FIN 301A: Principles of Finance Research Project

Name: FIN 301A: Principles of Finance Research Project
Brand: Pennsylvania State University
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Author: Leo Bailey

A detailed research assignment exploring fundamental financial principles.

Leo Bailey

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FIN 301A: PRINCIPLES OF FINANCE 1
FIN 301A: PRINCIPLES OF FINANCE RESEARCH PROJECT
Analyze the financial performance of Wal-Mart Stores Inc. and Target Corporation by
comparing their profitability, debt management, asset utilization, and market value ratios over
the past four years. Based on your analysis, draw conclusions regarding the strengths and
weaknesses of each company and their ability to compete in the retail industry. Additionally,
compare these two companies’ performance against the overall retail industry averages.
Requirements:
 Word Count: 2,000-2,500 words
 Include relevant financial ratios and trends from both companies
 Provide a detailed comparison and contrast of Wal-Mart and Target’s financials
 Analyze the implications of their financial performance on their future prospects and
market competitiveness

FIN 301A: PRINCIPLES OF FINANCE 2
Abstract
In modern day corporations, the analysis of a company’s financials has ensued from the need
to establish a company’s financial performance, efficiency as well as its position in the industry.
In this project, focus will be on the retail industry with Wal-Mart Stores Inc and Target
Corporation as our samples. This project will employ ratio and trend analysis to deduce the
performance of the stated companies above. In this regard, the following will be the major
financial analysis categories:
1. Profitability ratios
2. Debt management ratios
3. Asset utilization ratios
4. Liquidity ratios
5. Market value ratios
The above stated ratios are further segmented into various ratios which are as follows:
1. Profitability ratios
a) Gross Profit Margin
b) Net Profit Margin
c) Return on Assets (ROA)
d) Return on Equity (ROE)
2. Debt Management ratios
a) Debt ratio
b) Debt-Equity ratio
c) Equity multiplier
3. Asset Utilization ratios
a) Fixed Assets Turnover
b) Total Assets Turnover
4. Liquidity/Short-term Solvency ratios
a) Current ratio
b) Quick/Acid-Test ratio
5. Market Value ratios
a) Price-Earnings ratio
b) Market-to-book ratio

FIN 301A: PRINCIPLES OF FINANCE 3
Financial Analysis of Wal-Mart Stores, Inc
Wal-Mart Stores Inc is the leading retailer in the United States retail industry and is engaged
in both retail and wholesale of consumer products. An evaluation of its last four-year financial
statements obtained from its website revealed the following key statistics:
1/31/2015 1/31/2014 1/31/2013 1/31/2012
Profitability Ratios
a. Gross Profit Margin 24.3% 24.3% 24.3% 24.5%
b. Profit Margin 3.39% 3.39% 3.655 3.54%
c. Return on Assets (ROA) 8.03% 7.83% 8.37% 8.27%
d. Return on Equity (ROE) 20.1% 21.02% 22.2% 22.01%
Debt Management Ratios
a. Debt Ratio 0.604 0.628 0.624 0.631
b. Debt-Equity Ratio 1.503 1.685 1.660 1.712
c. Equity Multiplier 2.503 2.685 2.660 2.712
Asset Management Ratios
a. Fixed Assets Turnover 4.134 4.012 3.990 3.948
b. Total Assets Turnover 2.367 2.310 2.292 2.293
Liquidity Ratios
a. Current Ratio 0.97 0.88 0.83 0.88
b. Quick Ratio 0.28 0.24 0.22 0.23
c. Cash Ratio 14% 10% 11% 11%
Market Value Ratios
a. Price-Earnings Ratio ($) 17.59 15.20 14.27 12.78
b. Earnings Per Share ($) 1.54 1.36 1.67 1.50
After a critical evaluation of the statistics derived above, the following conclusions were
made:
i) The gross profit margin of Wal-Mart is fairly consistent which is good as it shows that
the company is able to maintain a fair surplus of its sales to offset its expenses.
ii) Similarly, the profit margin is relatively consistent over the four years with a marginal
increase from 2013 to 2014. The marginal increase may have been brought about by
cutting on expenses while growing sales.
iii) Over the four years, Wal-Mart has been able to utilize its assets productively which is
evidenced by an average return of 8.125% on its investments. In the transition of its

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University

Pennsylvania State University

Subject

Finance

FIN 301A: Principles of Finance Research Project

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