In your final project, you will need to perform financial ratio analysis that was covered in the Learning Resources material this week. This discussion will be an exercise to give you some practice in ratio analysis along with learning from your fellow students’ posts and replies on the subject to understand this topic before writing your paper due in Week 5.
Using your chosen company for the research project (See Final Research Project announcement), perform a ratio analysis on one of the following types of ratios: profitability, liquidity, activity, debt, and market.
On a financial website, such as Yahoo Finance, find or calculate two ratios under the type you have chosen. Then depending on the type of ratio you chose answer the following analysis questions:
1) What is the formula and ratio value? Where did you get the values used to calculate the ratio (which financial statement)?
2) Where is the purpose of this ratio? What information does it provide about the financial/operational performance of the company?
3) Explain the results of the ratio calculation. Is your company strong in this area? Is the company liquid, profitable, efficient, or well-leveraged, and/or favorable? Please provide a comparison of a competitor, prior years, or the industry in your analysis.
In your replies to other students provide any thoughts on the original post and compare your results and analysis for your chosen company to the results found by your fellow students in their analysis. Remember responses need to be substantial and 100 words or more.
Additional Info
Here are my company suggestions, in several different industries, which have worked well in the past, with their main competitor:
AT&T Verizon
Microsoft IBM
Amazon Google
Samsung Apple
Allstate Progressive Insurance
Capital One Wells Fargo
Home Depot Lowe’s
Walmart Target
McDonalds Starbucks
Coca-Cola Pepsi
Post by classmate 1
1) What is the formula and ratio value? Where did you get the values used to calculate the ratio (which financial statement)?
- Current Ratio = Current assets/Current liabilities. (Consolidated Balance Sheets)
- Quick Ratio = (Current assets-Inventory)/Current liabilities (Consolidated Balance Sheets)
2) Where is the purpose of this ratio? What information does it provide about the financial/operational performance of the company?
- Using the current ratio, a company determines whether it can meet current liabilities (debts and payables) with current assets (cash, inventories, and receivables). A company with a current ratio of less than 1.00 often lacks the resources to meet its short-term obligations if the entire amount was due at the same time, while a ratio greater than 1.00 indicates that the company will remain solvent in the short term.
3) Explain the results of the ratio calculation. Is your company strong in this area? Is the company liquid, profitable, efficient, or well-leveraged, and/or favorable? Please provide a comparison of a competitor, prior years, or the industry in your analysis.
- Current Ratio
- Walmart
(amounts in millions)Target
(amounts in millions)YearAssetsLiabilitiesRatioAssetsLiabilitiesRatioBetter liquidity2021252,49692,6452.7351,24816,6833.07Target2020236,49577,7903.0442,77916,4592.60Walmart
- QuickRaio
- Walmart
(amounts in millions)Target
(amounts in millions)YearAssets-InventoryLiabilitiesRatioAssets-InventoryLiabilitiesRatioBetter liquidity2021252,496-44,94992,6452.2451,248-10,65316,6832.43Target2020236,495-44,43577,7902.4742,779-8,99216,4592.05Walmart
- Comparing Wal-Mart’s rival Target and Liquidity, Wal-Mart had good liquidity in 2020 and Target in 2021. However, both companies can be evaluated as companies with good liquidity.
References
Walmart Inc. Form 10-K. (2021, March 19). UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Retrieved January 16, 2022, from https://www.sec.gov/ix?doc=/Archives/edgar/data/104169/000010416921000033/wmt-20210131.htm#iaaf0cabf1f7048c9b7e317b3e9c1cfc5_115
Target Corporation Form 10-K. (2021, March 10). UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Retrieved January 16, 2022, from https://www.sec.gov/ix?doc=/Archives/edgar/data/27419/000002741921000010/tgt-20210130.htm#i5d6e11e9e8174675a063efd3d071738e_82
Post by classmate 2
Company: Walmart
Financial Website: WSJ https://www.wsj.com/market-data/quotes/WMT/financials
- Profitability Ratios:
Gross Profit Margin: 24.83%
Operating Profit Margin: 4.82%
The formula to find the Gross Profit Margin is Gross Profit/Sales
The formula to find the Operating Profit Margin is EBIT/Sales
These items are found on the income statement.
- Finding the gross profit margin and operating profit margin are ways to see if the company is profitable. Gross profit margin shows how much a company made after direct costs are taken out and operating profit margin shows how much the company made after indirect costs are taken out. In both ratios the higher the number is the better it is because it shows that the company is able to keep costs low enough to gain a profit.
- Walmart was profitable and the profitability ratios seem to be average. For every dollar they made Walmart earned about 25 cents. Their competitor Target had a higher gross profit margin of 27.13% and the operating profit margin of 7.30%.