Introduction
It is important to note that Walmart and Target are the largest low-cost retail stores with massive revenues and tight competition. They mainly rely on price advantage to remain competitive, which is why evaluating these two is not only exciting but also insightful.
The analysis will focus on the current ratios derived from the MSN Money website to compare Walmart and Target regarding solvency, liquidity, and profitability. The timeline for the scores will use 3-year values to make more generalizable assessments. Target is outperforming Walmart across all ratio values used in the analysis.
Liquidity
Firstly, it is helpful to analyze Walmart and Target regarding liquidity. Key liquidity ratios include the current ratio, receivables turnover, and inventory turnover, among others (Kimmel & Weygandt, 2020). Thus, Walmart’s and Target’s liquidity can be evaluated using their current ratio, receivables turnover, and inventory turnover, as shown in Table 1 below.
Walmart’s current ratio (0.59) is lower than Target’s (0.97), indicating that it has less ability to meet its short-term obligations than Target. Walmart’s receivables turnover (77.42x) is also lower than Target’s (144.62), indicating that Target can collect its accounts receivable more efficiently. Additionally, Walmart’s inventory turnover (8.92) is higher than Target’s (6.25), indicating that it is selling its inventory faster and possibly reducing its profit margins.
Target looks to be in a better position than Walmart in terms of its capacity to fulfill short-term obligations and effectively manage its inventory and accounts receivable, based on the liquidity ratios.
Table 1 – Liquidity.
Solvency
Secondly, a comparative solvency analysis of Walmart and Target can be highly insightful. Core solvency ratios comprise free cash flow and long-term debt to equity (Kimmel & Weygandt, 2020). Therefore, the solvency of the selected companies can be evaluated by using these metrics, as shown in Table 2 below.
Walmart’s free cash flow (6.25) is lower than Target’s (11.28), indicating that Target can generate cash and meet its long-term obligations better. Walmart’s long-term debt-to-equity ratio (61.60%) is also lower than Target’s (97.32%), indicating that Target has a higher level of debt relative to its equity and may be more vulnerable to financial stress.
Target seems to be in a weaker situation than Walmart, based on these assessments. In addition, Walmart has a higher ability to generate cash and a lower debt level relative to its equity.
Table 2 – Solvency.
Profitability
Thirdly, there is value in comparatively analyzing Walmart and Target regarding their profitability to see which is more lucrative as a company and investment opportunity. The main ratios used to measure profitability are asset turnover, return on assets, and earnings per share (Kimmel & Weygandt, 2020). Thus, the profitability of Walmart and Target can be assessed through the values shown in Table 3 below. Walmart’s asset turnover (2.30) is higher than Target’s (1.96), indicating that Walmart uses its assets more efficiently to generate revenue.
However, Target’s return on assets (14.29%) is higher than Walmart’s (10.55%), indicating that Target is generating a higher profit margin on its assets. Target’s earnings per share (9.69) is higher than Walmart’s (4.94), indicating that Target is generating more earnings per outstanding share.
Based on the comparisons, Target is generating higher profit margins and earnings per share, indicating better financial performance. Walmart’s competitor appears to be in a stronger position than Walmart itself.
Table 3 – Profitability.
Conclusion
In conclusion, across all ratio values used in the analysis, Target is outperforming Walmart. Target looks to be in a better situation than Walmart in terms of its capacity to fulfill its short-term obligations and effectively manage its inventory and accounts receivable based on these liquidity measures.
However, it is essential to consider other factors, such as the overall financial performance and debt levels of both companies, before making a definitive conclusion on their relative liquidity. Based on these solvency ratios, Walmart appears to be in a stronger position than Target, and in comparison to its equity, it has a lower level of debt and a stronger capacity to generate cash. Based on these profitability ratios, Target appears to be in a stronger position than Walmart. Target’s improved financial performance is indicated by increasing earnings per share and profit margins.
However, before drawing any conclusions about the relative profitability, solvency, or liquidity of both organizations, it is crucial to take other aspects into account, such as industry trends, market competition, and current economic conditions.
References
Kimmel, P. D., & Weygandt, J. J. (2020). Survey of accounting. Wiley.
MSN Money. (2023a). Walmart Inc. Web.
MSN Money. (2023b). Target Corporation. Web.
