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Financial Statement Analysis Project: Spring 2021 Walmart vs. Target Information Source 2019 (financial year) Walmart/Target Financial Comparison There is a lot of conversation about Target being new wave and more profitable while Walmart is dull and getting obsolete. This project is an attempt to explore the profitability of these firms. You will be getting all the data from the annual report covering 2019 which was published in early 2020. Here are the sites I used: Walmart The statements are included in the Week 3 Materials They call it 2020 Annual Report, because year ends Jan. 31, 2020. Management Discussion and Analysis (MD&A) runs to page 48, audited financial statements and footnotes start on page 48 Target The statements are included in the Week 3 Materials Target calls it their 2019 Annual Report based on their 2019 fiscal year which runs through Feb. 1, 2020. Management Discussion and Analysis runs to page 33, financial statements and footnotes start on page 34 If you are going to burn paper, only copy the financial statements Tasks to Perform 1. Read the notes to the financial statements to answer these accounting questions: a. What inventory methods does each company use? b. What depreciation method does each firm use? c. How does each company handle payments from suppliers such as rebates and other incentives? d. Does either company have accounts receivables? Are those amounts owed by customers? Now get out an Excel spread sheet and show the calculations for the questions that follow. Show your calculations. 2. Compare total revenues, who is bigger and by how much percentage wise? Calculate the year over year percentage increase in total revenue for each company (2019 over 2018 and 2018 over 2017). Any thoughts? 3. Compare gross profit percentages. Compare just product sales with cost of goods sold. Don't include sale of services or membership fees. What are your thoughts on this? 4. Analyze operating income. That is income from day-to-day operations and does not include interest, other or taxes. a. Compare operating income to total sales including services and fees. b. Compare operating income to total assets used. Total assets should be the average of 2019 and 2018. Remember, whenever you compare an income statement amount to a balance sheet amount, the balance sheet amount should be the average for the period the income figure applies to. For us that is (beginning + ending) 2. c. Compare operating income to total stockholders. Equity should be the average of 201 and 2018. Remember, whenever you compare an income statement amount to a balance sheet amount, the balance sheet amount should be the average for the period the income figure applies to. For us that is (beginning + ending) 2. 5. Analyze bottom line net income. This is everything in, including taxes. a. Compare net income to total assets used. Total assets should be the average of 2019 and 2018 b. Compare net income to total stockholders'. Equity should be the average of 2019 and 2018. 6. Let's look at the cost of debt. We do that by comparing interest expense to the total interest- bearing debt. That would include current and long-term portions of long term debt and capitalized lease obligations. It does not include accounts payable, accrued, other current liabilities, deferred income taxes or other noncurrent liabilities that do not accrue interest. or 7. Now let's look at where the funds come from to finance total assets. Compare percentage of total assets financed by: a. Total current liabilities i. And specifically, from accounts payable amounts paid for cost of goods purchased) b. Total long-term liabilities. Stockholders' equity (as defined in #6c) Do you see a difference? 8. Turnover ratios measure operating efficiency. They compare income statement amounts to balance sheet amounts. The balance sheet amount should be the average defined as (beginning + ending) 2. a. Inventory turnover - how many times does inventory turn each year. Divide cost of goods sold by average inventory. Then turn that into days by dividing by 365 days to get days in inventory. b. Total asset turnover - how many times do total assets turn each year. Divide total revenue by average total assets. Then turn that into days by dividing by 365 days to get days. c. And now the Fischer Special - accounts payable turnover. That would be purchases of goods divided by average accounts payable. In these cases, there is little difference between cost of goods sold and purchases (so we won't adjust for change in inventory). We will divide cost of goods sold by average payables to get turn. Then we divide that into 365 to get average time it takes top for goods. What do you see happening here? c. 9. I almost forgot the most famous ratio of all the current ratio. Lenders worry about that and like to see "2". Calculate the current ratio for each firm. Do you think they worry about it? 10. There is another new ratio that analysts use. That is Cash from operations as a percent of total average assets. Most investors focus on cash flow and this is a measure of the efficiency with which assets are producing cash flow. Financial Statement Analysis Project: Spring 2021 Walmart vs. Target Information Source 2019 (financial year) Walmart/Target Financial Comparison There is a lot of conversation about Target being new wave and more profitable while Walmart is dull and getting obsolete. This project is an attempt to explore the profitability of these firms. You will be getting all the data from the annual report covering 2019 which was published in early 2020. Here are the sites I used: Walmart The statements are included in the Week 3 Materials They call it 2020 Annual Report, because year ends Jan. 31, 2020. Management Discussion and Analysis (MD&A) runs to page 48, audited financial statements and footnotes start on page 48 Target The statements are included in the Week 3 Materials Target calls it their 2019 Annual Report based on their 2019 fiscal year which runs through Feb. 1, 2020. Management Discussion and Analysis runs to page 33, financial statements and footnotes start on page 34 If you are going to burn paper, only copy the financial statements Tasks to Perform 1. Read the notes to the financial statements to answer these accounting questions: a. What inventory methods does each company use? b. What depreciation method does each firm use? c. How does each company handle payments from suppliers such as rebates and other incentives? d. Does either company have accounts receivables? Are those amounts owed by customers? Now get out an Excel spread sheet and show the calculations for the questions that follow. Show your calculations. 2. Compare total revenues, who is bigger and by how much percentage wise? Calculate the year over year percentage increase in total revenue for each company (2019 over 2018 and 2018 over 2017). Any thoughts? 3. Compare gross profit percentages. Compare just product sales with cost of goods sold. Don't include sale of services or membership fees. What are your thoughts on this? 4. Analyze operating income. That is income from day-to-day operations and does not include interest, other or taxes. a. Compare operating income to total sales including services and fees. b. Compare operating income to total assets used. Total assets should be the average of 2019 and 2018. Remember, whenever you compare an income statement amount to a balance sheet amount, the balance sheet amount should be the average for the period the income figure applies to. For us that is (beginning + ending) 2. c. Compare operating income to total stockholders. Equity should be the average of 201 and 2018. Remember, whenever you compare an income statement amount to a balance sheet amount, the balance sheet amount should be the average for the period the income figure applies to. For us that is (beginning + ending) 2. 5. Analyze bottom line net income. This is everything in, including taxes. a. Compare net income to total assets used. Total assets should be the average of 2019 and 2018 b. Compare net income to total stockholders'. Equity should be the average of 2019 and 2018. 6. Let's look at the cost of debt. We do that by comparing interest expense to the total interest- bearing debt. That would include current and long-term portions of long term debt and capitalized lease obligations. It does not include accounts payable, accrued, other current liabilities, deferred income taxes or other noncurrent liabilities that do not accrue interest. or 7. Now let's look at where the funds come from to finance total assets. Compare percentage of total assets financed by: a. Total current liabilities i. And specifically, from accounts payable amounts paid for cost of goods purchased) b. Total long-term liabilities. Stockholders' equity (as defined in #6c) Do you see a difference? 8. Turnover ratios measure operating efficiency. They compare income statement amounts to balance sheet amounts. The balance sheet amount should be the average defined as (beginning + ending) 2. a. Inventory turnover - how many times does inventory turn each year. Divide cost of goods sold by average inventory. Then turn that into days by dividing by 365 days to get days in inventory. b. Total asset turnover - how many times do total assets turn each year. Divide total revenue by average total assets. Then turn that into days by dividing by 365 days to get days. c. And now the Fischer Special - accounts payable turnover. That would be purchases of goods divided by average accounts payable. In these cases, there is little difference between cost of goods sold and purchases (so we won't adjust for change in inventory). We will divide cost of goods sold by average payables to get turn. Then we divide that into 365 to get average time it takes top for goods. What do you see happening here? c. 9. I almost forgot the most famous ratio of all the current ratio. Lenders worry about that and like to see "2". Calculate the current ratio for each firm. Do you think they worry about it? 10. There is another new ratio that analysts use. That is Cash from operations as a percent of total average assets. Most investors focus on cash flow and this is a measure of the efficiency with which assets are producing cash flow