Financial statement analysis of Walmart and Target's profitability

Financial Statement Analysis: Walmart and Target

Walmart and Target are major companies in the retail industry. Not only do the companies compete in the United States, but also in the international market. Being in the same industry, Walmart Stores, Inc. and Target Corporation have common major competitors that include Amazon.com, Inc., Lowe's Companies, Inc., Costco Wholesale Corporation, Best Buy Co., Inc., Sears Holdings Corporation, CVS Health Corporation, and similar others. Some of the challenges that both companies face in their internal and external environments encompass labor, the global economy, and cultural differences. In analyzing the financial statements and ratios of both companies, it can be perceived that Target has a superior financial performance compared to Walmart. To begin with, Walmart has a poor current ratio and working capital, implying that the company is unable to cater to its obligations in the short-term without having to liquidate its long-term assets. The return on assets (ROA) and return on equity (ROE) of Walmart declined whereas that of Target increased considerably. This indicates that the management of Walmart has been ineffective in utilizing the assets of the company as well as shareholders' equity in generating income. The WACC of Walmart is lower compared to that of Target as well as to industry average. This has an impact on the capital, cash flow, and financial status of the companies. In particular, owing to its higher WACC, Target faces higher risk linked with the company's operations and therefore has to pay additional cash to investors for the additional risk.

Part 1: Company Introduction and Background

Walmart Store Inc. was established in the year 1945 and continues to undertake its operations in retail stores spread in over 27 nations presently. The company is divided into three key segments, which include Walmart International, Walmart United States, and Sam's Club. The business operations of Walmart as a company comprise of restaurants, superstores, retail stores and also warehouse clubs. In addition, the firm undertakes e-commerce through its website Walmart.com. In terms of retail products, the merchandise on offer in Walmart's retail stores include baby products, healthcare products, household goods, electronics, books, automotive products, clothing, furnishings and decor, alcohol, grocery, paper products and so much more. Walmart is a United States global retailing corporation that operates chains of massive discount department and warehouse stores (Walmart, 2015).

Target Corporation was established in the year 1902 and has since then become one of the major retail companies and a household name. The company's product offerings encompass merchandise and essential products for consumer use on a day-to-day basis. The brands of Target consist of Market Pantry, Archer Farms, Wine Cube, Ava, Embark and several others. Target Corporation retails a variety of general merchandise and food through its store and digital channels. On the other hand, the general merchandise stores of the company offer a modified food variety, comprising perishables and dry grocery, dairy, and frozen products. What is more, the digital channels of Target Corporation consist of a variety of general merchandise, together with different products obtained in its stores, in conjunction with a complementary variety, such as additional sizes and colors retailed solely online (Reuters, 2016). The following paper encompasses the financial statement analysis of Walmart Inc. and Target Corporation for the years ending 1 January 2016 and 1 January 2015.

Firm External Environment Analysis

The economy

The main headquarters and centers of operation for Walmart and Target are centered in the United States. In spite of facing challenges nationally, in addition to an increasingly changing global setting, the economy of the United States continues to be the biggest and most significant in the world. The economy of the United States is now recovering from a period of considerable disturbances. The U.S. economy recovery from the recession period is slow and unsteady. The economy has obtained additional support through expansionary monetary policies. However, this phenomenon is not limited to the U.S., such trends are apparent across nations internationally. For instance, in Mexico, which is Walmart's biggest global market with more than 2,300 stores, the recent slump in its economy has resulted in significant poor sales of the company (Forbes, 2014). However, in the forthcoming period, the economy is expected to pick up faster and therefore, both companies' business will experience better times.

The industry in which they operate

Walmart and Target operate in the retail industry. The industry in which both companies operate in is a very competitive one not only in the United States but also internationally. In the United States, the industry is largely concentrated with the four (which four?) biggest companies constituting roughly 80% of the revenue generated in the industry (Hoovers, 2016). In addition, the companies also face competition within the industry from other firms globally. For instance, in regions such as Asia, and an important market, China, there is significant competition in the industry as the tastes, preferences and prices of the products have an influence in the performance and thereby, in the success of the companies.

Major markets

Walmart has more than 11 thousand retail stores spanning over 27 nations across the world. Its major markets include Mexico, which was its first international venture, the United Kingdom, China, Brazil, Japan, India, Canada, Chile, and China (Soni, 2015). The company has also expanded its business operations to markets of some parts in Africa and Central America. On the other hand, Target Corporation has 1,790 retail stores across the nation. Presently, Target relies on its online business channels to reach consumers across the world. However, its major market in the contemporary is India, where it has global locations (Target Corporation, 2016).

Major competitors

Being in the same industry, Walmart Stores, Inc. and Target Corporation have major competitors that include Amazon.com, Inc., Lowe's Companies, Inc., Costco Wholesale Corporation, Best Buy Co., Inc., Sears Holdings Corporation, CVS Health Corporation, Sears Holding Corporation and Walgreens Boots Alliance, Inc. (Reuters, 2016). These companies compete not only locally in the United States but also on the global level, through international retail stores and online channels across the world.

Environmental, regulatory, legal, and ethical context and challenges

One of the environmental, legal and ethical challenges that both companies face in the market encompasses the products that they retail. For instance, in recent periods, Walmart filed legal suits against the State of Texas contending that the Commission of Alcoholic Beverage has set regulations and codes of practice that show discrimination and bias against Walmart together with other publicly trading companies, by illegally discounting them from having the right to sell distilled spirits in their stores (Mitchell, 2015).

Global context and challenges

Walmart and Target are the major retail stores in the United States. However, they are influenced by the different activities taking place globally, in the sense that they can impact the revenues generated and level of expansion. A good example can be perceived in the recent decline in the revenue generated by Walmart from its retail stress located in China. China is acknowledged as one of the key markets of the company. Nonetheless, reports indicate that the performance levels of Walmart in the nation has been one of the poorest amidst the 27 nations in which Walmart undertakes its business operations and this impacts the overall financial performance of the organization (Bloomberg News, 2014).

Firm Internal Environment Analysis

Managerial makeup

The leadership of Walmart includes executive management who are in charge of the day-to-day operational and functioning of the company and Board of Directors. The executive managerial make-up of Walmart's leadership include the following:

1. Doug Mcmillon -- President and CEO. Walmart Stores, Inc.

2. Greg Foran -- President and CEO, Walmart U.S.

3. David Cheesewright -- President and CEO Walmart International

4. Rosalind Brewer -- President and CEO, Sam's Club

5. Neil M. Ashe -- President and CEO, Global eCommerce and Technology (Walmart Website, 2016).

On the other hand, the managerial make up of Target Corporation includes the following executive managers:

1. Brian Cornell -- Board Chairman and CEO

2. John J. Mulligan - Executive Vice President and Chief Operating Officer

3. Casey Carl - Chief Strategy and Innovation Officer

4. Jason Goldberger - President, Target.com and Chief Digital Officer

5. Stephanie Lundquist- Executive Vice President and Chief Human Resources Officer

6. Michael E. Mcnamara- Executive Vice President and Chief Information Officer

7. Jackie Hourigan Rice - Executive Vice President and Chief Risk and Compliance Officer

8. Mark Tritton - Executive Vice President and Chief Merchandising Officer

9. John J. Mulligan - Executive Vice President and Chief Operating Officer

10. Jason Goldberger - President, Target.com and Chief Digital Officer

11. Don H. Liu - Executive Vice President, Chief Legal Officer and Corporate Secretary

12. Janna Potts - Executive Vice President and Chief Stores Officer

13. Cathy R. Smith - Executive Vice President and Chief Financial Officer

14. Laysha L. Ward - Executive Vice President and Chief Corporate Social Responsibility Officer (Target Website, 2016).

Organizational makeup

The control of Walmart is held by the Walton family that owns about forty-eight percent shares of the company. Walmart was established by Sam Walton and shows why the family owns majority of the business (Walmart, 2015). The organizational make up of Walmart is that of a hierarchical functional organizational structure. In particular, this make up encompasses two distinctive features, which are hierarchy and function-based delineation. First, the hierarchy aspect takes into account the vertical lines of command and supremacy all through the organization. For instance, except the CEOs and Presidents of the different segment, every other personnel has a superior. On the other hand, the aspect of being function-based takes into account that Walmart's organizational makeup encompasses groups of personnel that undertake certain functions. For instance, Walmart has departments that serve the purpose of managing the human resource, finance, sales functions (Lombardo, 2015). Walmart Corporation has the organization set up in the same manner, with every personnel having a superior except, of course, the CEO and President of the company.

Regulatory, legal, and ethical challenges

With respect to their internal environments, Walmart and Target both face a number of challenges. Both companies have faced issues regarding labor. In particular, Walmart has come under a great deal of scrutiny and poor public perception for mistreating its store associates, in addition to the supply-chain workers being exploited in even more multifaceted ways, with even less recourse against the company (Chen, 2015). Another significant challenge that the company has faced, is with respect to cultural differences. This is notable in its operations in China, where in spite of being in operation in the country for sufficient time, and given the potential of the Chinese market, chiefly owing to its size, Walmart has been able of opening merely 400 stores. The main challenge faced has been difficulties in comprehending Chinese consumers owing to the fact that their decisions to purchase commodities are not determined by price at all times. Rather, they have a preference for tailor-made and customized products as well as a buying environment that mirrors the native touch (Forbes, 2014).

Part 2: Financial Statement Analysis

Current ratio

Current Ratio = Current Assets / Current Liabilities

i. Walmart

2016 = 60,239,000 / 64,619,000 = 0.93

2015 = 63,278,000 / 65,253,000 = 0.97

ii. Target 2016 = 14,130,000 / 12,622,000 = 1.12

2015 = 13,624,000 / 11,736,000 = 1.16

Working capital

Working Capital = Current Assets -- Current Liabilities

i. Walmart

2016 = 60,239,000-64,619,000 = - 4,380,000

2015 = 63,278,000-65,253,000 = - 1,975,000

iii. Target 2016 = 14,130,000-12,622,000 = 1,508,000

2015 = 13,624,000-11,736,000 = 1,888,000

Inventory turnover ratio (if applicable)

Inventory turnover ratio = Cost of Goods Sold or Net Sales / Average Inventory

i. Walmart

2016 = 360,984,000 / ((44,496,000 + 45,141,000) / 2) = 8.054

2015 = 365,086,000 / ((45,141,000 + 44,858,000) / 2) = 8.113

ii. Target 2016 = 51,997,000 / ((8,601,000 + 8,282,000) / 2) = 6.16

2015 = 51,278,000 / ((8,282,000 + 8,278,000) / 2) = 6.19

Debt-to-equity ratio

Debt to equity ratio = Total Liabilities / Stakeholders' Equity

i. Walmart

2016 = 119,035,000 / 80,546,000 = 1.478

2015 = 122,096,000 / 81,394,000 = 1.5

ii. Target 2016 = 27,305,000 / 12,957,000 = 2.107

2015 = 27,175,000 / 13,977,000 = 1.944

Return on assets (ROA)

Return on Assets = Net Income / Total Assets

i. Walmart

2016 = 14,694,000 / 199,581,000 = 0.0736

2015 = 16,363,000 / 203,490,000 = 0.0804

ii. Target 2016 = 3,363,000 / 40,262,000 = 0.0835

2015 = -1,636,000 / 41,172,000 = -0.0397

Return on equity (ROE)

Return on Equity = Net Income / Total Equity

i. Walmart

2016 = 14,694,000 / 80,546,000 = 0.182

2015 = 16,363,000 / 81,394,000 = 0.201

ii. Target 2016 = 3,363,000 / 12,957,000 = 0.260

2015 = -1,636,000 / 13,977,000 = -0.117

Earnings per share

Earnings per share = (Net Income -- Preferred Dividends) / Weighted Average Common Shares Outstanding

i. Walmart

2016 = 14,694,000 / 317,000 = 46.21

2015 = 16,363,000 / 323,000 = 50.66

ii. Target 2016 = 3,363,000 / 50,000 = 67.26

2015 = -1,636,000 / 53,000 = -30.87

Current (most recent) balance sheet

i. Walmart Balance Sheet

Assets

2016

2015

Current Assets

Cash and Cash Equivalents

8705000.00

9135000.00

-4.71%

Short-Term Investments

Net Receivables

5,624,000

6,778,000

-17.03%

Inventory

44,469,000

45,141,000

-1.49%

Other Current Assets

1,441,000

2,224,000

-35.21%

Total Current Assets

60,239,000

63,278,000

-4.80%

Long-Term Investments

Property Plant and Equipment

116,516,000

116,655,000

-0.12%

Goodwill

16,695,000

18,102,000

-7.77%

Intangible Assets

Accumulated Amortization

Other Assets

6,131,000

5,455,000

12.39%

Deferred Long-Term Asset Charges

Total Assets

199,581,000

203,490,000

1.96%

Liabilities

Current Liabilities

Accounts Payable

58,615,000

58,583,000

0.05%

Short/Current Long-Term Debt

60,004,000

6,670,000

Other Current Liabilities

Total Current Liabilities

64,619,000

65,253,000

-0.97%

Long-Term Debt

44,030,000

43,495,000

1.23%

Other Liabilities

Deferred Long-Term Liability Charges

7,321,000

8,805,000

-16.85%

Minority Interest

3,065,000

4,543,000

-32.53%

Negative Goodwill

Total Liabilities

119,035,000

122,096,000

-2.51%

Stockholders' Equity

Misc Stocks Options Warrants

Redeemable Preferred Stock

Preferred Stock

Common Stock

317,000

323,000

-1.86%

Retained Earnings

90,021,000

85,777,000

4.95%

Treasury Stock

Capital Surplus

1,805,000

2,462,000

-26.69%

Other Stockholder Equity

-11,597,000

-7,168,000

61.79%

Total Stockholder Equity

80,546,000

81,394,000

-1.04%

Net Tangible Assets

63,851,000

63,292,000

0.88%

ii. Target Balance Sheet

2016

2015

Assets

Current Assets

Cash and Cash Equivalents

4,046,000

2,210,000

83.08%

Short-Term Investments

Net Receivables

Inventory

8,601,000

8,282,000

3.85%

Other Current Assets

1,483,000

3,132,000

-52.65%

Total Current Assets

14,130,000

13,624,000

3.71%

Long-Term Investments

Property Plant and Equipment

25,217,000

25,952,000

-2.83%

Goodwill

Intangible Assets

Accumulated Amortization

Other Assets

915,000

1,596,000

-42.67%

Deferred Long-Term Asset Charges

Total Assets

40,262,000

41,172,000

-2.21%

Liabilities

Current Liabilities

Accounts Payable

11,654,000

11,542,000

0.97%

Short/Current Long-Term Debt

815,000

91,000

Other Current Liabilities

153,000

103,000

48.54%

Total Current Liabilities

12,622,000

11,736,000

7.55%

Long-Term Debt

11,945,000

12,634,000

-5.45%

Other Liabilities

1,915,000

1,645,000

16.41%

Deferred Long-Term Liability Charges

823,000

1,160,000

-29.05%

Minority Interest

Negative Goodwill

Total Liabilities

27,305,000

27,175,000

0.48%

Stockholders' Equity

Misc Stocks Options Warrants

Redeemable Preferred Stock

Preferred Stock

Common Stock

50,000

53,000

-5.66%

Retained Earnings

8,188,000

9,644,000

-15.10%

Treasury Stock

Capital Surplus

5,348,000

4,899,000

9.17%

Other Stockholder Equity

-629,000

-599,000

5.01%

Total Stockholder Equity

12,957,000

13,977,000

-7.30%

Net Tangible Assets

12,957,000

13,977,000

-7.30%

Current (most recent) income statement iii. Walmart Income Statement

2016

2015

Total Revenue

482,130,000

485,651,000

-0.73%

Cost of Revenue

360,984,000

365,086,000

-1.12%

Gross Profit

121,146,000

120,565,000

0.48%

Operating Expenses

Research Development

Selling General and Administrative

97,041,000

93,418,000

3.88%

Non-Recurring

Others

Total Operating Expenses

Operating Income or Loss

24,105,000

27,147,000

-11.21%

Income from Continuing Operations

Total Other Income/Expenses Net

81,000

113,000

-28.32%

Earnings Before Interest and Taxes

24,186,000

27,260,000

-11.28%

Interest Expense

2,548,000

2,461,000

3.54%

Income Before Tax

21,638,000

24,799,000

Income Tax Expense

6,558,000

7,985,000

Minority Interest

-386,000

-736,000

-47.55%

Net Income from Continuing Ops

15,080,000

16,814,000

-10.31%

Non-recurring Events

Discontinued Operations

285,000

Extraordinary Items

Effect of Accounting Changes

Other Items

Net Income

14,694,000

16,363,000

-10.20%

Preferred Stock and Other Adjustments

Net Income Applicable to Common Shares

14,694,000

16,363,000

-10.20%

iv. Target Income Statement

2016

2015

Total Revenue

73,785,000

72,618,000

1.61%

Cost of Revenue

51,997,000

51,278,000

1.40%

Gross Profit

21,788,000

21,340,000

2.10%

Operating Expenses

Research Development

Selling General and Administrative

14,665,000

14,676,000

-0.07%

Non-Recurring

Others

2,213,000

2,129,000

3.95%

Total Operating Expenses

Operating Income or Loss

4,910,000

4,535,000

8.27%

Income from Continuing Operations

Total Other Income/Expenses Net

620,000

0

Earnings Before Interest and Taxes

5,530,000

4,535,000

21.94%

Interest Expense

607,000

882,000

-31.18%

Income Before Tax

4,923,000

3,653,000

34.77%

Income Tax Expense

1,602,000

1,204,000

33.06%

Minority Interest

Net Income from Continuing Ops

3,321,000

2,449,000

35.61%

Non-recurring Events

Discontinued Operations

42,000

-4,085,000

-101.03%

Extraordinary Items

Effect of Accounting Changes

Other Items

Net Income

3,363,000

-1,636,000

-305.56%

Preferred Stock and Other Adjustments

Net Income Applicable to Common Shares

3,363,000

-1,636,000

-305.56%

In analyzing the balance sheets of the two companies, it can be inferred that Walmart had a better financial performance compared to Target in the two financial years between 2015 and 2016. To begin with, the company made a slight increase in its assets, with the more than 1.2% increase perceived in the analysis. In the same manner, the company was able to decrease its liabilities significantly, which implies that not only did it increase its generating assets but also decrease the level of obligations. What Target ought to do to improve and catch up financially with Walmart is, first, to decrease its level of obligation. For instance, its accounts payable and other liabilities have increased considerably in the two financial years (Weygandt et al., 2008).

In analyzing the income statements of the two companies in the 2015 and 2016 financial years, it can be inferred that Target had a better financial (income-related) performance compared to Walmart. To begin with, the total revenue, operating income, and net income generated by Walmart decreased by 0.73%, 11.21% and 10.20% respectively. On the other hand, with regard to Target, the corporation's total revenue, gross profit, operating profit and net profit generated increased by 1.61%, 2.10%, 8.27% and 305.56% respectively. This indicates that the company had a better financial (revenue generation) performance (Weygandt et al., 2008).

Part 3: Financial Analysis

The term 'current' denotes that the time taken into consideration is below or equivalent to one financial year. The current ratio calculates the current assets concerning the current liabilities in order to determine whether the company holds sufficient assets which can be liquidated instantly to settle obligations and debts. (Weygandt et al., 2008). The current ratio of Walmart in the financial periods declined from 0.97 to 0.93. This implies that the company is not fully capable and comfortable in providing sufficient cover to fulfill its current liabilities. The ratio is less than one, implies that the current assets of the company will not be able to cover all the firm's obligations in the short-term. On the other hand, the current ratio of Target ranged between 1.12 and 1.16. This shows that the company can easily provide enough cover against its current liabilities. This means that the company can easily pay of its current liabilities without having to sell any or part of its long-term assets. This indicates that the management of Walmart ought to improve its business to ensure that its assets are able to cover the obligations the company carries (Weygandt et al., 2008). Working capital of a company denotes the amount of money the company has in operations after provisioning for its current liabilities, by its current assets. In comparing the two companies, it can be perceived that in both financial periods, Walmart has a negative working capital, which implies that the liabilities surpass the assets. On the other hand, Target's working capital is positive, indicating that the firm is able to cater for its current liabilities comfortably. This indicates that the management of Walmart has been largely ineffective and ought to sustain its obligations and expenses to the level in which its assets are able to cover (Weygandt et al., 2008).

The inventory turnover ratio calculates the number of times a company's inventory is sold as well as swapped within a given time-period (generally, annual). In accordance to the financial analysis above, the inventory turnover ratio of Walmart is 8 whereas that of Target is 6. This implies that the inventory of Walmart is replaced more times in a fiscal period compared to those done by Target. This is beneficial to the company as it implies that it is products are retailed more so that it can replace the old with new stock that the consumers prefer to have. Debt to Equity ratio is a financial ratio that calculates the degree of financial control that the company uses to increase its revenue (Baker and Powell, 2005). The debt to equity ratio of Walmart declined from 1.5 to 1.478 whereas that of Target increased from 1.944 to 2.107. The increase points out that the firm has heightened its debt level maybe by additional assets and inventory acquisitions. This implies that in the past year, for every dollar invested, the company has a debt of 2.1 dollars, a higher amount compared to 1.94 dollars in the preceding year. This implies that the creditors, and not shareholders own over 60% of Walmart's assets. However, analyzing the two companies, Walmart is more favorable as it indicates to prospective creditors that the company is more sustainable and less risky to lend future loans (Baker and Powell, 2005).

Return on assets (ROA) is a financial ratio that measures not only the profitability of a company but also its financial health. This ratio, in particular, places emphasis on measuring the profitability of the assets that are used to generate only net income for the company. ROA is calculated by dividing net income generated by the total assets. The ROA of Walmart declined from 0.0804 to 0.0736 owing to the decline of the company's net income. On the other hand, Target saw a significant increase in its return on assets ratio from -0.04 to 0.084. The inference is that in the past year, Target has been more effective in the utilization of its total assets to generate income. For instance, in this case, for every dollar of assets of Walmart, the income generated by the firm declined from 8.04 cents to 7.36 cents. On the other hand, for every dollar of Target's assets, the firm saw a significant increase in returns in the past year from a loss of 3.97 cents to a profit of 8.35 cents.

The return on equity can be described as the amount of profit return or the net income that a company generates from every dollar that emanates from its equity. This is usually of great value and benefit to the users of financial statements and, in particular to the investors to perceive the amount of profit the shareholders are obtaining as returns of their investment. It reveals just how the company makes use of the funds that are invested by the shareholders in the company. A high rate implies that the company knows how to generate profit and maximizing the funds of the shareholders. In addition, it also indicates growth and makes more and more probable investors to invest in the company (Weygandt et al., 2008). The return on equity ratio of Walmart Store Inc. decreased from 0.201 to 0.182. This implies that the management of Walmart has been less effective in the management of its shareholders' equity. In particular, for every dollar of shareholders' equity, the company generated a declining net income from 20 cents to 18 cents. On the other hand, the ROE of Target significantly increased from -0.117 to 0.260. This is owing to the significant increase in the net income generated by the company. This indicates the effectiveness and significant financial performance of the firm. This is owing to the fact that in the past year, for every dollar of shareholders' equity, the company generated a significant increase in net income from a loss of 11.7 cents to a profit of 26 cents. This indicates that Target has been largely effective and has properly invested in the equity to produce greater incomes (Graham et al., 2010).

The EPS financial ratio indicates the profitability level and performance of a company as it is the percentage of a company's profit that is apportioned for every outstanding share of common stock. The EPS of Walmart declined from 50.66 to 46.21 whereas that of Target significantly increased from -30.87 to 67.26. Therefore, this indicates that Target had a significantly superior market performance compared to Walmart. The earnings generated for every share were greater indicating that the shareholders earned more (Graham et al., 2010).

Weighted average cost of capital (WACC) can be delineated as the average return-rate, which a firm anticipates to repay to its investors. The weights happen to be the element of each financing source in the company's target capital structure, which is the mixture of debt and equity that a company uses to supply and pay for its operations. It is vital for corporations to undertake their decision-making on investment and evaluate projects with corresponding and inequivalent risks. To calculate significant metrics such as economic value added and net present values necessitates WACC. From the perspective of a company, the WACC can be delineated as the amalgamated cost of company, which the company has to recompense for using the shareholders' capital and debtholders' capital. Therefore, it is necessary for companies to know this weighted average cost of capital as it outlines the minimum rate of return that a company ought to earn in order to create value for the investors (eFinance Management, 2016). The WACC is calculated using the following formula

WACC = Weight of Equity x Cost of Equity + Weight of Debt x Cost of Debt

At present, the weighted average cost of capital of Walmart Stores, Inc. is 2.62%. On the other hand, the WACC of Target Corporation is 3.93%. In particular, the WACC of Walmart is lower compared to its main rival and lower compared to the industry average. This has an impact on the capital, cash flow and financial status of the companies. In particular, by its higher WACC Target is exposed higher risk in its operations. Therefore, this implies that the investors of Target more often than not necessitate additional return in order to assume the additional risk. In this case, Target has to pay its investors an average amount of 3.93 cents in return for every dollar in extra funding compared to Walmart's 2.62 cents (Investopedia, 2015).

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