Idea Transcript
Surname 1 Name Instructor’s Name Course Date
Target Wal-Mart Financial Statement Analysis Project
Summary of Finding Wal-Mart Stores Inc. (WMT) is world’s largest retailer and supermarket chain that is known for its leadership, success and innovation. The company boasts of annual revenues of USD 476 billion while employing about 2.2 billion people across the globe. The profit figures have been astounding at USD 16 billion as per the latest 2013 data available. WMT has a wide global presence with over 11,000 stores in more than 25 countries. WMT was founded in 1969 by Sam Walton and has grown to become one of the critical stocks in the world, New York Stock Exchange with a market capitalization of USD 244 billion and is also listed as one among the Fortune 500 companies (Wal-Mart, "Annual Report 2013"). Target Corporation (TGT), founded in 1902 by George Dayton and is headquartered in Minneapolis. With a revenue of USD 72 billion and net income of USD 2.50 billion, it is easily the second largest discount retailer in United States. TGT is also one of the Fortune 500 companies and is a component of S&P’s 500 index. TGT has a total of 1934 stores in U.S. but is closing its Canada business that has roughly 133 stores (Target "Annual Report 2013"). TGT is a mid-range department store while WMT is a perceived as a lowerend department store. Going beyond each company’s target market and its slogans, the financial analysis tells us the true story behind each of this company. Undermining the fact that TGT has a better Gross Margin % (29.50 to 24.80) and Operating Margin % (5.80 to
Surname 2 5.60), the analysis finds that WMT wins and outperforms on almost all aspects except Working Capital Ratio ( where it is closer to the safe benchmarking ratio of 1). TGT has also been impacted by the closure of its business in Canada owing to two years of low sales and no hope for turning a profit for at least another six years.
Ratio Table Ratio
Target
Wal-Mart
Debt to Asset
0.31
0.28
Debt to Equity
1.74
1.69
Return on Equity
0.44
0.19
Profit Margin
2.72%
3.36%
Return on Asset
0.04
0.08
Working Capital
0.90
0.88
Current Ratio
0.91
0.88
Meaning of Each Ratio Debt to Asset Debt to Asset = (Short Term Debt + Long Term Debt) / Total Assets Total debt to total assets is a leverage ratio that enables comparisons of leverage taken across different companies. Higher ratio here would indicate a higher degree of leverage, and consequently, financial risk (Siddiqui; Black). Lower debt ratio is an implication towards a highly stable business that has a potential of long sustenance primarily because the company with a lower ratio also has a lower debt on the overall. Each industry sets their own benchmark ratios for debt to asset ratio but the ideal in
Surname 3 this case is 0.5. In the analysis, we see that WMT is lower leveraged as compared to TMT (0.30 to 0.27) Debt to Equity Debt to Equity = Total Liabilities / Shareholders Equity The ratio takes a measure of the financial leverage of a company that specifies the proportion of debt and equity, the company is utilizing to finance its assets (Drury; Brealey, Stewart, Myers, and Franklin). The debt equity ratio of both Wal-Mart and Target is high and above the ideal that should be 1:1. The companies have over utilized their capacities and need to cut back on additional debt funds to manage finances better. Comparatively, Target has a weaker ratio than Wal-Mart. Return on Equity Return on Equity = Net Income / Average Shareholder Equity Return on equity ratio measures company profits that are to be made available to shareholders as a reward for their investments in the company (Brealey). WMT is using its investors' funds effectively since it has a ROE of 21% as compared to a mere 12 % of TMT. Alternatively, return on equity (ROE) ratio depicts the amount of profit generated by every dollar of common stockholder equity. Profit Margin = Operating Income / Revenue Net profit ratio is a measure of profits of a business that arise out of its primary operational activities (Needled). WMT has converted 3.36% of its sales into profits while TMT has managed a mere 2.72%.
Surname 4 Hence WMT is better off in this too. Return on Asset = Net Income / Average Total Assets The return on assets ratio measures how effectively a company can possibly earn a return on its assets investments (Benninga). WMT has a better ROA of 0.08 compared to TMT’s 0.04 primarily because a higher ratio depicts that the company is efficient in managing its assets for the purpose of generating income. Working Capital = Current Assets/Current Liabilities Working capital ratio is nothing but the current ratio that measures the company’s current assets over current liabilities (Ross). The ratio is close to one but less than the ideal, which is 1:1 for both Target and Wal-Mart. Here, the ratio implies that both Wal-Mart and Target have been managing their operations quite smoothly but it has to manage its debtors well so that it has more current assets and does not need to borrow from outside for business operations. Current Ratio = Current Assets / Current Liabilities The current ratio is a measure of the management efficiency of the company’s short term liabilities (Garrison). Here, both companies display a ratio less than 1 and this is considered to be highly risky by investors as well as creditors because it is an indicator of company’s inefficiency in managing
Surname 5 its current debt obligations. The analysis shows that both the companies are not well off, but in comparison TMT stands out inching close to 1 ( 0.91 to 0.88). Management Discussion Analysis The management discussion analysis for Target Corp states that the company’s earnings per share were $ 3.07 which included a dilution of $1.13 within the Canadian segment. Adjusted earnings for each shareholding stood at $4.38 while the sales per share have declined by about 0.4 %. The dividends paid out were $1006 million along with a repurchase of 21.9 million shares for $1474 million. The company opened about 124 stores in Canada and gained $391 in US credit card portfolio of consumers out of which $1.4 billion was utilized towards expansion plans of the company along with an additional debt of $970 million. The net sales for Wal-Mart stood at 466114 million which was a 5.9% increase over the past year’s sales figures. The year’s gross profits stood at 27801 million which was a 4.7% increase over the previous year. The total return on equity was 18.2% lower by 0.4% over 2012. The dividends declared per unit were $1.59 as opposed to $1.49 in the previous year, and the total dividend paid out was 5.4 billion. The company also repurchased $3.7 billion in 2013 which was used towards expansion plans to the tune of $316 million for development of new stores alone.
Surname 6 Works Cited Needled, Belverd. E., Powers, Marlian. and Crosson, Susan. V. Principals of Accounting. Connecticut: Cengage Learning. 2008. Print. Brealey, Richard A, Stewart C. Myers, and Franklin Allen. Principles of Corporate Finance. New York, NY: McGraw-Hill/Irwin, 2006. Print. Drury, Colin. Management and Cost Accounting. Connecticut: Cengage Learning EMEA. 2008. Print Wal-Mart.
"Annual
Report
2013"
Web.
2
Mar.
2015.
<
http://www.sec.gov/Archives/edgar/data/104169/000010416913000011/annualreporttoshareh olders.htm#sABA6ABE7F2E01714EB409B0192B18264>. Target.
"Annual
Report
2013"
Web.
2
Mar.
2015.
<
https://corporate.target.com/_media/TargetCorp/annualreports/content/download/pdf/Target2013-Annual-Report.pdf?ext=.pdf> Arnold, Glen. Essentials of Corporate Financial Management. Harlow: FT prentice Hall. 2007. Benninga, Simon. Financial Modelling (Third Edition). Massachusetts: Massachusetts. Institute of Technology. 2005. Print. Ross, Stephen A., Westerfield, Randolph W. and Jaffe, Jeffery F., Corporate Finance. New Delhi: McGraw-Hill. 2005. Print. Brealey, Richard A. Principles of corporate finance. India: Tata McGraw-Hill Education. 2012.Print.
Surname 7 Black, Geoff. and Al-kilani, Mahmood. Accounting and Finance for Business. New Delhi: Pearson Education. 2013. Print. Siddiqui, Aryasri S. Managerial Economics and Financial Analysis. India: New Age International. 2006. Print Garrison, Ray H, Eric W. Noreen, and Peter C. Brewer. Managerial Accounting. Boston: McGraw-Hill/Irwin, 2008. Print.
Surname 8 Appendix Wal-Mart 1. Balance Sheet
2. Income Statement
3. Statement of Change in Owner’s Equity
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4. Statement of Cash Flows
5. Management Discussion analysis
Surname 10 6. Mission Statement Saving People money so that they can live better. Target 1. Balance Sheet
2. Income Statement
3. Statement of Change in Owner’s Equity
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4. Statement of Cash Flows
5. Management Discussion analysis
6. Mission Statement To make target your preferred shopping destination in all channels by delivering outstanding
Surname 12 value, continuous innovation and exceptional guest experiences by consistently fulfilling out expect more pay less brand promise.