Financial performance comparison of Walmart and Target

Wal Mart

Comparison of Financial Performance Results for WalMart

Comparison to Target

Financial Ratios for Walmart

Evaluation of Other Areas of Financial Analysis

Analysis of One year ratio of Walmart and Comparison with Target

Walmart

Walmart has been in business for more than 50 years and at present has a footfall every week of more than 260 million customers in the 11,500 stores under 65 banners in 28 countries and the e-commerce sites in 11 countries. The net sale of the company in 2014 was $476.29 billion. The company has 2.2 million associated across the world. The group recorded a net sale increase of 1.9% in the fiscal year ended January 30, 2015 and it returned $7.2 billion to shareholders through dividends and share repurchases (Annualreports.com, 2015).

Target -- Walmart's Competitor

Target offers perishables, dry grocery, dairy and frozen items and all food items comparable to traditional supermarkets. The company has three primary types of stores -- SuperTarget, CityTarget and TargetExpress. The company recorded a loss of 1.9% in 2014-2015 compared to the previous year with a fall in net earnings of 9.1%. The total sale in the period was $U72.6 billion

Comparison of Financial Performance Results for WalMart

Comparison to Target

In terms of revenue the Target is less than half of that of Walmart. The cost of sale of target is less than one seventh of the same figure of Walmart. The operation costs are also much lower than that of Walmart. The cost of sale for Target is around 70% of the revenue generated while the operational costs are less than 20% of the revenue (Corporate.target.com, 2015).

The annual report of the company shows that there has not been much of a change in the total assets of the company. It increased in 20123 and then decreased in 2014.

However the major difference between the two companies is in the net profits. Target has seen its profits decrease significantly in 2013 compared to 2012. The company suffered losses in 2014. The annual report indicates that the company had made additional provisions for taxes in 2013 and provision for discounted operations and net of tax apart from tax in 2014. This has resulted in the decrease in profits in 2013 and the losses in 2014 (Corporate.target.com, 2015).

Financial Ratios for Walmart

In terms of current ratio, Target is much better placed to Walmart and target has more liquidity to pay off current debts. In terms of profit, Walmart has been able to maintain a steady profit margin whereas the profit margin of Target has consistently lowered and the company suffered a loss in 2014. The steadiness of the company is further established by the ROE while the number has fluctuated for Target -- decreasing in progressively in the three years in consideration until the company incurred a loss in 2014.

The asset turnover ratio -- use of assets to generate revenue, is much better for Walmart compared to target. The Debt to equity ratio for Walmart is also better compared to Tagret which shows that the company has less debt than Target. When we consider the size of the two companies -- Walmart is much larger, it is clear that Walmart has been able to better manage its resources and assets to run its business.

Return on Equity for the company for the last three years using the DuPont analysis.

Return on Equity According to DuPont Analysis

Return on Equity for Walmart according to DuPont analysis is:

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

For 2012: 0.035*2.29*2.567 = 0.236

For 2013: 0.036*2.29*2.660 = 0.239

For 2014: 0.033*2.31*2.517 = 0.2001

Return on Equity for Target according to DuPont analysis is:

For 2012: 0.041*1.645*2.947 = 0.198

For 2013: 0.027* 1.507*2.908= 0.118

For 2014: 0.022*1.645*2.744 = 0.099

It is clear from the calculations that Walmart has been making a steady return on investments overt he last three years except for 2014 when its ROE fell slightly. Target, o the other hand, has been inconsistent on their ROE over the three years. When compared, Walmart provided nearly double the returns to the equity holders as Target.

Evaluation of Other Areas of Financial Analysis

Capital Spending of Walmart: the analysis of the balance sheet of Walmart indicates that the company has maintained a steady flow of investments for capital expenditures over the three years under consideration. The expenditures were $13.51 million in 2012 and decreased to $12.89 million in 2013 to further increase to $13.11 million in 2015. Hence from these figures it is clear that the company has been able to put a cap on its capital expenditure indicating the reasons behind its stable performance.

Capital Spending for Target: the company, on the other hand, has progressively reduced capital spending over the last three years from a spending of $2,346 million in 2012 to $1,789 million in 2014. This indicates that the company wanted to cut down on costs and better the cash flow condition of the company this is also one of the reasons that the company has been able to better maintain its state of liquidity despite enhanced operational costs and costs of sales.

Return on Investment: Walmart has provided a steady return on investment to the investor. The rates of return on investment have been around the 7.5% to 18% mark over the three years in consideration. Target on the other had has not been able to give any steady return on investment as the company saw a decreasing profits in 2013 compared to 2012 and recorded a loss in 2015.

Earnings per share: At Target, the earnings per share has significantly reduced. It was 4.57 in 2012 and went to negative 2.58 in 2014. One of the reasons for this could be that the company did not borrow much and decided to retain the profits back in the company. This is indicated by the steady increase in cash dividends that the company has given per share. It was 1.38 per share in 2012, 1.65 in 2013 and reached 1.99 per share in 2015. This shows that there has been a growth in the stock of the company which it had retained from the profits.

Beta Value: Beta value of the public listed company signified the volatility of the company stocks and is a risk assessment of the stock for the investor to do. Walmart has a beta value of 0.44 which means that it is a stable company and lends assurance about the smooth functioning of the company. In comparison, the beta value of Target is 0.66 which is obviously higher than that of Walmart. This means that the company is more volatile and susceptible to troubles compared to Walmart.

From the overall analysis of the various aspects of Walmart as a probable partner in business, it is clear that in most aspects Walmart outperforms target, its rival in the U.S. retail market. The first aspect of Walmart that goes in its favor is its size which is more than double that of Target the company has a steadier liquidity condition in the years assessed compared to Target. Walmart also has a steady and better return on investment. In terms of profitability Walmart outscores Target in profit margins and in the operating margin. Target has recorded a loss in the 2014 with steadily declining profits. Walmart has maintained steady profits. However it looks that the both the companies are well managed as both the companies have relatively similar return in assets and ROE.

Therefore it is recommended -- solely on the basis of consistency in profits and a steadier return on investments, it is profitable to tie up with Walmart as a partner for business.

Analysis of One year ratio of Walmart and Comparison with Target

The revenue for Walmart in 2014 has been more than double to that of Target. The operating costs and the costs of sales are also higher for Walmart obviously because of the huge difference in total revenues.

In the last year comparison as is evident from Appendix II, the current ratio, Target is much better placed to Walmart and target has more liquidity to pay off current debts. But the crucial factor is profitability and in that matter it is evident that Walmart is far ahead in 2014. Target made a loss while Walmart managed to retain the steady streak of profits for itself. The ROE of Walmart is also better in 2014 as compared to Target as is evident from the figures in Appendix III. Additionally, as a management team, Walmart had done better as is evident from the higher asset turnover ratio for Walmart compared to Target. Despite the bigger size of Walmart, it has managed to keep a significantly lower debt to equity ratio which indicates that the company has been able to manage its internal resources better compared to Target. The company has a better liquidity -- reinforced by the current ratio performance.

Walmart mart has been steady in its capital spending creating and increasing assets while Target has reduced its capital spending thus not increasing its assets but essentially relying on borrowings. It is these borrowings that made forced it to make contingency allocation for taxes and interests in 2014 that resulted in the company making losses.

Walmart also has a lower beta score compared to Target which means that the market considers Walmart to be a steadier company than Target.

Hence the above considerations and comparison are reasons enough in terms of financial and information and comparison to choose Walmart as the partner.