Introduction
Companies are formed with the primary purpose of creating wealth for their owners/shareholders, and Wal-Mart and Target are no exceptions in their pursuit of corporate expansion and profitability in the United States of America's retail industry. In terms of the provision of consumer goods and services, the retail industry boasts of direct engagement with end consumers. The retail industry's contributions to the development and growth of the United States of America's population are vast, extending beyond the provision of consumables to job generation, with Wal-Mart currently employing 1% of the US population and another staggering 2.2 million people across the globe. Industrial performance is always riddled with fluctuations across its diversity provisions. The sustainability, competitiveness, growth and profitability of any given form of business rest on its management's ability to outwit the competition and maneuver beyond the industrial fluctuations. Business managements have several resources and avenues at their disposal which they can use to analyze the business environment and make viable decisions that are in line with the business goals.
The Performance of the Retail Industry
The performance of the retail industry in the United States of America seems to be taking a dive if the performance of retail giants' performance in the country is anything to go by. The 2017 stock market indicates a 0.8% negative price of the retail industry in the United States of America. Key players in the United States of America retail industry include Nordstrom, J. C. Penny, Macy, Kohl, Wal-Mart and Target amongst other corporations some amongst them boasting of branches across the globe. The share prices of key players in the United States of America retail industry are plummeting; Macy’s 2017 sales are being projected at a 4.3% fall after experiencing a 17% fall in its share price in the first quarter of the year. The 2017 earnings report of J. C. Penny led to a 15.3% fall in share prices as the report indicated poor performance. Disappointing financial reports from Nordstrom and Kohl saw a fall of share prices by 11.3% and 8% respectively. Home Depot, Target and Wal-Mart are the only corporations in the United States of America retail industry that realized growth in share prices in the 2017 fiscal year. The dismal performance by retail giants in the United States of America can be attributed to the stiff competition in the industry. Companies in the retail industry are focusing on reducing costs incurred by customers as well as improving customer service delivery (In Plunkett & Plunkett Research, Ltd. 2016). The point separating the companies which recorded negative financial reports and those who reported positive results is the respective company's ability to save more customers money.
Wal-Mart Stores Inc. (WMT)
Wal-Mart Stores Inc. (WMT) is a multinational corporation with its base in the United States of America. The company which focuses on retail services to the many consumers has been able to realize consistent growth owed to its business practices. Wal-Mart Stores Inc. is built on the principle of saving consumers money as much as possible. The retail chain multinational boasts of huge business operation and high revenue margin with its shares trading in the New York securities Exchange (NYSE) under the code WMT. For the year ending 1/31/2017, Wal-Mart Stores Inc. posted total revenue of $485,873,000 which is an improvement from $482,130,000 posted in 1/31/2016. However, Wal-Mart Stores Inc. posted a net income of $13,643,000 on 1/31/2017 which is a decline from the $14,694,000 posted on 1/31/2016. The decline in the Wal-Mart Stores Inc. revenue in the year ending 2017 is largely attributed to the increase in the selling general and administrative operating expenses which rose from $97,041,000 in the year ending 1/31/2017 to $101,853,000 in the fiscal year ending 1/31/2017 (Nasdaq, 2017).
Target Corporations (TGT)
Target Corporations (TGT) is among the market leaders in the United States of America's retail industry trailing Wal-Mart Store Inc. as the second largest retailer in the United States of America. The growth of Target Corporation has been remarkable and consistent. Target Corporation services are known for high quality, guest-friendly stores, trendy merchandise, discounted prices and digital channels. Target Corporation has established a customer base by employing uniqueness in its service delivery as well as in the range of products offered to customers. While Target Corporations recorded a surge in its share prices, the corporation recorded a fall in the total revenues in the year ending 1/28/2017 of $69,495,000 from $73,785,000 in the year that ended 1/30/2016 (Nasdaq, 2017). The growth in Target Corporation share price despite the fall in total revenue can be attributed to the investor perception about the company. The shares of target Corporation are traded in the New York securities exchange under the code TGT. The retail industry is recording a fall in revenues in the United States of America and Target is a victim of the fall due to trends in the industry.
Financial Analysis and Comparison
Investors utilize the financial statements for the analyses of companies. Financial statements portray a company's liquidity, profitability, and efficiency position as a unit and also in comparison with other industry players (WAHLEN, 2017). A comparison of Wal-Mart Stores Inc. and Target Corporations involves the use of financial ratios to compare the two companies in regard to their desirability for investment. Liquidity ratios position a corporation on how it is utilizing short-term assets in creating revenue and in meeting obligations. A quick ratio measures a company's ability to meet short-term financial obligations. In the fiscal year ending 1/31/2017, Wal-Mart had a quick ratio of 22% against Target Corporation's quick ratio of 29%. The quick ratio results indicate that Wal-Mart has more current liabilities relative to its current liquid assets and thus Wal-Mart may have difficulties meeting its huge current liabilities. Current ratio measures a corporation's ability to pay long-term and short-term obligations. Wal-Mart Stores had a current ratio of 86% for the year ending 1/31/2017 while Target Corporation had a current ratio of 94% for the period ending 1/28/2017 (Nasdaq, 2017). The indications from Wal-Mart and Target current ratios is that Target Inc has a larger pool of long-term and short-term obligations supported by current assets. A sustainable business ought to have grounds to support its short-term and long-term liabilities to avoid falling into insolvency.
Profitability ratios measure a business's ability to create profits from the available resources (Bond, 2017). Return on equity measures a company's ability to create returns from its equity. In the fiscal period ending 1/31/2017, Wal-Mart Stores Inc. recorded an after-tax return on equity of 18% while Target Corporation recorded a return on equity of 25% for the same period. The difference in the return on equity indicates that Target Corporation is creating more income from its available assets than Wal-Mart. The debt/equity ratio at Wal-Mart Stores Inc. for the period ending 1/31/2017 was 0.59 while that of Target Corporation stood at 1.16 (Nasdaq, 2017). The interpretation from the debt/equity ratio of Wal-Mart stores inc. and Target Corporation is that Target is highly leveraged by debt unlike Wal-Mart.
Conclusion
Financial health of a company is vested in its ability to meet both the long-term and the short-term financial obligations, ability to create revenue from the available resources, and in its ability to finance business activities away from the use of leverage. Comparing Wal-Mart stores Inc. and Target allows for a greater insight into the meaning of the various results of financial analysis. A greater insight into the financial findings is vital towards making informed decisions by both the investors and by the company managers. While leverage is encouraged, the levels of leverage should fall within certain limits to reduce the risk of a company or any other form of business of falling into financial distress. Also, the cost of credit is high compared to financing business operations from non-borrowings. As far as the creation of wealth is concerned, Target Corporations is efficient as indicated in its return on equity ratio. However, Target Corporation is highly leveraged with a debt/equity ratio of 1.16. Debt is costly and risky at the same time. In the event of poor business, Target Corporation may fall into financial distress out of failure to service its debt obligation. Wal-Mart's relatively low Debt/equity ratio and an average return on equity is an indication of better financial health.
References
WAHLEN, J. A. M. E. S. M. (2017). FINANCIAL REPORTING, FINANCIAL STATEMENT ANALYSIS AND VALUATION. S.l.: CENGAGE LEARNING.2017
In Plunkett, J. W., & Plunkett Research, Ltd. (2016). Plunkett's retail industry almanac: The only comprehensive guide to the retail industry. Houston, Texas : Plunkett Research, Ltd., 2017
Bond, D. (2017). Financial statement analysis. London: Henry Stewart Talks. London: Henry Stewart Talks, 2017
Nasdaq 2017. WMT Company Financials. Retrieved from: http://www.nasdaq.com/symbol/wmt/financials?
Nasdaq 2017. TGT Company Financials. Retrieved from; http://www.nasdaq.com/symbol/tgt/financials?
