Ratio Analysis Case: Wal-Mart Stores

The attached exhibits provide various financial and operating data for Wal-Mart and two
other leading discount retailers, Carrefour and Target.

Throughout the analysis assume that the income tax rate is 35%. Clearly state any
assumptions you are making in addressing the following questions:

Part A:

1. What are the likely reasons for the changes in Wal-Marts rate of return on assets
during the three-year period? Analyze the financial ratios to the maximum depth
possible.

2. How has the short-term liquidity risk for Wal-Mart changed during the three-year
period?

3. How has the long-term solvency risk of Wal-Mart changed during the three-year
period?

Part B:

Part A of the case analyzed the profitability and risk of Wal-Mart Stores for its fiscal
Year 2, Year 3, and Year 4. Part B of this case compares the profitability and risk ratios
of Wal-Mart and two other leading discount retailers, Carrefour and Target, for their Year
2 to Year 4 fiscal years.

1. Wal-Mart and Target follow somewhat different strategies. Wal-Mart consistently

has a higher ROA than Target. Using the information attached, suggest reasons
for these differences in operating profitability.

2. Wal-Mart and Carrefour follow similar strategies. Wal-Mart consistently

outperforms Carrefour on ROA. Using the information attached, suggest reasons
for these differences in operating profitability.

3. Rank-order these firms in terms of their short-term liquidity risk. Do any of these
firms appear unduly risky as of the end of fiscal Year 4?

4. Rank-order these firms in terms of their long-term liquidity risk. Do any of these
firms appear unduly risky as of the end of fiscal Year 4?
 ,

Carrefour Thrget Wal-Mart

Year 2 Year3 Year 4 Year 2 Year 3 Year 4 Year2 Year3 Year4

Short-Term Liquidity
Current Ratio . .64 .65 .60 1.30 1.56 1.69 .93 .91 .90
Quick Ratio .28 .27 .26 .67 .64 .78 .15 .t7 .17
Cash Flow from Operations/
AverageCurrent Liabilities 12.2o/o 16.9o/o 18.60/o 37.3o/o 40.5o/o 46.2o/o 43.8o/o 45.7o/o 37.3o/o
DaysReceivable ....... t a
LL t6 t6 4l 40 39 J 2 2
D a y sI n v e n t o r y. . . . . . . 40 38 39 54 55 58 48 47 47
Davs Payable 90 90 90 56 58 6T 33 33 34

Long-TermSolvency
Long-TermDebt Ratio 63.2o/o 64.1o/o 62.0o/o 53.8o/o 50100/o 43.9o/o 38.0% 36.5o/o 36.9o/o
TotalLiabilities/
Total AssetsRatio 82.9o/o 83.5o/o 83.Io/o 78.7o/o 65.7o/o 6l.Io/o 60.Io/o 60.5o/o 60.60/o
Cash Flow from Operations/
AverageTotal Liabilities 7.5o/o 10.2o/o Il,4o/o 14.7o/o 15.60/o 18.3o/o 23.Io/o 25.4o/o 2l.lo/o
Interest CoverageRatio 3.4 4.0 3.8 4.8 5.7 6.3 t2.5 15.0 14.4

Year 2 Year 3 Year 4

Growth Rate in Sales

Carrefour (1.10lo) 2.60/o 3.1o/o
Target. L2.0o/o 12.to/o lL.60/o
Wal-Mart 12.60/o ll.60/o ll.3o/o
Numberof Stores
Carrefour 5,531 6,067 6,546
r4r ErcL . 1,L47 1,225 1,309
Wal-Mart 4,672 4,906 5,289
Square Footage (000's)
Carrefour 105,132 108,103 I 18,867
Tarqel 140,294 152,563 166,015
Wal-Mart 560,900 606,480 663,2r7
Salesper Square Foot
Carrefour $601 $74r $7s9
Target. $260 $268 $275
Wal-Mart $409 $423 $430
Salesper Store
Carrefour $rr,420,r77 $13,197,132 $13,791,791
Target. $31,838,710 $33,410,612 $34,925,076
Wal-Mart $49,147,260 $52,248,060 $53,927,400
SquareFeetper Store
Carrefour 19,008 19,545 18 , 15 9
Thrget. 122,314 124,541 t26,923
Wal-Mart 120,056 L23,620 125,396
Fixed Assetsper Square Foot
Carrefour $1s4 $187 $196
Target. $104 $106 $i09
Wal-Mart $100 $l0s $111
Salesper Employee
Carrefour $205,478 $238,838 $262,022
Target. $171,422 $178,281 sr74,093
Wal-Mart $2t2,305 $2t3,607 $209,722
Exchange Rate:
U.S.Dollars per Euro $.91906 $1.13s91 $r.24238