Financial Statement Analysis - Ratio analysis case

Ratio Analysis Case: Wal-Mart Stores The attached exhibits provide various financial and operating data for Wal-Mart and two other leading discount retailers, Carrefour and Target. Throughout the analysis assume that the income tax rate is 35%. Clearly state any assumptions you are making in addressing the following questions: Part A: 1. What are the likely reasons for the changes in Wal-Mart's rate of return on assets during the three-year period? Analyze the financial ratios to the maximum depth possible. 2. How has the short-term liquidity risk for Wal-Mart changed during the three-year period? 3. How has the long-term solvency risk of Wal-Mart changed during the three-year period? Part B: Part A of the case analyzed the profitability and risk of Wal-Mart Stores for its fiscal Year 2, Year 3, and Year 4. Part B of this case compares the profitability and risk ratios of Wal-Mart and two other leading discount retailers, Carrefour and Target, for their Year 2 to Year 4 fiscal years. 1. Wal-Mart and Target follow somewhat different strategies. Wal-Mart consistently has a higher ROA than Target. Using the information attached, suggest reasons for these differences in operating profitability. 2. Wal-Mart and Carrefour follow similar strategies. Wal-Mart consistently outperforms Carrefour on ROA. Using the information attached, suggest reasons for these differences in operating profitability. 3. Rank-order these firms in terms of their short-term liquidity risk. Do any of these firms appear unduly risky as of the end of fiscal Year 4? 4. Rank-order these firms in terms of their long-term liquidity risk. Do any of these firms appear unduly risky as of the end of fiscal Year 4? , Carrefour Short-Term Liquidity Current Ratio . Quick Ratio Cash Flow from Operations/ AverageCurrent Liabilities DaysReceivable ....... D a y sI n v e n t o r y. . . . . . . Davs Payable Long-TermSolvency Long-TermDebt Ratio TotalLiabilities/ Total AssetsRatio Cash Flow from Operations/ AverageTotal Liabilities Interest CoverageRatio Thrget Wal-Mart Year 2 Year3 Year 4 Year 2 Year 3 Year 4 Year2 Year3 Year4 .64 .28 .65 .27 .60 .26 1.30 .67 1.56 .64 1.69 .93 .15 .91 .t7 .90 .17 46.2o/o 39 58 .78 12.2o/o 16.9o/o 18.60/o t a LL 40 90 t6 38 90 t6 39 90 37.3o/o 4l 54 56 40.5o/o 40 55 58 63.2o/o 64.1o/o 62.0o/o 53.8o/o 82.9o/o 83.5o/o 83.Io/o 7.5o/o 3.4 10.2o/o Il,4o/o 4.0 3.8 45.7o/o 37.3o/o 6T 48 33 2 47 33 2 47 34 50100/o 43.9o/o 38.0% 36.5o/o 36.9o/o 78.7o/o 65.7o/o 6l.Io/o 60.Io/o 60.5o/o 60.60/o 14.7o/o 4.8 15.60/o 5.7 18.3o/o 23.Io/o 25.4o/o 15.0 2l.lo/o Year 2 Growth Rate in Sales Carrefour Target. Wal-Mart Numberof Stores Carrefour r4r ErcL . Wal-Mart Square Footage (000's) Carrefour Tarqel Wal-Mart Salesper Square Foot Carrefour Target. Wal-Mart Salesper Store Carrefour Target. Wal-Mart SquareFeetper Store Carrefour Thrget. Wal-Mart Fixed Assetsper Square Foot Carrefour Target. Wal-Mart 43.8o/o 6.3 Year 3 (1.10lo) 2.60/o L2.0o/o 12.60/o 12.to/o ll.60/o 5,531 1,L47 4,672 105,132 140,294 560,900 $601 $260 $409 6,067 1,225 4,906 108,103 152,563 606,480 $74r $268 $423 J t2.5 Year 4 3.1o/o lL.60/o ll.3o/o 6,546 1,309 5,289 I 18,867 166,015 663,2r7 $7s9 $275 $430 $rr,420,r77 $13,197,132 $13,791,791 $31,838,710 $33,410,612 $34,925,076 $49,147,260 $52,248,060 $53,927,400 19,008 122,314 120,056 $1s4 $104 $100 19,545 124,541 L23,620 $187 $106 $l0s 18 , 15 9 t26,923 125,396 $196 $i09 $111 Salesper Employee Carrefour Target. Wal-Mart Exchange Rate: U.S.Dollars per Euro $205,478 $171,422 $2t2,305 $238,838 $178,281 $2t3,607 $262,022 sr74,093 $209,722 $.91906 $1.13s91 $r.24238 14.4