Running Head: INTERPRETING
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Applied Research Analysis: Interpreting a 10-K
Tanya Burnside: Group Members- Jyothsna Kodali, Ashley Pleasant, & James Totten
Bellevue University - MBA605 T-201
October 7, 2013
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Abstract
Publicly traded companies are responsible for providing the Securities and Exchange
Commission with a 10-K or “annual required filling”, which is a detailed report of the company
submitted annually. The annual detailed report allows stakeholders to attain full disclosure of
information including operations, finances, opportunities and risks. The purpose of this analysis
is to analyze the 10-K of two retailers and identify each retailer’s business strategy based on
specified information.
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INTERPRETING A 10-K
Outlook: Wal-Mart Stores, Inc. (WMT) “Save money. Live better.”
Wal-Mart is the world’s largest retailer and the third largest publicly traded company.
Wal-Mart has 10,900 operations in 27 countries. Worldwide, Wal-Mart employs more people
than any other company. There are currently 1.3 million U.S. associates and 2.2 million
associates worldwide (Our Story, 2013).
Fiscal year ending January 31, 2013 (Fiscal 2013) shows Wal-Mart revenues of $469.2
billion with net sales of $466.1 billion. The net sales are generated from three business
segments: 59% from Wal-Mart U.S., 29% from Wal-Mart International, and 12% from Sam’s
Club. Generating Wal-Mart’s high revenues requires strategic merchandising, and Wal-Mart
does it best. Figure 1 represents the Wal-Mart U.S. strategic merchandising units in Fiscal 2013.
Figure 1.
Competitors of the retail giant include Target Corporation, Costco Wholesale
Corporation, Kohl’s Corporation, and Dollar General Corporation. Wal-Mart reigns over the
competition as the largest mass merchandiser of consumer products. Wal-Mart’s competitive
edge stays sharp by excluding rotational promotions, preferring to earn the trust of their
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customers, by offering an “Everyday Low Prices” (EDLP) pricing philosophy. Other Wal-Mart
programs that address the competition include “Rollbacks”, “Save Even More/Ad Match”,
“Store of the Community”, and “Clean Fast and Friendly”. Different formats of the retailer
meets the need of consumers and satisfies market demands. Formats include supercenters,
discount stores, Neighborhood Markets and walmart.com (Form 10-K, 2013). Figure 2
represents the SWOT analysis for Wal-Mart (SWOT analysis, 2013).
SWOT
Strengths
Vast operations- power player able to negotiate
pricing etc.
Large group of suppliers – dictate price
demands
Low product cost- mass quantities
Diverse products- meets customer needs. One
stop shop.
Opportunities
Additional business formats meeting
demographic needs of customers.
Community investments of local distributers
and business partners
E-commerce expansion in the U.S. and abroad
International
Figure 2.
Weaknesses
High employee turnover- low pay, even lower
benefits
Poor product quality- several brands made with
substandard products.
Negative public perception- Shuts down towns.
Lawsuits involving labor issues –
Discrimination against women.
Threats
Competition from other retailers like Dollar
General
Lack of specialty products because of too
many different product lines
Unions may form resulting in cost-per hire and
labor costs.
Government shut-down – War/Terrorism
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Outlook: Target (TGT) “Expect More. Pay Less”
Target is one of the leading retail giants with three operating segments Target U.S. Retail,
Target U.S. Credit Card and Target Canadian. The company provides a vast array of national
brand merchandise at a claimed “discounted price”. The shopping experience that Target prides
itself on is the anchor to their marketing strategy.
Targets strong supply chain management, effective use of retail technology, and branded
proprietary credit cards were primary factors in the 2012 net sales of $71,960 million. Figure 3
represents Targets percentage of sales. The retail giant attributes one-third of 2012 total sales to
their “owned brands (Xhilaration®, Room Essentials®, Wine Cube®, Market Pantry®, etc.) and
exclusive brands(Cherokee® , Genuine Kids by OshKosh®, Simply Shabby Chic®, Nate
Berkus for Target®, etc.)” (Form 10-K: Target, 2013).
Target Percentage of Sales
Home Furnishings
and Décor
18%
Food and Pet
Supplies
20% Apparel and
Accessories
19%
Household
Essentials
25%
Hardlines
18%
Figure 3.
Target’s competitors include Wal-Mart, Macy’s, Costco, and Walgreens. Target’s
limited presence in the international market and e-commerce has hindered the retail giant.
Companies like Wal-Mart who have increased their international position and e-commerce
activities experienced more growth. Failing to focus on global markets and on-line retailing will
cause long-term issues with expansion. Figure 4 represents Target’s SWOT analysis.
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SWOT
Strengths
National brand merchandise with exclusitivity
Weaknesses
International presence
REDCard debit and credit card
Company Brand - Customer loyalty
Supply chain management
Leading retailer
Opportunities
International expansion including Canada
Inclusion of more mainstream products and
services including private labels
Competitive price matching and more food
products
Social media expansion
High employee turnover
Low wages
Expensive products especially stores brand
Limited private label products
Threats
Retail competition – Walmart, Costco, etc.
Growth of online discount merchants and 2nd
hand/consignment shops
Economic conditions causing customers to
limit purchases
Competitors offering higher wages and better
benefits
Figure 4.
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The Financials: Walmart vs. Target
Ratio Analysis - *Based on financial statements for Walmart – Jan 2013 Target-Feb 2013
Liquidity Ratio
Ratio
Wal-Mart
0.835
0.203
Target
1.168
0.54
Ratio
Debt to Equity Ratio
Wal-Mart
0.71
Target
1.066
Profitability Ratio (Performance)
Ratio
Return on Assets
Return on Equity
Wal-Mart
3.65%
22.27%
Target
6.23%
18.11%
Wal-Mart
10.64
Target
9.11
Gross Profit Ratio
Wal-Mart
24.38%
Target
30.38%
Asset Turnover Ratio
Ratio
Asset Turnover Ratio
Wal-Mart
2.29
Target
1.52
Current Ratio
Acid Test Ratio
Leverage Ratio
Activity Ratio
Ratio
Inventory Turnover Ratio
Gross Profit Ratio
Ratio
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Ratio Analysis - *Based on financial statements for Walmart – Jan 2013 Target - Feb 2013
Basic Earnings Per Share
Ratio
Basic Earnings Per Share
Price to Earnings Ratio (P/E)
Ratio
Price to earnings ratio
(Walmart Stores, 2013 and Target Corp., 2013)
Wal-Mart
5.220
Target
4.680
Wal-Mart
14.010
Target
13.570
Some Major Financial Fundamentals
The ratio analysis above suggests that Target has more liquidity, than Wal-Mart. How
could Wal-mart the third largest company in the world have a less stable cash flow? In order to
truly determine Wal-Mart’s liquidity, a cash conversion cycle or full scale analysis of their
current assets is needed which is beyond the scope of this paper. “In accordance with recently
published financial statements Wal-Mart Stores Inc. has Current Ratio of 0.83 times. This is
64.83% lower than that of services sector and 52.57% lower than that of Discount, Variety Stores
industry, The Current Ratio for all stocks is 63.76% higher than the company… Probability of
bankruptcy -14.49%” (WalMart Current, 2013).
Target’s debt-to-equity ratio suggests that Target may use too much debt to finance
growth. The use of excessive debt for financing could result in major issues. High debt-to
equity issues include increased interest costs, inability to pay debts, shareholder uncertainty, and
bankruptcy. “In accordance with recently published financial statements, Target Corp has Debt
to Equity of 0.91 times. This is 26.39% higher than that of Services sector, and 160.0% higher
than that of Discount, Variety Stores industry, The Debt to Equity for all stocks is 116.67%
lower than the firm…Probability of bankruptcy 39.81%” (Target Debt, 2013).
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Wal-Mart’s Strategy vs. Target’s Strategy
Wal-mart’s business strategy is simple:

Low prices every day

In-house distribution

Strategic location

Price and product command

Annihilate the competition no matter how small
Target’s business strategy is chic:

Best customer shopping experience

Specialization and differentiation of quality products with store brand and
household names

Sale the pop culture at an affordable price

Use latest retail technology and keep supply chain management strong
“Walmart, which says its customers' average household income ranges from $30,000 to
$60,000, hammers its low-price message and focuses on stocking basics like tee shirts and
underwear along with household goods… Target, whose customers have a median household
income of $64,000 a year, is known for carrying discounted designer clothes and home decor
under the same roof as detergent and dishwashing liquid” (Walmart and Target, 2012).
Recently, Target expanded in the Canadian region. “Prices at U.S. discounter Target
Corp.’s new stores in Canada are just 0.2 per cent higher than those at Wal-Mart Canada Corp., a
survey in early March says” (Strauss, 2013). The war between Target and Wal-mart grew
attention. One Target guest who was kicked out of Wal-mart for IPhone price checking blogged
about the differences between Target and Wal-mart Canadian product pricing, summarizing it in
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Figure 4. The blogger also posted detailed price matching list for a variety of other product
segments, detailed reasons to choose one retailer over the other, and offered the following
suggestion “The bottom line for choosing to shop at any store is to do your own price check
experiment to see if what you purchase on a regular basis is a fair price” (Kerry, 2013).
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Summary
Interpreting a 10-K is necessary for serious investor’s and stakeholders of any publicly
traded company. The 10-K is an operational facts-in-pure-form tool that allows anyone to
review the summary of information on a company. The 10-K information is vast with details
investors’ breeze through and details that pump the breaks on investment decisions. Kiplinger’s
Kathy Kristof suggests focusing on 7 key sections to speed read a 10-K:
 Stock Classes
 Auditor Changes or Disagreements
 Auditor’s Report
 Risk Factors
 Legal Proceedings
 Consolidated Financial Statements
 Management’s Discussion of Results
(Kristof, 2011).
No matter how the 10-K is read, it is guaranteed to provide Securities and Exchange Commission
(SEC) required information and that’s information stakeholders can take to the bank.
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References
Form 10-K: Target Corporation. (2013). Retrieved from
http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=13
6-0001047469130031003HVR622FHI91HVP82G9RJG0EU8&docFormat=HTM&formType=10-K
Form10-K: Wal-Mart Stores Inc. (2013). Retrieved from
http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=13
6-00001041691300001129T7QR984CV72K8HUI23G5JV18&docFormat=HTM&formType=10-K
Kerry. (2013). Target vs. Walmart: Where’s the best deal? Retrieved from
http://www.squawkfox.com/2013/06/03/target-walmart/
Kristof, K. (2011, May). Our 10-K cheat sheet: How to speed read a company’s annual report.
Kiplinger. Retrieved from http://www.kiplinger.com/article/investing/T052-C000-S002our-10-k-cheat-sheet-how-to-speed-read-a-company-s.html
Our Story. (2013). Retrieved from http://corporate.walmart.com/our-story/
Strauss, M. (2013, April 5). Target Canada prices 0.2 per cent higher than Wal-Mart’s : Survey.
The Globe and Mail. Retrieved http://www.theglobeandmail.com/report-onbusiness/target-canada-prices-02-per-cent-higher-than-wal-martssurvey/article10823259/
SWOT Analysis of Walmart. (2013). Retrieved from
http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.html
Target Corp. (TGT): Long-term Debt and Solvency Analysis. (2013). Retrieved
http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Long-term-Debtand-Solvency#Debt-to-Equity
Target Debt to Equity. (2013). Retrieved from http://www.macroaxis.com/invest/ratio/TGT-Debt_to_Equity
Target (TGT) SWOT Analysis. (2013). Retrieved from http://www.wikiwealth.com/swotanalysis:tgt
Walmart and Target: A tale of two discount chains. (2012, November 18). CBSMoneyWatch.
Retrieved from http://www.cbsnews.com/8301-505145_162-57551520/
WalMart Current Ratio. (2013). Retrieved from http://www.macroaxis.com/invest/ratio/WMT-Current-Ratio
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Walmart Stores Inc. (WMT): Liquidity Analysis. (2013). Retrieved from http://www.stockanalysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Ratios/Liquidity
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