Christopher Pfeifle
Professor Gallagher
ACG 2071
December 3, 2012
Financial Ratios Project
A. Calculate the liquidity ratios of Target Corporation and Wal-Mart Stores Inc.
1. Current Ratio
Target Corporation
01/28/2012
01/29/2011
Current Assets:
Cash & Cash
Equivalents
Accounts
Receivable
Inventory
Other Current
Assets
Total Current
Assets (a)
Total Current
Liabilities (b)
Current Ratio (a) /
(b)
01/30/2010
$794,000,000
$1,712,000,000
$2,200,000,000
$5,927,000,000
$7,075,000,000
$7,882,000,000
$7,918,000,000
$1,810,000,000
$7,596,000,000
$830,000,000
$7,179,000,000
$1,163,000,000
$16,449,000,000
$17,213,000,000
$18,424,000,000
$14,287,000,000
$10,070,000,000
$11,327,000,000
1.15
1.71
1.63
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
Current Assets:
Cash & Cash
Equivalents
Accounts
Receivable
Inventory
Other Current
Assets
Total Current
Assets (a)
Total Current
Liabilities (b)
Current Ratio (a) /
01/31/2010
$6,003,000,000
$6,891,000,000
$7,907,000,000
$5,937,000,000
$5,089,000,000
$4,144,000,000
$40,714,000,000
$2,321,000,000
$36,437,000,000
$3,595,000,000
$32,713,000,000
$3,268,000,000
$54,975,000,000
$52,012,000,000
$48,032,000,000
$62,300,000,000
$58,603,000,000
$55,543,000,000
0.88
0.89
0.86
(b)
(Brewer, Garrison, and Noreen 594).
2. Acid-Test (Quick) Ratio
Target Corporation
01/28/2012
01/29/2011
Liquid Assets:
Cash
Accounts
Receivable
Total Liquid
Assets (a)
Current Liabilities
(b)
Acid-Test Ratio (a) /
(b)
01/30/2010
$794,000,000
$5,927,000,000
$1,712,000,000
$7,075,000,000
$2,200,000,000
$7,882,000,000
$6,721,000,000
$8,787,000,000
$10,080,000,000
$14,287,000,000
$10,070,000,000
$11,327,000,000
0.47
0.87
0.89
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
Liquid Assets
Cash
$6,003,000,000
Accounts
$5,937,000,000
Receivable
$11,940,000,000
Total Liquid
Assets (a)
Current Liabilities
$62,300,000,000
(b)
Acid-Test Ratio (a) / 0.19
(b)
(Brewer, Garrison, and Noreen 595).
01/31/2010
$6,891,000,000
$5,089,000,000
$7,907,000,000
$4,144,000,000
$11,980,000,000
$12,051,000,000
$58,603,000,000
$55,543,000,000
0.20
0.22
3. Receivables Turnover.
Target Corporation
01/28/2012
01/29/2011
$69,865,000,000
$67,390,000,000
Sales on Account
(a)
Accounts
$5,927,000,000
Receivable Current
(I)
Accounts
$7,075,000,000
Receivable Prior (II)
Average Accounts $6,501,000,000
Receivable Balance
01/30/2010
$65,357,000,000
$7,075,000,000
$7,882,000,000
$7,882,000,000
$8,753,000,000
$7,478,500,000
$8,317,500,000
(b) : [(I) + (II) / 2]
Accounts
Receivable
Turnover (a) / (b)
1 Year (a)
Accounts
Receivable
Turnover (b)
Average Collection
Period (a) / (b)
Sales on Account
(a)
Accounts
Receivable Current
(I)
Accounts
Receivable Prior (II)
Average Accounts
Receivable Balance
(b) : [(I) + (II) / 2]
Accounts
Receivable
Turnover (a) / (b)
10.75
9.01
7.86
Target Corporation
01/28/2012
01/29/2011
365 Days
365 Days
10.75
9.01
01/30/2010
365 Days
7.86
34 Days
46 Days
41 Days
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$446,950,000,000
$421,849,000,000
01/31/2010
$408,085,000,000
$5,937,000,000
$5,089,000,000
$4,144,000,000
$5,089,000,000
$4,144,000,000
$3,905,000,000
$5,513,000,000
$4,616,500,000
$4,024,500,000
81.07
91.38
101.4
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
365 Days
365 Days
81.07
91.38
1 Year (a)
Accounts
Receivable
Turnover (b)
Average Collection 5 Days
Period (a) / (b)
(Brewer, Garrison, and Noreen 595-596).
4 Days
01/31/2010
365 Days
101.4
4 Days
4. Inventory Turnover
Cost of Goods Sold
(a)
Inventory Current
(I)
Inventory Prior (II)
Average Inventory
Balance (b) : [(I) +
(II) / 2]
Inventory Turnover
(a) / (b)
1 Year (a)
Inventory Turnover
(b)
Average Sale Period
(a) / (b)
Cost of Goods Sold
(a)
Inventory Current
(I)
Inventory Prior (II)
Average Inventory
Balance (b) : [(I) +
(II) / 2]
Inventory Turnover
(a) / (b)
1 Year
Inventory Turnover
(b)
Average Sale Period
(a) / (b)
Target Corporation
01/28/2012
01/29/2011
$48,306,000,000
$46,585,000,000
01/30/2010
$45,583,000,000
$7,918,000,000
$7,596,000,000
$7,179,000,000
$7,596,000,000
$7,757,000,000
$7,179,000,000
$7,387,500,000
$6,705,000,000
$6,942,000,000
6.23
6.31
6.57
Target Corporation
01/28/2012
01/29/2011
365 Days
365 Days
6.23
6.31
01/30/2010
365 Days
6.57
59 Days
56 Days
58 Days
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$335,127,000,000
$314,946,000,000
01/31/2010
$304,106,000,000
$40,714,000,000
$36,437,000,000
$32,713,000,000
$36,437,000,000
$38,575,500,000
$32,713,000,000
$34,575,000,000
$34,511,000,000
$33,612,000,000
8.69
9.11
9.05
Wal-Mart Stores, Inc.
01/31/2013
01/31/2011
365 Days
365 Days
8.69
9.11
01/31/2010
365 Days
9.05
42 Days
40 Days
40 Days
(Brewer, Garrison, and Noreen 596).
When determining the relative liquidity between the Target Corporation and WalMart Stores, it is highly important to carefully examine the company’s liquidity ratios and
interpret them properly. Failing to do so can lead to inaccurate or inconclusive data. Both
Target and Wal-Mart do not have the best current ratios from the standard viewpoint; a
ratio of around 2 is generally the most acceptable, and both Target and Wal-Mart have
ratios below the norm. However, it is not uncommon for companies to have ratios below
the norm and operate successfully (Brewer, Garrison, and Noreen 594). While both
Target and Wal-Mart have low current ratios, both corporations have strong operating
cash flows that help provide the resources to meet their current obligations.
Target and Wal-Mart have relatively low quick ratios, a sign that in most cases
demonstrate a struggling business. Target does have the higher acid-test ratios, and has
come the closest to the average of 1, but both companies do not meet the standard.
However, in companies like these, where inventory is swiftly converted into cash,
computing acid-test ratios is not always the best way to determine which company would
be the best investment.
Both Target and Wal-Mart have healthy receivable turnover ratios. While there is
no general standard for receivables turnover, a higher ratio, along with an average
collection period proportionate to their credit terms, indicates the company’s ability to
collect on sales (ReadyRatios).
Inventory turnover and average sale period indicates how well a company is able
to sell their inventory. Wal-Mart has a better inventory turnover ratio and average sale
period than Target, as they sell and restock their inventory more than Target does.
B. Calculate the following profitability ratios of Target Corporation and Wal-Mart Stores, Inc.
1. Asset Turnover
Total Revenue (a)
Total Assets (b)
Asset Turnover (a) /
(b)
Total Revenue (a)
Total Assets (b)
Target Corporation
01/28/2012
01/29/2011
$69,865,000,000
$67,390,000,000
$46,630,000,000
$43,705,000,000
1.5
1.54
01/30/2010
$65,357,000,000
$44,533,000,000
1.47
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$446,950,000,000
$421,849,000,000
$193,406,000,000
$180,782,000,000
01/31/2010
$408,085,000,000
$170,407,000,000
Asset Turnover (a) /
(b)
(Investopedia).
2.31
2.33
2.39
2. Profit Margin
Net Income (a)
Total Revenue (b)
Profit Margin (a) / (b)
Net Income (a)
Total Revenue (b)
Profit Margin (a) / (b)
(Investopedia).
Target Corporation
01/28/2012
01/29/2011
$2,929,000,000
$2,920,000,000
$69,865,000,000
$67,390,000,000
4.19%
4.33%
01/30/2010
$2,488,000,000
$65,357,000,000
3.81%
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$15,699,000,000
$16,389,000,000
$446,950,000,000
$421,849,000,000
3.51%
3.89%
01/31/2010
$14,370,000,000
$408,085,000,000
3.52%
3. Return on Total Assets
Net Earnings (a)
Total Assets (b)
Return on Total
Assets (a) / (b)
Net Earnings (a)
Total Assets (b)
Return on Total
Assets (a) / (b)
(Investopedia).
Target Corporation
01/28/2012
01/29/11
$2,929,000,000
$2,920,000,000
$46,630,000,000
$43,705,000,000
6.28%
6.68%
01/30/2010
$2,488,000,000
$44,533,000,000
5.59%
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$15,699,000,000
$16,389,000,000
$193,406,000,000
$180,782,000,000
8.12%
9.07%
01/31/2010
$14,370,000,000
$170,407,000,000
8.43%
4. Return on Equity
Net Earnings (a)
Share Holders Equity
(b)
Return on Equity (a) /
Target Stores.
01/28/2012
01/29/2011
$2,929,000,000
$2,920,000,000
$15,821,000,000
$15,487,000,000
01/30/2010
$2,488,000,000
$15,347,000,000
18.51%
16.21%
18.85%
(b)
Net Earnings (a)
Share Holders Equity
(b)
Return on Equity (a) /
(b)
(YCharts).
Wal-Mart Stores, Inc.
01/31/2012
01/31/2010
$15,699,000,000
$16,389,000,000
$71,315,000,000
$68,542,000,000
01/31/2010
$14,370,000,000
$70,468,000,000
22.01%
20.39%
23.91%
A company’s asset turnover ratio largely defies the company’s efficiency in allocating
assets—larger ratios are generally considered to be more efficient (Investopedia). The norm of
asset turnover ratios is typically dependent on the industry, but in the comparison of Target to
Wal-mart, Wal-Mart’s asset turnover is consistently higher than Target’s, an indication that the
company is more efficient regarding their assets.
A company’s profit margin is simply the margin of revenue a company receives after the
sale. The higher the profit margin, the higher the profits, as well as control over costs when
compared the competition (Investopedia). In the comparison of Target to Wal-Mart, this is a
good margin to analyze. Target has a higher profit margin. This is a good indication that Target
is showing greater profits than Wal-Mart, as well as more efficient pricing and control.
The return on total assets is a total measurement of earnings, generated from the
companies invested assets—the higher the percentage, the better (Investopedia). In the
comparison of Target and Wal-Mart, Wal-Mart has larger returns, indicating that the company
has better asset investments.
In short, return on equity is “a company's ability to generate profits from shareholders'
equity” (ycharts). Investors generally prefer to invest in companies with higher returns, as they
are generally more profitable. Wal-Mart has consistently higher returns on equity than Target,
which would be something investors would consider.
C. Calculate the following profitability ratios of Target Corporation and Wal-Mart Stores, Inc.
1. Debt to Total Assets
Total Debt (a)
Total Assets (b)
Debt to Total Assets
(a) / (b)
Target Corporation
01/28/2012
01/29/2011
$18,058,000,000
$16,284,000,000
$46,630,000,000
$43,705,000,000
38.73%
37.26%
01/30/2010
$16,814,000,000
$44,533,000,000
37.76%
Total Debt (a)
Total Assets (b)
Debt to Total Assets
(a) / (b)
(Investopedia).
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$53,427,000,000
$49,864,000,000
$193,406,000,000
$180,782,000,000
27.62%
27.58%
01/31/2010
$41,320,000,000
$170,407,000,000
24.25%
2. Free Cash Flow
Net Cash Provided by
Operating Activities
(a)
Capital Expenditures
(b)
Dividends (c)
Free Cash Flow (a) –
(b) – (c)
Net Cash Provided by
Operating Activities
(a)
Capital Expenditures
(b)
Dividends (c)
Free Cash Flow (a) –
(b) – (c)
(Investopedia).
Target Corporation
01/28/2012
01/29/2011
$5,434,000,000
$5,271,000,000
01/30/2012
$5,881,000,000
($4,368,000,000)
($2,129,000,000)
($1,729,000,000)
($750,000,000)
$316,000,000
($609,000,000)
$2,533,000,000
($496,000,000)
$3,656,000,000
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$15,907,000,000
$11,595,000,000
01/31/2010
$5,434,000,000
($8,921,000,000)
($5,522,000,000)
($2,375,000,000)
($4,034,000,000)
$2,952,000,000
($2,698,000,000)
$3,375,000,000
($1,352,000,000)
$1,707,000,000
Target Corporation
01/28/2012
01/29/2011
$4,456,000,000
$4,495,000,000
01/30/2010
$3,872,000,000
$295,000,000
15.11
$215,000,000
18.01
3. Times Interest Earned
Earnings Before
Interest Expense and
Income Taxes (a)
Interest Expense (b)
Times Interest Earned
(a) / (b)
$191,000,000
23.53
Wal-Mart Stores, Inc.
01/31/2012
01/31/2011
$26,558,000,000
$25,542,000,000
Earnings Before
Interest Expense and
Income Taxes (a)
Interest Expense (b)
$560,000,000
Times Interest Earned 47.425
(a) / (b)
(Brewer, Garrison, and Noreen 598).
$572,000,000
44.65
01/31/2010
$24,002,000,000
$522,000,000
45.98
When deciding on a company to invest in, it is important to know information on the
company’s debts. One such area to examine is the company’s total debt to total asset ratio, which
focuses on the percentage of assets financed by debt (Investopedia). The Target Corporation has
a higher total debt to total asset ratio than Wal-Mart, indicating that there is a higher risk when
investing.
When calculating a company’s solvency ratios for investment purposes, free cash flow is
an important measurement to take into consideration. The measurement of free cash flow simply
yields whether or not the company has the funds for capital expenditures (Brewer, Garrison, and
Noreen 557). Both Target and Wal-Mart have a sufficient amount of cash flows—more
importantly, positive numbers—to fund expenditures. These numbers show that both companies
are healthy, and investment worthy—in regards to free cash flows.
The times interest earned ratio is yet another important solvency ratio that should be
taken into consideration. The ratio is useful for determining how well the company will perform
in future years, as it states how well the company can protect their long-term investors (Brewer,
Garrison, and Noreen 598). Both Target and Wal-Mart feature worthy times interest earned
ratios, with Wal-Mart holding the better ratios.
In the decision of which company I would invest in, I would believe that I would invest
in Wal-Mart Stores, Inc. In regards to liquidity, profitability, and solvency ratios, Wal-Mart
appears to have the advantage over Target—though that’s not to say Target would not be a wise
company to invest in. The performed ratios indicate that Wal-Mart is able to meet the existing
and future obligations and debts, all while obtaining healthy and strong profits.
Works Cited
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