will highlight the products and accomplishments of the
company.
Pages 2-13
d. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating
results, industries in which the company operates, financing and investing activities,
significant events, trends and developments.
Pages 19 & 20
e. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL
STATEMENTS. This section contains the balance sheet (also called statement of
financial position), income statement, statement of cash flows and statement of
stockholders equity. The accompanying notes, as indicated at the bottom of each of
the above statements, are an integral part of the financial statements. The financial
statements cannot be understood without reference to the notes.
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Stockholders Equity

Page 37
Page 36
Page 39
Page 38

Notes to the financial statements:

(Include ALL notes. Attach an additional page if necessary.)

Summary of significant accounting policies

Note # 1

Inventories
Plant assets
Long-term debt

Note # 1
Note # 1
Note # 6

Income taxes

Note # 1

Employee benefit plans

Commitments and Contingencies
10&11
Other notes:
Fair Value Measurements
Derivative Financial Instruments
Acquisitions, Disposals and Related Items
Segments

Note # 5
Note #
Note # 7
Note # 8
Note # 13
Note # 14

f. MANAGEMENT REPORT ON INTERNAL CONTROL

Page 62
g. THE INDEPENDENT AUDITORS REPORT:
Page 60
2. REVIEW THE CHAIRMANS LETTER TO THE SHAREHOLDERS.
Page 14
Summarize the major points made in the letter.
The Chairmans Letter to the Shareholders starts out with stating that Walmart is in a
period of rapid change. It talks about how management is focused on driving long term
growth and profitability. The letter then dives into how exceptional, highly qualified, and
diverse the board of members are. The letter then goes into how Walmart is committed
to board independence because it allows the management team to focus on long-term
value creation for all shareholders and avoids the temptation to respond to short-term
pressure thats not best for our business. Lastly, the letter talks about how important the
shareholders are and how important it is for the company to proactively hear from the
shareholders and respond to them accordingly.
Locate the management report(s) and the independent auditors report(s).
Answer the following questions.
Page 61
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a) Who is responsible for the preparation and integrity of the financial statements?
Ernst & Young LLP
b) Does the company maintain a system of internal controls? Why?
Yes. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and preparation of
financial statements for external reporting purposes in accordance with accounting
principles generally accepted in the United States.

c) Does the company have an audit committee? What is its purpose?

Yes. The Audit Committee is appointed by the Board to: (1) assist the Board in
monitoring (a) the integrity of the financial reporting process, systems of internal
controls and financial statements and reports of the Company, (b) the performance of
the Companys global internal audit function, (c) the compliance by the Company with
legal and regulatory requirements, and (d) the qualifications, independence and
performance of the Companys independent auditor employed by the Company for the
purpose of preparing or issuing an audit report or related work (the Outside Auditor);
and (2) be directly responsible for the appointment, compensation and oversight of the
Outside Auditor.

d) What is the name of the independent public accountant (auditor)?

Ernst & Young

(Note: There are two independent auditors reports: (1) a report on internal control, and
(2) a report on the financial statements. The following questions relate to the financial
statement audit.)
e) According to the auditors report on the financial statements, what is the auditors
responsibility?
The auditors responsibility is to express an opinion on the companys internal control
over financial reporting based on the audit.

f) According to the audit report, what is an audit?

The audit included obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances.

g) Summarize the auditors opinion.

In the opinion of Ernst & Young, the financial statements present fairly, in all material
respects, the consolidated financial position of Wal-Mart Stores, Inc. at January 31,
2015 and 2014, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended January 31, 2015, in conformity with U.S.
generally accepted accounting principles.

The Annual Report Target

1. Review the annual report for each company. It will contain several sections.
Complete the following information for each company.

a. FINANCIAL HIGHLIGHTS. This section provides a summary of selected financial

results over a number of years. You may find two schedules providing highlights: one
brief summary near the front of the annual report and a more detailed summary in the
financial section.
This second schedule may be called Five-Year Summary of Selected Financial Data.
Note its page number here.
Page(s) 4(before table of contents)

b. THE CHAIRMANS LETTER. This letter provides the chairmans overview of the
past year and developments which will affect the next year.
Page(s) 3 (before table of contents)
c. THE COMPANY, ITS PRODUCTS, ITS EMPLOYEES. This section may contain a
number of color photographs and will highlight the products and accomplishments of the
company.
Page(s ) 2 (before table of contents), 2-4
d. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating
results, industries in which the company operates, financing and investing activities,
significant events, trends and developments.
Page(s)3 (before table of contents)
e. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS.
This section contains the balance sheet (also called statement of financial position),
income statement, statement of cash flows and statement of stockholders equity. The
accompanying notes, as indicated at the bottom of each of the above statements, are
an integral part of the financial statements. The financial statements cannot be
understood without reference to the notes.
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Stockholders Equity

Page 33
Page 31
Page 34
Page 35

Notes to the financial statements:

(Include ALL notes. Attach an additional page if necessary.)
Summary of significant accounting policies
Note # 1
Inventories
Note # 10
Plant assets
Note # 12
Long-term debt
Note # 18
10

Income taxes
Employee benefit plans
Commitments and contingencies
Other notes:
Consideration Received from Vendors
Advertising Costs
Canada Exit
Credit Card Receivables Transaction
Fair Value Measurements
Derivative Financial Instruments
Leases
Segment Reporting
Subsequent Event

Note # 21
Note # 26
Note # 17
Note # 4
Note # 5
Note # 6
Note # 7
Note # 8
Note # 19
Note # 20
Note # 28
Note # 29

f. MANAGEMENT REPORT ON INTERNAL CONTROL:

Page 30
g. THE INDEPENDENT AUDITORS REPORT:
Page 30
2. REVIEW THE CHAIRMANS LETTER TO THE SHAREHOLDERS.
Page 3 (before table of contents)
Summarize the major points made in the letter.
The letter starts out by stating that 2014 was a year of transition in which Target faced
tough moments and emerged with momentum as they transform their business. It then
talks states that the leadership team is focused on improving five key priorities:
Shopping on Demand (improving busy families ability to shop whenever/wherever),
Category Roles (Targets goal of having their different categories stand out to
consumers), Localization and Personalization (Their mission to give their customers a
personalized experience), Urban Formats (CityTarget/TargetExpress stores to serve
customers in rapidly growing, densely populated areas, 15 new stores to open in 2015),
Simplicity and Speed (Targets goal to change as consumers habits change).

Locate the management report(s) and the independent auditors report(s).

Answer the following questions.
Page 30

a) Who is responsible for the preparation and integrity of the financial statements?
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Ernst & Young LLP

b) Does the company maintain a system of internal controls? Why?
Yes. Target maintains a system of internal controls in order to maintain adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f).

c) Does the company have an audit committee? What is its purpose?

Yes. To assist the Board of Directors in overseeing (i) the integrity of the Corporations
financial statements, (ii) the independence, qualifications and performance of the
Corporations independent auditor, (iii) the performance of the Corporations internal
audit function, (iv) in coordination with the Risk and Compliance Committee, the
Corporations compliance with legal and regulatory requirements, and (v) the financial
policies, financial condition and primary financial risks of the Corporation; and to
prepare the Committees report for inclusion in the Corporations Proxy Statement.

d) What is the name of the independent public accountant (auditor)?

Ernst & Young

(Note: There are two independent auditors reports: (1) a report on internal control, and
(2) a report on the financial statements. The following questions relate to the financial
statement audit.)

e) According to the auditors report on the financial statements, what is the auditors
responsibility?
According to the auditors report, their responsibility is to express an opinion on these
financial statements based on their audits.

f) According to the audit report, what is an audit?

An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

12

g) Summarize the auditors opinion.

The financial statements present fairly, in all material respects, the consolidated
financial position of Target Corporation and subsidiaries at January 31, 2015 and
February 1, 2014, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended January 31, 2015, in conformity with
U.S. generally accepted accounting principles.

Financial Statement Analysis Liquidity & Solvency

*ALL CALCULATIONS IN MILLIONS
Current Ratio (Show your computations)
Company 1 Target

Company 2 Walmart

Balance Sheet Date

February 1, 2014
January 31, 2015

January 31, 2014

January 31, 2015

Current Ratio: This Year

14,087/11,736=1.200

63,278/65,272=0.9695

13

Current Ratio: Last Year

11,573/12,777=0.9058

61,185/69,345=0.8823

Analysis:
Compare each companys current ratio. What information does this ratio provide?
Which company had the better ratio? For each company did it improve or worsen?
Both Target and Walmarts current ratio from this year is an improvement in comparison
to last years. The ratio provides insight into a companys liquidity; it measures the
companys ability to pay its debts over the next year. If a company has a high current
ratio it means the company is very liquid and can pay off its debts easily and quickly.
Target had the better ratio for each year.
Debt to Total Assets Ratio:
Company 1 Target

Company 2 Walmart

This Year

(11,736+15,671)/41,404=
0.6619

(65,272+52,497)/203,706=
0.5781

Last Year

(12,777+15,545)/44,553=
0.6357

(69,345+52,576)/204,751=
0.5955

Analysis:
Compare each companys debt to total assets ratio. What information does this ratio
provide? Which company had the better ratio? For each company did it improve or
worsen?
Target has a higher debt to assets ratio, both years in a row. Targets increased from last
year, while Walmarts decreased from last year. Since Target takes on more debts than
Walmart does, we can conclude that Walmart has greater solvency than Target does.
Also, this means that Walmart has a better chance of accomplishing long term
expansion and growth.

Free Cash Flow:

Company 1 Target

Company 2 Walmart

This Year

4,439-1,786-1,205= 1,448

28,564-12,1746,185=10,205

Last Year

6,520-1,886-1,006=3,628

23,257-13,115-

14

6,139=4,003
Analysis:
Compare each companys free cash flow. What information does this provide? For
each company did it improve or worsen?
Walmart has more free cash flow, for both last year and this year. Free cash flow
represents the cash that a company is able to generate after disbursing the money
required to maintain or expand its asset base and pay dividends. Targets free cash
flow worsened from last year to this year, while Walmarts improved from last year to
this year.

Financial Statement Analysis The Income Statement

Period covered by the Income Statement:
Gross Profit Rate (Show your computations):Gross Profit Rate=Gross Profit/Net Sales
Company 1 Target

Company 2 Walmart

This Year

(72,618-51,278)/72,618=
0.2939

(485,615365,086)/482,229= 0.2499

Last Year

(71,279-50,039)/71,279=
0.2980

(476,294358,069)/473,076= 0.2499

Analysis:
Compare each companys gross profit rate. What information does this ratio provide?
Which company had the better ratio? For each company did it improve or worsen?
Targets gross profit rate is 0.2939, and Walmarts gross profit rate is 0.2499. The gross
profit rate shows the companys financial health, it shows the relationship between the
companys gross profit and net sales. A higher gross profit rate is better because it
means that a company is producing goods and services more efficiently. Target had the
better ratio, but it decreased this year. Walmarts didnt change.

Profit Margin (Show your computations)

This Year

Company 1 Target

Company 2 Walmart

(-1,636) / 72,618=
-0.0225*100=2.25%

(485,651-458,504) /
485,651= 0.0559*100=

15

5.59%
Last Year

(1,971) / 71,279=
0.0277*100=2.77%

(476,294-449,422) /
476,294= 0.0564*100=
5.64%

Analysis:
Compare each companys profit margin. What information does this ratio provide?
Which company had the better ratio? For each company did it improve or worsen?
The ratio provides a measure of comparison between net income and revenue, so the
ratio determines what percent the company earns in net income based on every dollar
of total revenue earned. When you compare Walmart and Targets profit margin,
Walmart has a better ratio. Both companies profit margins declined from the previous
year, Targets ratio decrease because it had a net loss for income, and Walmarts ratio
decreased because overall their income and revenue had decreased from the previous
year.

Earning per share (Show

your computations)

Company 1 Target

Company 2 Walmart

This year:

(-1,636 / 640.1)= -2.56

(27,147 / (3,230+3,243))=
4.19

Last year:

(1,971 / 641.8)= 3.11

(26,872 / (3,269+3,283))=
4.10

Financial Statement Analysis Current Assets

1. Accounts Receivable
(a) What is the amount of the companys accounts receivable?
Before subtracting the allowance for doubtful accounts (gross accounts receivable):

16

Company 1 Target

Company 2 Walmart

This Year

n/a

$6,778+$114= $6,892

Last Year

n/a

$6,677+$119= $6,796

After subtracting the allowance for doubtful accounts (net accounts receivable):
Company 1 Target

Company 2 Walmart

This Year

n/a

$6,778

Last Year

n/a

$6,677

*Net accounts receivable given

(b) What is the amount of the allowance for doubtful accounts?
Company 1 Target

Company 2 Walmart

This Year

n/a

$114

Last Year

n/a

$119

(c) What percentage of the gross accounts receivables are considered bad debts?
The credit risk ratio:
Allowance for doubtful accounts
Gross accounts receivable
Company 1 Target

Company 2 Walmart

This Year

n/a

$114/ $6,892= 1.65%

Last Year

n/a

$119/ $6,796= 0.28%

*Target does not have an Accounts Receivable Section in their Financial Reports
2. Inventories and Cost of Goods Sold
(a) What is the amount of inventory for each company?

17

Company 1 Target

Company 2 Walmart

This Year

8,790

45,141

Last Year

8,278

44,858

(b) What is the amount of cost of goods sold for each company?
Company 1 Target

Company 2 Walmart

This Year

51,278

365,086

Last Year

50,039

358,069

(c) What inventory costing method has each company chosen?

Target uses the retail inventory accounting method (RIM) using the last-in, first-out
(LIFO) method.
Walmart U.S. segments inventories using the inventory costing method of the last-in,
first-out (LIFO), Walmart international segments use the first-in, first-out (FIFO)
method.
(d) What other information does each company provide in the note about its inventory?
In Walmarts note about inventory they discuss how they use the retail method of
accounting results in inventory being valued lower of cost or market since permanent
markdowns are immediately recorded as a reduction of the retail value of inventory. In
Targets note about inventory states that the cost of their inventory includes the amount
they pay their suppliers to acquire inventory, freight costs incurred in connection with
delivery of product to our distribution centers and stores, and import costs, reduced by
vendor income and cash accounts.

Analysis of Current Assets

3. Calculate the following ratios for each company for the current year only: Show
your computations.
(a) Receivables turnover Average

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Company 1 Target

Company 2 Walmart

n/a

482,229/((6,778+6,677)/2)= 71.68

(b) Average collection period

Company 1 Target

Company 2 Walmart

n/a

365/71.68= 5.09

(c) Inventory turnover

Company 1 Target

Company 2 Walmart

51,278/8,790=5.83

365,086/45,141=8.09

(d) Average days inventories held

Company 1 Target

Company 2 Walmart

365/5.83= 62.61

365/8.09= 45.12

4. Explain what information each of these ratios provides.

(a) Receivables turnover Average:
The receivables turnover average provides a measure of how often a company collects
its accounts receivable. A higher average indicates better cash flow/liquidity.
(b) Average collection period:
The average collection period provides the average number of days it takes for a
business to receive owed payments.
(c) Inventory turnover:
Inventory turnover ratio provides how much inventory is sold over a period of time.

19

(d) Average days inventories held:

The average days in inventory ratio shows how quickly a business is converting their
inventories into sales.
5. Evaluate the companys receivables collection. In your answer, consider the type of
product(s) the company sells, the industry in which the company operates and the type
of customer it serves. Refer to the information obtained in the preceding question.
For Walmarts receivables collection, they have an average receivables turnover ratio of
71.68, and an average collection period of 5.09 days. For Walmarts average
receivables turnover ratio we can conclude they are satisfactory because a higher ratio
is desirable that shows improved cash flow and liquidity. For Walmarts average
collection period we can conclude that they are efficient because a lower collection
period is more desirable to collect owed payments faster. Both companies sell
everyday products to the general customer, usually paid for using cash or credit card.
We are unable to compare Walmarts receivables collection to Targets because Target
does not have accounts receivable.
6. Evaluate the companys inventory management. In your answer, consider the type
of product(s) the company sells, the industry in which the company operates and the
type of customer it serves. Refer to the information obtained in the preceding
questions.
For Walmarts inventory management, they have an inventory turnover ratio of 8.09 and
have an average of 45.12 days of inventories held. For Targets inventory management,
they have an inventory turnover ratio of 5.83, and have an average of 62.61 days of
inventories held. Usually a higher inventory ratio is preferred because it indicates that
more sales are being generated given a certain amount of inventory, then using
inventory turnover ratio to calculate average days of inventories held, it is desirable to
have a lower amount of days held in inventory, both companies having such a large
inventory it is impressive that they both have a lower amount of average days of
inventories held. Comparing Target to Walmart, the calculations show that Walmart has
a better average days of inventories held than Target, which shows that Walmart is a
more popular company than Target because their inventory turnover happens more
quickly even with a larger amount of inventory.

20

Financial Statement Analysis Long-Lived Assets

A. What depreciation method does each company use?
Both Target and Walmart use the straight-line method to calculate their depreciation.
B. Does the company have any intangible assets?
If so, what are they?
Walmart has intangible assets, that are evaluated for impairment annually or whenever
changes in circumstances indicate that the value of a certain asset might be impaired.
Walmart for the 2015 year had recorded intangible assets of approximately $419 million
21

dollars. Target also has intangible assets that was recorded as $331 for 2014 and $302
for 2015.
C. Compute the Asset Turnover Ratio (show your computations)
Company 1 Target

Company 2 Walmart

This Year

(72,618 / 41,404) = 1.7539

(482,229 / 203,706) = 2.3673

Last Year

(71,279 / 44,553) = 1.59939

(473,076 / 204,751) = 2.3105

Analysis:
Compare each companys asset turnover ratio. What information
does this ratio provide? Which company had the better ratio? For
each company did it improve or worsen?
The asset turnover ratio shows how efficiently a company can use
its assets to generate sales. Walmart has a better asset turnover
ratio than Target does since a higher ratio means the company is
using its assets more efficiently. From last year to this year, both
companies improved their ratios.
D. Compute the Return on Assets (show your computations)

Company 1 Target

Company 2 Walmart

This Year

(-1,636 / 42,978.5) = -.0381

(27,147 / 204,228.5) = .1329

Last Year

(1,971 / 42,978.5) = .0459

(26,872 / 204,228.5) = .1316

Analysis:
Compare each companys ROA. What information does this ratio
provide? Which company had the better ratio? For each company
did it improve or worsen?
The return on assets ratio is an indicator of how profitable a
company is relative to its total assets. ROA gives an idea of how
efficient management is at using assets to generate earnings. The
higher the ROA the better because the company is earning more
money on less investment. Walmart has a better ROA ratio
compared to Target for both 2014 and 2015. Walmarts ROA
improved from last year to this year, while Targets got significantly
worse.
Financial Statement Analysis Liabilities

22

A. What is the amount of the companys current liabilities?

Company 1 Target

Company 2 Walmart

This Year

11,736

65,272

Last Year

12,777

69,345

B. What is the amount of the companys long-term liabilities?

Company 1 Target

Company 2 Walmart

This Year

15,671

52,497

Last Year

15,545

52,576

C. Calculate the times interest earned ratio.

Company 1 Target

Company 2 Walmart

This Year

(4,535 / 882) = 5.1417

(24,779 / 2,348) = 10.5532

Last Year

(5,170 / 1,049) = 4.9285

(24,650 / 2,216) = 11.1236

D. Analysis:
Compare each companys times interest earned ratio. What
information does this ratio provide? Which company had the better
ratio? For each company did it improve or worsen?
Times interest earned is used to measure a companys ability to
meet its debt and interest obligations. It measures income that can
be used to cover interest expense. A larger ratio is more favorable
because it represents how many times the company could pay off
its interest using their income before taxes. Since Walmart has a
higher ratio, it is more favorable in this aspect. However, Target has
improved their ratio where Walmarts from 2014 to 2015.
E. Using the current ratio and debt to assets ratio previously
calculated. Evaluate each companys debt-paying ability. How do
they compare year to year and with each other?
Target and Walmart both have the ability to pay debts because both
companies current assets can cover their current liabilities. Targets
debt-paying ability is greater than Walmarts debt-paying ability from
both 2014 and 2015. Targets current ratio and their debt to total

23

assets ratio improved from last year to this year. Walmarts current
ratio improved from last year to this year but their debt to total
assets ratio decreased slightly. Although Walmarts debt to total
assets ratio decreased they still have the ability to pay off debt due
to their current ratio improving.

8. Financial Statement Analysis Stockholders Equity

A. How many shares of common stock have
been issued?
Company 1 Target

Company 2 Walmart

Shares Issued (2014)

632.9

3,233

Shares Issued (2015)

640.2

3,228

Shares Outstanding (2014)

632.9-0.8= 632.1

3,233-13= 3,220

Shares Outstanding (2015)

n/a

n/a

If these numbers are different, explain why?

These numbers are different because the number of stock sold and then repurchased
every year is different.
B. Does the company have any preferred stock?
Walmart does not have any preferred stock. On the other hand, Target authorized
5,000,000 shares of preferred stock at $0.01 par value; no shares were issued or
outstanding at January 31, 2015 or February 1, 2014.

Company 1 Target

Company 2 Walmart

Number of Shares Authorized

5,000,000

n/a

Par Value

$0.01

n/a

Dividend Rate

n/a

n/a

C. Compute the dividend payout ratio of each company.

Company 1 Target

Company 2 Walmart

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This Year

1,205/(-1,636)= -0.7366= -73.66%

6,200/27,147= 0.2284 = 22.84%

Last Year

1,006/1,971= 0.6114 = 61.14%

6,100/26,872= 0.2270 = 22.70%

Analysis:
Compare each companys dividend payout ratio. What information
does this ratio provide? For each company did it increase or
decrease? How do the companys compare?
The dividend payout ratio provides an indication of how much
money a company is returning to shareholders, versus how much
money it is keeping on hand to reinvest in growth, pay off debt or
add cash to reserves. Targets dividend payout ratio decreased from
2013 to 2014, the decrease is so drastic because Target has a
negative net income for 2014. Walmarts dividend payout ratio
increased slightly from 2014 to 2015. Walmart has consistently
returned money to shareholders for both years, while Target had
returned a higher percent to shareholders last year but wasnt able
to return money to shareholders because of their net loss of income
this year.
D. Compute the Return on Stockholders Equity for each company.
Company 1 Target

Company 2 Walmart

This Year

-1,636/13,997= 0.1169 = 11.69%

27,147/85,937= 0.3159 = 31.59%

Last Year

1,971/16,231= 0.1214 = 12.14%

26,872/81,339= 0.3304 = 33.04%

Analysis:
Compare each companys ROE. What information does this ratio
provide? Which company had the better ratio? For each company
did it improve or worsen?
Return on Stockholders Equity provides the percent returned of net
income from the money that shareholders have invested into the
company. Walmart has the better ratio because a higher percent will
mean better profits for the company. Both company's ratios have
declined from the previous year.
Using the two above ratios in conjunction with the previously
calculated EPS, evaluate the corporate performance of each
company.
Walmarts dividend payout ratio of 22% indicates that it is returning less money to
shareholders and keeping more to reinvest in growth, pay off debt or add cash to
reserves. Their Return on Stockholders Equity indicates that they are earning a higher
percent of net income from money invested by shareholders. Targets dividend payout
ratio of 61% indicates that it is returning more money to shareholders and investing less

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in themselves. Targets Return on Stockholders Equity of about 12% indicates that they
are earning a smaller percent of net income from money invested by shareholders.
Overall the corporate performance of Walmart is more profitable than Target, but
Targets investors would benefit more than Walmarts.

9. Financial Analysis Statement of Stockholders Equity

Company 1 Target

Company 2
Walmart

Ending Balance of Cash and Equivalents in 2,210

the Current Year

9,135

Net Cash Flow from Financing Activities

(998)

(15,071)

Net Cash Flow from Investing Activities

(1,926)

(11,125)

Net Cash Flow from Operating Activities

4,439

28,564

Current Debt Cash Coverage

4,439/ 12,256.50= .
3622

28,564/ 67308.5= .
4244

Analysis:
Compare each companys current debt cash coverage. What
information does this ratio provide? Which company had the better
ratio? For each company did it improve or worsen?
The current debt cash coverage ratio is a liquidity ratio that
measures the relationship between net cash provided by operating
activities and the average current liabilities of the company. It
indicates the ability of the business to pay its current liabilities from it
operations. Walmart has a better current debt cash coverage ratio
compared to Target. Unfortunately the companies do not provide
the information from 2013, so we are unable to compare the ratio
from the year prior to this year.
F. Compute the debt cash coverage for each company.
(show all calculations)

Debt Cash

Company 1 Target

Company 2 Walmart

4,439/((11,736+12,777)/2)=

28,564/((65,272+69,345)/2)=

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Coverage This
Year

0.3622

0.4244

Debt Cash
Coverage Last
Year

6,520/((11,736+12,777)/2)=
0.5320

23,257/((65,272+69,345)/2)=
0.3455

Analysis:
Compare each companys debt cash coverage. What information
does this ratio provide? Which company had the better ratio? For
each company did it improve or worsen?
Debt cash coverage is a measurement that is similar to current ratio. A high debt cash
coverage value means that the company is very liquid. Since, Walmart has a higher
debt cash coverage, we can conclude that Walmart has a better ratio and is more liquid
than target. Walmart improved their debt cash coverage ratio from 2014 to 2015 where
Targets ratio worsened.

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