Case Study: Target's Financial Analysis

A. Analyzing the companies’ profitability ratios, I concluded that Target is the most profitable company compared to WAL-MART STORIES, INC. The larger percentage of the Return on Sales ratio for Target shows that this company is more efficient at generating profits from its revenue. Also, the Return on Investment is higher for Target than for Wal-Mart with 1.35%, which shows how efficiently each invested dollar produce a profit. Higher ROI shows better company’s performance. Another profitability ratio is the Asset Turnover, which shows how efficiently a company can use its assets to generate sales. Higher turnover ratio for Wal-Mart shows that the company is using its assets more efficiently. But, Target’s ratio of 1.81, shows that for each dollar of assets, the company generates $1.81, which is not too bad. The gross margin percentage also shows a higher percentage for Target Co. than for Wal-Mart, which means Target is more efficient. So, all these profitability ratios show more efficiency for Target in comparison to Wal-Mart.

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Solvency ratios are designed to measure the company’s level of financial risk. Evaluating the debt to assets ratio for Target Co. and Wal-Mart, I concluded that the higher level of financial risk has Target Co. The debt to assets for Target Co. is higher with 9.71% than for Wal-Mart, which is considered riskier to invest or loan to because it is more leveraged. This means that Target Co. will have to pay a greater percentage of its profit for principal and interest payments. The plant assets to long-term liabilities ratio shows also that Target Co has a higher financial risk. This ratio is lower for Target Co. than for Wal-Mart, this means Target’s long-lived assets are less financed with its long-term liabilities than