Walmart and Target Essay

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High Performance Organizations

1 Background of Walmart & Target

Financial Performance Analysis & Comparison of Walmart

Analysis of the Financial Ratios for Walmart

DuPont Analysis of Return on Equity for Walmart in the last three years

Analysis of the Other Areas of Walmart's Financials

Background of Walmart & Target

In this study we consider the case of Walmart and conduct a financial analysis of the company with respect to one of its competitors -- Target Inc.

It has been more than 50 years now that Walmart has been in business and has a weekly footfall of more than 260 million customers across its 11,500 stores under 65 banners in 28 countries in addition to the e-commerce sites which are available in 11 countries. In 2014, the company managed to record a net sale of $476.29 billion. Walmart has around 2.2 million associates across the globe. The net sale of the company had increased by 1.9% in the fiscal year ended January 30, 2015 compared to the figures a year ago. The company managed to pay back dividends and share repurchases of $7.2 billion to shareholders and dividend holders.

Target -- Walmart's Competitor

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Target is among the top few retailers in the U.S. that has not been doing well recently and it recorded a loss of 1.9% in 2014-2015 compared to the previous year and the net earnings fell by 9.1% compared to the figures a year ago. The total sale of the company during the above mentioned period was $U72.6 billion. Target offers all the products that generally are provided by retail chains which include perishables, dry grocery, dairy and frozen items The total sale in the period was $U72.6 billion

Financial Performance Analysis & Comparison of Walmart

Financial Performance Analysis from 3 Annual reports of Walmart

(Refer to Appendix I)

Essay on Background of Walmart and Target Assignment

For this part of the study we consider the annual report and financial data presented by Walmart in three years from 2012 to 2014. It has been noticed that there has been a small but steady increase in revenue for the company in the three years under consideration. With the increase in revenue, as it happens most cases when revenues increases, Walmart has recorded an increase in the operating costs in the three years that are under consideration.

One notable development as analyzed from the official financial data available publicly is that the costs of sales for the company have also correspondingly increased over the three years. While comparing the cost of sale and the operating costs of the company it is observed that the former is nearly three fourths of the revenue generated and the latter is less than one fourth of the revenue generated by the company in the periods being considered. This has helped the company make profits in all the three years under consideration as the revenue generated from the sale is more than the cost of sale and the operating costs that the company incurred.

From the analysis of the financials of the company it can be concluded that Walmart had indulged in a lot of marketing activities to increase the sale revenue as there has been an increase in the costs of sales and the operating costs. The company spent more money in marketing activities -- since the company does not itself produces much of the products offered and collects them from suppliers, that resulted in the increase of sale during the three years under consideration.

The increase in revenues in the three years under consideration is accompanied by the company increasing its assets as well as a small increase in the current assets of the company. Both these increments indicate that Walmart has not only generated more money but it has utilized the money to increase its worth through the increasing of assets and the current assets. Both these make the company more stable in terms of liquidity. This increases the financial strength of the company.

Analysis of the financial report indicates that as the revenues increased so also the expenditure for the sales which is perhaps the reason that the company has only managed to keep the net income more or less the same during the three years in consideration with some increase in 2013 and a decrease in the net income 2014. Ere has been a steadiness in the current liabilities of the company which have also remained more or less the same over the three years. The current liabilities increased slightly in 2013 and reduced again in 2014 but not significantly.

Comparison to Target

Even as Target has much less revenue generation compared to Walmart -- due to the global nature of walmart and the finance from 28 countries included in the financial report, Target is a close competitor for Walmart in the U.S. market. Target has a much better cost of sale which is less than one seventh of the same figure of Walmart. The same goes for the operation costs of Target. 70% of the revenue generated by the company is given away in the cost of sale for Target whereas the operational costs fare much better at just less than 20% of the revenue.

This means that Target is in a better place about the operating costs but almost similar to that of Walmart in terms of costs of sale. Walmart had two thirds of its revenue expended in cost of sales.

Target has not been able to make much change in the total assets when the assets slightly increased in 2013 and again reduced in 2014 compared to the previous year.

While the percentage expenditure of both the companies are nearly the same, the strength of Walmart lies in the profits that it has managed to make. While Target has seen its profits decreasing over the last three years where there was a significant dip in 2013 compared to 2012, the company could not make profits in 2014 and ended up making a significant loss. In 2013, the reduced profit, according to the financial reports was due to the company making additional provisions for taxes in 2013 and in 2014, the company had to set away a large portion of the revenues to accord for discounted operations and net of tax apart from taxes. This is the primary reason for the company reducing its profits 2013 and making the losses in 2014.

Analysis of the Financial Ratios for Walmart

(Refer to Appendix II)

Comparison of the two companies by their financial ratios derived from the balance sheets, income statements and cash flow statement reveals that Walmart lags behind in terms of the current ratio compared to Target which has a much better placed ratio.

However where Walmart leaves behind Target is in the profits that the company made compared to the reduced profits and a loss in 2014. Walmart has managed to maintain a steady profit margin when compared to the steadily decreasing profit margin for Target, until it suffered a loss in 2014, over the three years under consideration.

The ROE ratio has been fluctuating for Target and has progressively decreased in the three years under consideration in the study until the company incurred a loss in 2014. In comparison Walmart has been steady on its ROE and has been able to give steady returns of the equity holders and shareholders.

Walmart also has a far better asset turnover ratio, the ratio that is used to determine the use of assets to generate revenue, when compared to Target. This indicates that the management of Walmart is capable and perhaps better than Target's management in efficient utilization of assets of the company.

Walmart has been able to fare better in arranging revenues for the day-to-day functioning of the company and has not needed to borrow much. This is evident from the good debt to equity ratio for Walmart which is much better compared to Target. Walmart has taken lesser borrowings from banks and financial institutions compared to the finances generated from its equity holders than Target on the same parameters. It is also evident that Walmart has been able to manage its resources and assets much better than Target given the consideration that Walmart is a larger company tan Target and yet it has manage dot keep the debt to equity in the company under control unlike Target.

DuPont Analysis of Return on Equity for Walmart in the last three years

(Refer to Appendix III)

The formula for calculating the Return on Equity for Walmart according to DuPont analysis is:

Return on Equity = Profit margin * total Asset Turnover * Financial Leverage

This ratio is 2012: 0.035*2.29*2.567 = 0.236

This ratio in 2013: 0.036*2.29*2.660 = 0.239

This ratio 2014: 0.033*2.31*2.517 = 0.2001

Calculations of Return on Equity according to DuPont analysis for Target is:

In the year 2012: 0.041*1.645*2.947 = 0.198

For the year 2013: 0.027* 1.507*2.908= 0.118

In the year 2014: 0.022*1.645*2.744 = 0.099

Comparison of the ROE according to the DuPont analysis of eh two companies reveals that Walmart has been more… [END OF PREVIEW] . . . READ MORE

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