Question

Question 3 View Policies Current Attempt in Progress Walmart Stores Inc. and Target Corp.reported the following information in 2015 excluding Target's discontinued operations Total assets. 2015 Total assets 2014 Revenue 2015 Net income, 2015 Walmart Target in US. S millions) in U.S. 5 millions) $204.751 $78.315 203.490 79.651 485,651 72.618 16,363 2.449 Industry averages were as follows: profit margin 27% asset turnover 3 times and return on assets, 100% Walmart (1) Profit margin (2) Asset turnover (3) Return on assets Target 3.4% 0.9 times 3.1% 24 times 8.0% Comment on how effectively each company is using its assets to generate sales and earn net income. BITTI E *3 % eTextbook and Media What additional information about long-lived assets would assist you in your comparison of these two companies? BITTLE 33 E 33 = - = O Words

Answer 1

Answer (1)

Given that

Walmart Target Industry average

Asset Turnover 2.4 time 0.9 times 3.7 times

Return on Assets (ROA) 8.0% 3.1% 10%

Both Walmart and Target have lower assets turnover as compared to Industry average. This suggests that the Walmart and Target are not as effective as industry in terms of asset utilization. The same is reflected in ROA also as industry average  ROA is higher at 10% as compared to ROA of 8% of Walmart and ROA of 3.1% of Target.

Within Walmart and Target, Walmart utilizes its assets far better as compared to Target. Same is reflected in ROA as ROA of Walmart is way higher at 8% as compared to ROA of Target at 3.1%.

Answer (2):

As asset comprises of fixed assets and current assets, additional information on fixed asset turnover will assist in further analyzing whether the issues of lower utilization of assets is due to ineffective utilization of fixed assets or ineffective utilization of current assets. This will help focus the analysis on root causes.