Question

(2) All of the notes payable were paid in 2010. The only change in liabilities was that the notes payable were paid. (3) Market price of common stock was $9 on December 31, 2017, and $12.80 on December 31, 2018 Price-earnings ratio at Stores, Inc. for a P18-5 Selected financial data of Target Corporation and Wal-Mart Stores. In recent year are presented here (in millions). Compute selected ratios, and compare liquidity, profitability, and solvency for two companies. (LO 2) Wal-Mart Stores, Inc. Target Corporation Income Statement Data for Year $61,471 41,895 16,200 70,847 647 1,798 1,896 4,273 1,776 6,908 $ 2,849 $ 12,731 Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income (expense) Income tax expense Net income $374,526 286,515 Current assets Noncurrent assets Total assets Current liabilities Long-term debt Total stockholders' equity Total liabilities and stockholders' equity Balance Sheet Data (End of Year) $18,906 $ 47,585 25,654 115,929 $44,560 $163,514 $11,782 $ 58,454 17,471 40,452 15,307 64,608 $44,560 $163,514

Answer 1

1.1) Determine the current ratio: А в с 1 Current ratio T W 2 Current assets $18.906 $47,585 3 Current liability $11.782 $58.454 4 Current ratio 1.6047 0.814 Therefore, the current ratio for T is 1.604, and Wis 0.814. Working notes: Calculations are given below: I Bc. 1 Current ratio 1 W 2 Current assets 18906 47585 3 Current liability 11782 58454 4 Current ratio =B2/B3 =C2/C3 Part 1.1 The current ratio for Tis 1.604 and Wis 0.814.

Explanation:

It is given that the current assets for 'T' company are $18,906 and 'W' are $47,585; the current liabilities of 'T' company are $11,782 and 'W' company are $58,454. To calculate the current ratio, current assets should be divided by the current liabilities. Therefore, the current ratio for 'T' is 1.604 and 'W' is 0.814.

1.2) Determine the accounts receivable turnover: I B C Particulars 2 Net credit sales $61,471 8374,526 | 3 Average accounts receivable $7,124 $3.247 4 Accounts receivables turnover 8.6287 115.3452 Therefore, the accounts receivable turnover for 'T' is 8.628 and for 'W' is 115.35. Working notes: Calculations are given below: B C Particulars TW 2 Net credit sales 61471 374526 3 Average accounts receivable 7124 3247 4 Accounts receivables turnover I=B2/B3 1=C2/C3 Part 1.2 The accounts receivable turnover for 'T' is 8.628 and for 'W' 115.35.

Explanation:

The accounts receivable turnover is calculated by dividing net sales by average accounts receivable. The net sales for 'T' and 'W' companies are $61,471 and $374,526, respectively; the average accounts receivables for 'T' and 'W' companies are $7,124 and $3,247, respectively. Therefore, the accounts receivable turnover for 'T' company is 8.628 and for 'W' is 115.35.

1.3) Determine the average collection period: B C 1 Particulars TW 2 Collection period 365 365 3 Accounts receivable turnover 8.63 115.35 4 Average collection period 42.29 3.16 Therefore, 'T' and 'W' companies' average collection periods are 42.29 and 3.16. Working notes: Calculations are given below: A BC 1 Particulars IT W 2 Collection period 365 365 3 Accounts receivable turnover 8.63 115.35 4 Average collection period =B2/B3 =C2/C3 Part 1.3 The 'T' and 'W' companies' average collection periods are 42.29 and 3.16.

Explanation:

The calculated accounts receivable for 'T' and 'W' companies are 8.63 and 115.35. The average collection period is calculated by dividing collection period 365 days by accounts receivable turnover. Collection period for both the companies are the same. Therefore, the average collection periods for both companies are 42.29 and 3.16.

А 1.4) Determine the inventory turnover: B В C 1 Particulars I T W 2 Cost of goods sold $41,895 $286,515 3 Inventory $6.517 $34.433 4 Inventory turnover 6.43 8.32 Therefore, the inventory turnover for 'T' is 6.43 and for 'W' is 8.32. Working notes: Calculations are given below: А B C 1 Particulars TW 2 Cost of goods sold [41895 [286515 3 Inventory 6517 34433 4 Inventory turnover =B2/B3 =C2/C3 Part 1.4 The inventory turnover for 'T' is 6.43 and for 'W' is 8.32.

Explanation:

It is given that average inventory for 'T' and 'W' companies are $6,517 and $34,433. The cost of goods sold for 'T' is $41,895 and 'W' is $286,515. To calculate inventory turnover, cost of goods sold should be divided by the inventory. Therefore, the inventory turnover 'T' is 6.43 and 'W' is 8.32.

1.5) Determine the days in inventory: А B C 1 Particulars TW 2 Days 365 365 3 Inventory turnover 6.43 8.32 4 Days in inventory S56.77 $43.87| Therefore, days in inventory of 'T' and 'W' companies are 56.77 and 43.87. Working notes: Calculations are given below: в с 1 Particulars T W 2 Days 365 365 3 Inventory turnover 6.43 8 .32 4 Days in inventory =B2/B3 =C2/C3 Part 1.5 The days in inventory of 'T' and 'W' companies are 56.77 and 43.87.

Explanation:

The calculated inventory turnover for 'T' and 'W' company is 6.43 and 8.32. Days for both the companies should be taken as 365 days. To calculate days in inventory, days should be divided by inventory turnover. Therefore, the days in inventory turnover for 'T' and 'W' companies are 56.77 and 43.87.

1.6) Determine the profit margin: А Bc 1 Particulars TW 2 Net income $2.849 $12,731 3 Net sales $61.471 8374,526 4 Profit margin 4.63% 3.40% Therefore, the 'T' and 'W' company profit margins are 4.63% and 3.40%. Working notes: Calculations are given below: A B 1 Particulars T W 2 Net income 2849 12731 3 Net sales 61471 374526 4 Profit margin =(B2/B3) =C2/C3 Part 1.6 The 'T' and 'W' company profit margins are 4.63% and 3.40%.

Explanation:

It is given that the net income and net sales of 'T' company are $2,849 and $61,471, and for 'W' company are $12,731 and $374,526, respectively. To calculate the company's net profit margin, the net income should be added with net sales. Therefore, 'T' and 'W' company's profit margins are 4.63% and 3.40%.

1.7) Determine the asset turnover: A B C 1 Particulars T W 2 Net sales $61,471 $374,526 3 Average total assets $40.953 $157,551 4 Asset turnover 1.50 2.38 Therefore, the assets turnover for 'T' and 'W' companies are 1.50 and 2.38. Working notes: Calculations are given below: Bc. 1 Particulars TW 2 Net sales 61471 374526 3 Average total assets 40955 157551 4 Asset turnover =B2/B3 =C2/C3 Determine the average total assets Particulars T W Beginning total assets (A) $37,349|_ $151,587 Ending total assets (B) $44.560 $163,514 Average total assets (A+B)/2 $40,955 $157,551 Therefore, the average total assets of 'T' and 'W' company are $40,955 and $157,551, respectively. Part 1.7 The assets turnover for 'T' and 'W' company are 1.50 and 2.38.

Explanation:

It is given that beginning total assets and ending total assets of 'T' company are $37,349 and $44,560, respectively and for 'W' company, they are $151,587 and $163,514. Therefore, the average total asset of 'T' and 'W' companies are $40,995 and $157,551. To calculate the average assets, beginning and ending of total assets should be added and divided by 2. The asset turnover should be calculated by dividing net sales by average total assets. Therefore, the assets turnover for 'T' and 'W' companies are 1.50 and 2.38, respectively.

1.8) Determine the return on assets: Particulars Net income (A) $2,849 $12,731 Average total assets (B) $40,955 $157,551 Return on assets (A/B)x100 6.96% 8.08% Therefore, the returns on asset of 'T' and 'W' companies are 6.96% and 8.08%. Part 1.8 The returns on asset of 'T' and 'W' companies are 6.96% and 8.08%.

Explanation:

The calculated average total assets for 'T' and 'W' companies are $40,995 and $157,551, respectively. T’and 'W' companies' net income is given as $2,849 and $12,731. To calculate the return on asset, the net income should be divided by the average total asset. Therefore, the returns on asset of 'T' and 'W' companies are 6.96% and 8.08%.

1.9) Determine the return on common stockholder's equity: Particulars TW Net income (A) $2,849 $12,731 Average stockholder equity (B) $15,470 $63,091 Return on common stockholder's equity (A/B)x100 18.42% 20.18% Therefore, the return on stockholder's equity for 'T' and 'W' companies are 18.42% and 20.18%. Working notes: Determine the average stockholder's equity. Particulars TW Beginning stockholder's equity (A) $15,633 $61,573 Ending stockholder's equity (B) $15.307 S64.608 Average stockholder's equity (A+B)/2 $15,470 $63,091 Therefore, the stockholder's equities of 'T' and 'W' companies are $15,470 and $63,091. Part 1.9 The returns on stockholder's equity for 'T' and 'W' companies are 18.42% and 20.18%.

Explanation:

It is given that the beginning total stockholder's equity and ending total stockholder's equity of 'T' company are $15,633 and $15,307, and for 'W' company are $61,573 and 564,608. To calculate average stockholder's equity, the beginning and ending of total stockholder's equity should be added and divided by 2. To calculate return on stockholder's equity, the net income should be divided by average stockholder's equity. Therefore, the returns on stockholder's equity for 'T' and 'W' companies are 18.42% and 20.18%.

T 1.10) Determine the debt-to-asset ratio: Particulars W Total liabilities (A) $29.253 $98,906 Total assets (B) $44,560 S163,514 Debt to asset ratio (A/B) 0.66 0.60 Therefore, the debt-to-asset ratios for 'T' and 'W' companies are 0.66 and 0.60. Working notes: Determine the total liabilities. Particulars I W Current liabilities (A) $11,782 $58,454 Long term debt (B) $17.471 $40.452 Total liabilities (A+B $29,253 $98,906 Therefore, the total liabilities of 'T' and 'W' companies are $29,253 and $98,906. Part 1.10 The debt-to-asset ratios for 'T' and 'W' companies are 0.66 and 0.60.

Explanation:

It is given that the current liabilities and long-term debt of 'T' company is $11,782 and $17,471, and for 'W' company is $58,454 and $40,452. To calculate total liabilities, both current liabilities and long-term debt should be added. The given total assets for 'T' and 'W' companies are $44,560 and $163,514; to find out debt-to-asset ratio, total liabilities should be divided by total assets. Therefore, the debt-to-asset ratios for 'T' and 'W' companies are 0.66 and 0.60.

1.11) Determine the times interest earned: Particulars T W EBIT (A) $5,272 $21,437 Interest (B) $647 $1.798 Times interest earned(A/B) 8.15 11.92 Therefore, the times interest earned for 'T' and 'W' companies are 8.15 and 11.92. Working notes: Determine the EBIT (Earnings Before Interest and Tax): EBIT = Netincome + Interest + tax T= $2,849 + $647 +$1,776 = $5, 272 W = $12, 731 + $1,798 + $6,908 = $21, 437 Therefore, the EBIT for 'T' and 'W' companies are $5,272 and $21,437. Part 1.11 The times interest earned for 'T' and 'W' companies are 8.15 and 11.92.

Explanation:

It is given that the net income, interest, and tax expense of 'T' company are $2,489, 5647, and $1,776, and for 'W' company, they are $12,731, $1,798, and $6,908, respectively. To calculate EBIT net income, interest and tax expense should be added. Therefore, the EBIT for 'T' and 'W' company are $5,272 and $21,437. The given interest rates for 'T' and 'W' companies are $647 and $1,798. To find out times interest earned, the EBIT should be divided by interest. Therefore, the times interest earned for 'T' and 'W' companies are 8.15 and 11.92.

2) Determine the liquidity, profitability, and solvency of two companies. The liquidity of 'T' company is better than the liquidity of 'W' company because the current ratio of 'T company is higher than 'W' company. T' company profitability is better in case of profit margin compared to 'W' company. In case of return on assets and return on equity, 'W' company is better than 'T' company. As in case of solvency, times earned interest is better in 'W' company compared to 'T' company. Debt equity is better in 'T' company. Therefore, the liquidity is better in 'T' company the solvency and profitability are better in 'W' company. Part 2 Liquidity is better in 'T' company; solvency and profitability are better in 'W' company.

Explanation:

The calculated current ratio for 'T' company is 1.60, and 'W' company is 0.814; the 'T' company ratio is more than 'W' company; hence, 'T' company has more liquidity. In case of profitability, the calculated profit margins for 'T' and 'W companies are 4.63% and 3.40%;'T' company profit is more, but in case of return on assets, the calculated values for 'T' and 'W' are 6.96% and 8.08%; return of 'W' company is more than 'T' company; the calculated values for return on equity for 'T' and 'W' companies are 18.42% and 20.18%; again, 'W' company return is more than 'T' company. The calculated times earned interest for 'T' and 'W' company are 8.15 and 11.92; 'W' company is more than 'T' company; the calculated debt-to-asset ratios for 'T' and 'W' companies are 0.66 and 0.60.

Part 1.1 The current ratio for T is 1.604 and W is 0.814. Part 1.2 The accounts receivable turnover for 'T' is 8.628 and for 'W' 115.35. Part 1.3 The 'T' and 'W' companies' average collection periods are 42.29 and 3.16. Part 1.4 The inventory turnover for 'T' is 6.43 and for 'W' is 8.32. Part 1.5 The days in inventory of 'T' and 'W' companies are 56.77 and 43.87. Part 1.6 The 'T' and 'W' company profit margins are 4.63% and 3.40%. Part 1.7 The assets turnover for 'T' and 'W' company are 1.50 and 2.38. Part 1.8 The returns on asset of 'T' and 'W' companies are 6.96% and 8.08%. Part 1.9 The returns on stockholder's equity for 'T' and 'W' companies are 18.42% and 20.18%. Part 1.10 The debt-to-asset ratios for 'T' and 'W' companies are 0.66 and 0.60. Part 1.11 The times interest earned for 'T' and 'W' companies are 8.15 and 11.92. Part 2 Liquidity is better in 'T' company; solvency and profitability are better in 'W' company.