Financial Statement Analysis: Target and Walmart

Introduction

The reported financial statements do not give an in-depth analysis of the strengths and weaknesses of the company. Therefore, it is necessary to carry out a comprehensive analysis of the financial analysis of the financial statements so as to have a better view of the company. Further, analysis of the company helps in making informed decision. Ratio analysis breaks down the financial data into various components for better understanding of the financial strengths and weaknesses of the company. These ratios measures different attributes in the financial health of a company. The paper seeks to carry out horizontal and vertical analysis of the income statement of Target Corporation. Also, the paper will carry out a ratio analysis to compare the performance of Target Corporation and Walmart.

Discussion

Horizontal analysis of Target’s income statement for 2010

Horizontal analysis gives an indication on the trend of performance of a company over a period of time. The table presented below shows the results of horizontal analysis of the company. The base year for the horizontal analysis will be 2008.

Millions except per share data 2010
Sales 103.71%
Credit card revenues 83.45%
Total revenues 103.11%
Cost of sales 103.77%
Selling, general, and administrative expenses 102.99%
Credit card expenses 56.54%
Depreciation and amortization 103.02%
Earnings before interest expense and income taxes 112.39%
Net interest expense
Non-recourse debt collateralized by credit card receivables 85.57%
Other interest expense 95.76%
Interest income 100.00%
Net interest expense 94.51%
Earnings before income taxes 116.09%
Provision for income taxes 113.80%
Net earnings 117.36%
Basic earnings per share 121.75%
Diluted earnings per share 121.21%
Weighted average common shares outstanding
Basic 96.22%
Diluted 96.63%

The analysis above shows that Target Corporation experienced an increase in sales in 2010 by 3.71%. However, there was a decline in the value of credit card revenues by 16.55%. These changes resulted in an increase in total revenue by 3.11%. The costs of sales (3.77%) and selling, general and administrative expenses (2.99%) increased by almost an equal proportion as total revenue. Further, credit card expenses declined by 43.46%. The depreciation and amortization expenses increase by 3.02%. These changes resulted in an increase in earnings before interest expense and taxes (EBIT) by 12.39%. The interest expenses declined by 5.49% while the provision for income taxes increased by 13.80%. These changes resulted in an increase in net earnings by 17.36% between 2009 and 2010.

Vertical analysis of Target’s income statement for 2010

Vertical analysis generates margins that can be used to compare the performance of one company against another company. The table presented below shows the result of vertical analysis of the company.

Millions except per share data 2010
Sales 97.62%
Credit card revenues 2.38%
Total revenues 100.00%
Cost of sales 67.85%
Selling, general, and administrative expenses 19.99%
Credit card expenses 1.28%
Depreciation and amortization 3.09%
Earnings before interest expense and income taxes 7.79%
Net interest expense
Non-recourse debt collateralized by credit card receivables 0.12%
Other interest expense 1.00%
Interest income 0.00%
Net interest expense 1.12%
Earnings before income taxes 6.67%
Provision for income taxes 2.34%
Net earnings 4.33%
Basic earnings per share 0.01%
Diluted earnings per share 0.01%
Weighted average common shares outstanding
Basic 1.07%
Diluted 1.08%

The revenue from sales was 97.62% while credit card revenues earned were 2.44% of the total amount of revenue. The total of cost of sales and selling, general, and administrative expenses were 87.84% of the sales. The remaining proportion was distributed among credit card expense (1.28%), depreciation and amortization (3.09%), net interest expenses (1.12%), and provision for income taxes (2.34%). This resulted in a net profit margin of 4.33%. Thus, cost of sales and selling, general, and administrative expenses are quite high. This can be attributed to the nature of the business.

Ratio analysis for Target and Walmart for 2010

The table presented below shows the ratios for Target Corporation and Walmart for the year 2010.

Ratio Target Corporation Walmart
a. Working Capital 7,143 million -7,230 million
b. Current Ratio 1.63 0.87
c. Quick Ratio 0.81 0.22
d. Receivable Turnover (times) 8.69 101.43
e. Day’s Sales Uncollected 42.03 3.6
f. Inventory Turnover (times) 6.57 9
g. Day’s Inventory on Hand 55.59 40.54
h. Payables Turnover (times) 7.096 10.28
i. Day’s Payable 51.44 35.52
j. Profit Margin % 4.33 3.81
k. Asset Turnover (times) 1.47 2.44
l. Return on Assets % 5.61 8.58
m. Return on Equity % 17.12 21.08
n. Debt to Equity Ratio 0.99 0.51
o. Interest Coverage Ratio (times) 5.82 11.69
p. Cash Flow Yield 1.67 0.98
q. Cash Flow to Sales 6.35 3.45
r. Cash Flow to Assets 2.65 2.98

The working capital for Target Corporation was positive while for Walmart was negative. This implies that Walmart has a working capital deficiency. The current ratio and quick ratio for Target were greater than the ratio of Walmart. This implies that Target Corporation can pay its current liabilities much easier than Walmart. The receivable turnover ratio for Walmart was higher than the ratio of Target. It indicates that Walmart is either operating on a cash basis or is more efficient in making credit sales and collecting debts than Target. Further, the day’s sales uncollected show that Walmart collects debt within a shorter period than Target. The inventory turnover ratios show that Walmart replenishes stock at a faster rate than Target. Also, the day’s inventory on hand shows that the stock of Walmart moves faster than Target. This shows that Walmart is efficient in managing stock.

The payables turnover ratios show that Walmart pays creditors at a faster rate than Target while the day’s payable shows that Walmart pays the creditors within a short duration as compared to Target. This implies that Walmart is more efficient in paying debtors than Target. The asset turnover shows that Walmart is more efficient in generating sales from a unit of the total assets than Target Corporation. The profit margin for Target is slightly higher than that of Walmart. It indicates that Target is more efficient in managing the running costs of the company and the cost of sales than Walmart. Further, the return on assets and return on equity for Walmart is higher than those of Target. This shows that Walmart is more efficient in using the assets and capital provided by shareholders to generate sales and profit than Target. The debt to equity ratio shows that Walmart has a higher amount of debt in its capital structure than Target. This shows that Walmart is highly levered than Target. The interest coverage ratio shows that Walmart is more solvent than Target and can easily pay the interest expenses. Finally, the cash flow ratios show that higher returns are expected in the future at Target than at Walmart Inc.

Conclusion

In summary, Target Corporation is less efficient in its operations than Walmart as indicated by the various efficiency ratios. However, Target Corporation has higher liquidity than Walmart. Also, it can be observed that Target Corporation is less profitable than Walmart as indicated by the profitability ratios discussed above. Further, Target Corporation is less levered than Walmart. It may indicate that the company is not aggressive in its capital structure.

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NerdyTom. (2022, April 2). Financial Statement Analysis: Target and Walmart. Retrieved from https://nerdytom.com/financial-statement-analysis-target-and-walmart/

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"Financial Statement Analysis: Target and Walmart." NerdyTom, 2 Apr. 2022, nerdytom.com/financial-statement-analysis-target-and-walmart/.

1. NerdyTom. "Financial Statement Analysis: Target and Walmart." April 2, 2022. https://nerdytom.com/financial-statement-analysis-target-and-walmart/.


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NerdyTom. "Financial Statement Analysis: Target and Walmart." April 2, 2022. https://nerdytom.com/financial-statement-analysis-target-and-walmart/.

References

NerdyTom. 2022. "Financial Statement Analysis: Target and Walmart." April 2, 2022. https://nerdytom.com/financial-statement-analysis-target-and-walmart/.

References

NerdyTom. (2022) 'Financial Statement Analysis: Target and Walmart'. 2 April.

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