Ratios - Case Study Example

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Accordingly, the debt ratio computed above indicates the solvency financial position of Wal-Mart Corporation is better compared to the Target Corporation. The…
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Wal-Mart vs. Target Ratios Wal-Mart vs. Target Financial Ratios Ratios Wal-Mart Corporation Target Corporation Debt ratio = total debts/ total assets
117,769/203,706 * 100 = 57.81%
27,407/ 41,404 * 100 = 66.19%
Debt to equity ratio = debt/ equity
117,769/85,937 = 1.36
27,407/13,997 = 1.96
Time interest earned ratio = EBIT/ Interest expense
29,608/ 2461 = 12
5,196/ 597 = 8.7
Profit margin ratio = gross profit/sales revenue
120,565/485,651 *100 = 24.83%
21,340/ 72,618 * 100 = 29.37%
Asset turnover ratio = sales revenue/ total assets
485,651/203,706 = 2.38
72,618/41,404 = 1.75
The financial ratios above for Wal-Mart and Target companies depict the varying financial position and performance. Accordingly, the debt ratio computed above indicates the solvency financial position of Wal-Mart Corporation is better compared to the Target Corporation. The solvency position of Wal-Mart is better compared to that of Target because the debt ratio indicates the assets of Wal-Mart have been financed by debt by 57.81% while that of Target is 66.19% (Brigham & Houston, 2010). Similarly, the debt-to-equity ratio indicates debt finance of Wal-Mart is 1.36 higher to equity finance while that of Target Corporation is higher by 1.96. Furthermore, the times interest earned ratios computed above implies Wal-Mart has a better financial position of servicing interest obligations compared to Target Corporation. The times interest earned ratios indicate the WAL-Mart has the capacity of servicing the interest expense by 12 times using earnings before interest and taxes (EBIT) while Target has capacity of 8.7 times (Brigham & Houston, 2010). Consequently, the solvency financial position of Wal-Mart Corporation is better compared to that of Target Corporation.
However, the profit margin ratios reflect the financial performance of Target is better compared to that of Wal-Mart Corporation. The profit margin ratios indicate the Target Corporation in 2014 was able to generate gross profit worth 0.29 cents of dollars for every one dollar of sales revenue generated. In contrast, the Wal-Mart was able to generate 0.24 cents of gross profit for every one dollar generated (Maynard, 2013). Thus, the Target Corporation was more profitable compared to the Wal-Mart Corporation. However, the efficiency of WAL-Mart management in utilizing the assets to generate sales revenue is higher compared to Target Corporation according to asset turnover ratio. The asset turnover ratios indicate Wal-Mart’s assets were able to generate $2.38 of sales revenue for every one dollar of asset utilized. In contrast, the Target Corporation was able to generate $1.75 of sales revenue for every one dollar of assets utilized (Brigham & Houston, 2010). Consequently, Wal-Mart Corporation is more efficient in utilizing assets compared to Target Corporation.
Brigham, E., & Houston, J. (2010). Fundamentals of Financial Management. Boston, OH: CengageBrain.
Maynard, J. (2013). Financial accounting, reporting, and analysis. Oxford: Oxford University Press. Read More
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