Financial Ratios: Current Ratio 2015-2016 Walmart And Target

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Analyze the financial ratios and financial data of Walmart, Sears, and Target for the years 2015 and 2016. Focus on key ratios such as current ratio, total assets, total equity, debt ratio, cost of goods sold, inventory, net income, and return on assets. Interpret the financial health, liquidity, profitability, and efficiency of each company based on these ratios. Discuss the trends observed between the two years and compare the relative financial stability and performance of these retail giants. Include an assessment of how these ratios reflect the companies' operational efficiencies, liquidity positions, leverage, and profitability indicators, providing insights into their strategic financial positioning during the specified period.

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The analysis of Walmart, Sears, and Target for the years 2015 and 2016 provides valuable insights into their financial health, operational efficiency, liquidity positions, and profitability. These retail giants, operating in a highly competitive market, employ various financial ratios to benchmark their performance and strategize for sustainable growth. By examining key ratios such as the current ratio, total assets, total equity, debt ratio, cost of goods sold, inventory levels, net income, and return on assets, we can assess their financial stability and operational effectiveness over this period.

The current ratio indicates a company's ability to meet short-term obligations with its short-term assets. In 2015, Walmart's current ratio was approximately 0.97, slightly below 1, suggesting a marginal liquidity concern, whereas in 2016, it slightly declined to 0.93. Sears exhibited a decrease from 1.11 in 2015 to 1.09 in 2016, indicating marginally improved liquidity but still around the critical threshold. Target showed a similar slight decline from 1.12 to 1.12, maintaining a relatively stable liquidity position. These ratios imply that Walmart might have faced liquidity pressures, while Sears and Target managed to sustain their ability to cover short-term liabilities.

Total assets reflect the overall size and scale of a company's operations. Walmart's total assets increased from approximately $203.5 billion in 2015 to nearly $204.75 billion in 2016, indicating steady expansion. Sears, with significantly smaller assets (~$13.2 billion in 2015 and ~$18.26 billion in 2016), demonstrated growth, possibly through asset acquisition or operational expansion. Target's assets grew from $41.17 billion to $44.55 billion, marking a moderate growth trajectory. The asset growth reflects strategic investments and expansion efforts, although the scale of Walmart's assets dwarfs that of Sears and Target.

Total equity signifies the residual interest of shareholders in the company after liabilities. Walmart's total equity remained relatively stable, around $80.5 billion in 2015 and $76.3 billion in 2016, indicating consistent retained earnings and shareholder investment. Sears, however, displayed negative equity in 2015 (-$1.96 million), turning positive in 2016 ($1.7 million), suggesting improved solvency or restructuring efforts. Target maintained positive equity, increasing from about $13 billion to approximately $16.2 billion, indicating strengthened financial stability.

Assessing leverage through the debt ratio reveals how much of the company's assets are financed through debt. Walmart's debt-to-asset ratio was about 0.60 in both 2015 and 2016, implying a stable leverage position. Sears showed a high debt ratio in 2015 (~0.63), which decreased in 2016 (~0.60), pointing toward reduced leverage. Target's debt ratio was approximately 0.66 in 2015 and remained stable into 2016. Lower leverage generally reflects a safer financial position, which Sears improved upon during this period.

The cost of goods sold (COGS) indicates operational efficiency and inventory management. Walmart's COGS increased marginally from about $365 billion to nearly $358 billion, reflecting consistent sales volume and procurement efficiency. Sears' COGS showed a similar trend with slight fluctuations. Target's COGS also grew correspondingly, underscoring ongoing sales activities and inventory turnover.

Inventory levels can signal operational efficiency and inventory management. Walmart's inventory slightly increased from $45.14 billion to $44.86 billion, suggesting stable inventory turnover despite sales fluctuations. Sears maintained a relatively stable inventory with slight variation. Target's inventory levels also saw minimal change, implying steady inventory management practices.

Net income, an indicator of profitability, showed differing trends. Walmart reported a slight decline from approximately $16.36 billion to $14.69 billion, indicating a marginal decrease in profitability but overall solid performance. Sears, however, experienced negative net income in 2015 and 2016 (-$1.13 billion and -$1.68 billion respectively), signaling ongoing challenges with profitability. Target had positive net income, though it decreased from about $1.97 billion to $3.36 billion, reflecting some fluctuations but maintaining profitability.

Return on assets (ROA) measures how efficiently a company utilizes its assets to generate profit. Walmart's ROA remained stable around 0.90 and 0.88 in 2015 and 2016. Sears' ROA was negative in both years, indicating poor asset efficiency and profitability. Target's ROA hovered slightly below 1, revealing moderate efficiency.

In summary, Walmart demonstrates stability and efficiency, retaining its large asset base with consistent profitability and manageable leverage. Sears reveals challenges with profitability and liquidity, though it shows signs of operational improvements with reduced leverage and positive equity in 2016. Target maintains steady growth, profitability, and manageable leverage, although its liquidity margin is slightly lower.

These ratios collectively highlight that Walmart remains dominant in size and efficiency but faces pressures on liquidity. Sears struggles with profitability, and its efforts to turn around are evident in its improved equity and leverage ratios. Target balances profitability and stability with modest growth. This comparative evaluation underscores the importance of liquidity management, leverage control, and operational efficiency to sustain competitiveness in retail markets.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
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  • Brigham, E., & Houston, J. (2019). Fundamentals of Financial Management. Cengage Learning.
  • Investopedia. (2023). Financial Ratios. Retrieved from https://www.investopedia.com/terms/f/financialratio.asp
  • Morningstar. (2023). Walmart Inc. Financial Statements. Retrieved from https://www.morningstar.com
  • SEC Filings. (2023). Walmart, Sears, and Target Annual Reports. Retrieved from SEC EDGAR database.
  • Yahoo Finance. (2023). Company Financial Data. Retrieved from https://finance.yahoo.com
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