(A) for Each Company, Compute the Following Ratios

P14-5B Selected data of Target and Wal-Mart for a recent year are presented here (in millions).

Target
Corporation / Wal-Mart
Stores,Inc.
Net sales / $57,878 / $348,650
Cost of goods sold / 39,399 / 264,152
Selling and administrative expenses / 15,022 / 64,001
Interest expense / 572 / 1,178
Other income (expense) / 1,612 / (1,670)
Income tax expense / 1,710 / 6,365
Net income / $ 2,787 / $ 11,284
Target
Corporation / Wal-Mart
Stores,Inc.
Balance Sheet Data (End of Year)
Current assets / $14,706 / $ 46,588
Noncurrent assets / 22,643 / 104,605
Total assets / $37,349 / $151,193
Current liabilities / $11,117 / $ 51,754
Long-term debt / 10,599 / 37,866
Total stockholders’ equity / 15,633 / 61,573
Total liabilities and stockholders’ equity / $37,349 / $151,193
Beginning-of-Year Balances
Total assets / $34,995 / $138,187
Total stockholders’ equity / 14,205 / 53,171
Current liabilities / 9,588 / 48,825
Total liabilities / 20,790 / 85,016
Other Data
Average net accounts receivable / $5,930 / $ 2,708
Average inventory / 6,046 / 32,798
Net cash provided by oper activities / 4,862 / 20,164

Instructions

(a) For each company, compute the following ratios.

(1) Current. (7) Asset turnover.

(2) Accounts receivable turnover. (8) Return on assets.

(3) Average collection period. (9) Return on common stockholders’ equity.

(4) Inventory turnover. (10) Debt to assets.

(5) Days in inventory. (11) Times interest earned.

(6) Profit margin.

(b) Compare the liquidity, solvency, and profitability of the two companies.

PROBLEM 14-5B

(a) / Ratio / Target / Wal-Mart
All Dollars in Millions / All Dollars in Millions
1 / Current / 18,906 / 11,782 / 1.6:1 / 47,585 / 58,454 / .8:1
2 / Accts Receivable Turnover
3 / Average Collection Period
4 / Inventory Turnover
5 / Days in Inventory
6 / Profit Margin
7 / Asset Turnover
8 / Return on Assets
9 / Return on Com Stkhldr Eqty
10 / Debt to Assets
11 / Times Interest Earned
(b) The comparison of the two companies shows the following:
Liquidity:
Profitability:
Solvency:

PROBLEM 14-5A

(a) / Ratio / Target / Wal-Mart
(All Dollars Are in Millions)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11) / Current
Accounts receivable
turnover
Average collection
period
Inventory turnover
Days in inventory
Profit margin
Asset turnover
Return on assets
Return on common
stockholders’ equity
Debt to assets
Times interest earned / 1.6:1 ($18,906 ÷ $11,782)
8.6 ($61,471 ÷ $7,124)
42.4 (365 ÷ 8.6)
6.4 ($41,895 ÷ $6,517)
57.0 (365 ÷ 6.4)
4.6% ($2,849 ÷ $61,471)
1.5 ($61,471 ÷ $40,954.5a)
7.0 % ($2,849 ÷ $40,954.5a)
18.4 % ($2,849 ÷ $15,470b)
65.6% ($29,253 ÷ $44,560)
8.1 ($5,272 ÷ $647) / .8:1 ($47,585 ÷ $58,454)
115.3 ($374,526 ÷ $3,247)
3.2 (365 ÷ 115.3)
8.3 ($286,515 ÷ $34,433)
44.0 (365 ÷ 8.3)
3.4% ($12,731 ÷ $374,526)
2.4 ($374,526 ÷ $157,550.5c)
8.1 % ($12,731 ÷ $157,550.5c)
20.2% ($12,731 ÷ $63,090.5d)
60.5% ($98,906 ÷ $163,514)
11.9 ($21,437 ÷ $1,798)

a($44,560 + $37,349) ÷ 2 c($163,514 + $151,587) ÷ 2

b($15,307 + $15,633) ÷ 2 d($64,608 + $61,573) ÷ 2

(b) The comparison of the two companies shows the following:

Liquidity—Target’s current ratio of 1.6:1 is significantly better than Wal-Mart’s .8:1. However, Wal-Mart has a better inventory turnover ratio than Target and its accounts receivable turnover is substantially better than Target’s.

Profitability—With the exception of profit margin, Wal-Mart betters
Target in all of the profitability ratios. Thus, it is more profitable than Target.

Solvency—Wal-Mart betters Target in both of the solvency ratios. Thus, it is more solvent than Target.

Copyright © 2015 John Wiley & Sons, Inc.Weygandt, Financial and Managerial Accounting 2e, Solutions Manual(For Instructor Use Only) 14-1