Question

Selected financial data of two competitors, Target and Wal-Mart, are presented here. (All dollars are in millions.) Suppose the data were taken from the 2017 financial statements of each company. Target (1/31/17) Wal-Mart (1/31/17) Income Statement Data for Year Net sales $64,948 $401,244 Cost of goods sold 44,157 306,158 Selling and administrative expenses 16,389 76,651 Interest expense 894 2,103 Other income 28 4,213 Income taxes 1,322 7,145 Net income $ 2,214 $ 13,400 Target Wal-Mart Balance Sheet Data (End of Year) Current assets $17,488 $ 48,949 Noncurrent assets 26,618 114,480 Total assets $44,106 $163,429 Current liabilities $10,512 $ 55,390 Long-term liabilities 19,882 42,754 3 Target (1/31/17) Wal-Mart (1/31/17) Income Statement Data for Year Total stockholders' equity 13,712 65,285 Total liabilities and stockholders' equity $44,106 $163,429 Net cash provided by operating activities $4,430 $23,147 Cash paid for capital expenditures $3,547 $11,499 Dividends declared and paid on common stock $465 $3,746 Weighted-average shares outstanding (millions) 774 3,951 Instructions For each company, compute these values and ratios. (a)Working capital. (b)Current ratio. (c)Debt to assets ratio. (d)Free cash flow. (e)Earnings per share. (f)Compare the liquidity and solvency of the two companies.

Answer 1

Answer:

Explanation:

The file attached shows the complete calculation to the problem

a) working capital = Current asset - current liabilities =h-k  

Target $  6,976  Wal-Mart $ (6,441)      

b)Current ratio = Current Asset / Current liabilities = h/k                 Target 1.66                Wal-Mart  0.88      

c) Debt to asset ratio : (Current liabilities + Long term liabilities)/Total asset = (k+l)/j              Target 0.69                  Wal-Mart 0.60      

e) Earning per share = net income/number of share outstanding = g/r   Target $ 2.86  Wal-Mart $ 3.39

f)  Liquidity is reflected by net working capital, current asset ratio. We can see net working capital is negative for Wal-Mart and also Current ratio is lower compared to  

Target. Hence, Target has better liquidity compared to Wal-mart

Solvency : is reflected by ability of company to pay its debt on time. We can see debt to asset ratio is lower for Wal-Mart.      

Target has relatively higher debt compared to Wal-mart. Hence solvency for Wal-mart is better .