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Company Financial Analysis of Walmart Inc. and Target Corporation

Target Corporation’s revenue growth rates have consistently been above the industry averages. As of the end of the second quarter of the financial year, the company has achieved an impressive 24.72% growth rate compared to the same quarter a year ago. The quarter to quarter growth rates stand at 17.13%. The industry growth rate averages for the same period stand at 3.89% and 13.48%. The company’s growth rates far outmatch those of its competitors in the industry (Easton et al., 2018).

Walmart Inc.’s year on year growth as at the fourth quarter was at 2.07% which is just slightly higher than the industry’s average of 1.9, and significantly trailing against the sectors growth rate of 6.38%. The Quarter to quarter growth rate was a significant 4.69% lower than industry averages over the same period. Walmart’s 5 year growth rate appears to match that of the industry at 1.53%. The company is struggling to grow relative to its peers (Easton et al., 2018).

Target’s gross profit margins have been closely comparable to the industry averages, at 31.78% and 31.96% respectively. The EBITDA margin was an impressive 12.69% compared to the 9.56% industry average and a 7.26% sector average. The operating, pretax and net margin are also significantly higher than the industry averages pointing to the company’s significantly better ability than its competitors to convert its sales into profits.

Walmart’s profitability margins are markedly lower than the industry’s averages meaning that there are more competitors making more profit relative to their revenues in the industry. Walmart’s gross and EBITDA margins stood at 23.94% and 6.43% compared to the industry’s averages of 26.3% and 7.4% respectively. Compared to its competitors, the company is experiencing difficulties in converting sales to profit. However, this is not necessarily threaten the ability of the company to remain profitable.

In evaluating financial health, the quick ratio and the current ratio are the main rationales. Target quick ratio of 0.46 is significantly less than ideal but is higher than the 0.14 industry average (Ranganatham & Madhumathi, 2006). The company registered a current ratio of 1.11 compared to the 0.95 industrial averages. The current ratio appears to be ideal and confirms the trend noted in the company’s profitability because it indicates that the company is utilizing its assets to generate profit.

Walmart Inc.’s quick ratio shows the possibility of problems in the company’s ability to handle its short term liabilities. At 0.13% it is far less than ideal and indicates that its current liabilities far exceed its current assets (Vause, 2015). The fact that the industry averages are also slightly higher connotes better management of assets and liabilities by competitors in the industry (Easton et al., 2018). The company’s working capital ratio is also a significant 0.13% lower than the industry average and is also lower than one, indicating the possibility of liquidity problems in future.

The price-earnings ratio is useful in determining whether the company is overvalued or undervalued. In the case of Target Corporation, the PE ratio of 21.31 appears to be within acceptable limits (Vause, 2015). PE ratios that exceed 50 as exemplified by the industry average often suggest overvaluation. Notably, the company’s PE ratio is also significantly lower than that of the industry and sector (Easton et al., 2018). Target’s price to sales ratio of 0.88 also seems reasonable because it is an indication of high revenue generation.

Walmart Inc.’s price to sales ratio of 0.75 is low enough for the company to be considered a good investment. Low price to sales ratios may be considered good due to the connotation of high revenue generation (Vause, 2015). The price-earnings ratio of 26.34 also indicates that the company is neither overvalued nor undervalued. It is high enough to make the company a potentially attractive investment.

Management evaluation is based on the management’s ability to utilize all available resources to generate value, in terms of revenue or profits. Ratios such as the return on assets, return on investment and return on equity hereby become useful (Easton et al., 2018). Target Corporation’s management appears to be effective as exemplified by the above average performance of the organization in comparison to the industry and sector averages (Ranganatham & Madhumathi, 2006). Target registered a 7.86% return on assets against a 1.8% industrial average, a return on investment of 13.35% compared to a 3.27% industrial average and a 29.89% return on equity against a 6.81% industrial average.

Walmart Inc. management can be considered to be average, and barely as effective as companies such as Target Corporation. The organization’s return on assets and return on equity are 6.43% and 19.49% respectively, which are barely above the respective industry averages of 6.07% and 19.38%. However, the return on investment is at 9.34% which is significantly lower than 11.54%. Walmarts ROI appears to have remained significantly lower that the industrial average for the last five years, indicating that the organization’s management is less effective in obtaining maximum benefits from the imputed costs (Ranganatham & Madhumathi, 2006).

References

Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X.-J. (2018). Financial statement analysis & valuation. Westmont, Illinois: Cambridge Business Publishers

Ranganatham, M., & Madhumathi, R. (2006). Investment analysis and portfolio management. Delhi, India: Pearson Education/Dorling Kindersley.

Vause, B. (2015). Guide to analysing companies. New York : PublicAffairs