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10-K Analysis: Wal-Mart Stores, Inc. and Target Corporation The objective is to analyze and interpret financial statement information contained in...
10-K Analysis:
Wal-Mart Stores, Inc. and Target Corporation
The objective is to analyze and interpret financial statement information contained in annual reports from two well-known public companies: Wal-Mart Stores, Inc. and Target Corporation. Both companies are large retailers and competitors with significant operations in the United States. Each annual report contains a large amount of valuable information but this assignment will focus on information that relates to concepts we have covered in class
Provide short answers to the questions below and clearly indicate the specific question that corresponds to your response (1a, 1b, ...). For numeric responses indicate where in the 10-K the relevant information was obtained and the details of any calculations required. All of the company information required to answer the questions below is included in the financial statements and the corresponding notes (the notes immediately follow the statements). The specific financial statement or note number should be indicated for each number used in a calculation/response (failure to indicate the source of each number will result in point reductions). Correct responses that do not include detailed calculations will not receive full credit. Round all dollar responses to the nearest dollar, and percentages to the nearest hundredths place (e.g., 1.23%). For qualitative responses provide the logic and reasoning used to arrive at your conclusion. Be clear and concise. You will need to access the following resources to answer the questions below: 1. 10-K filings for Walmart and Target for the fiscal years ending in January of 2017 (31st for Walmart and 28th for Target).
You can obtain the 10-K filings either from the SEC EDGAR website or from each company's investor relations page. You will use the information in the financial statements and the related footnotes that follow the statements. SEC EDGAR link: https://www.sec.gov/edgar/searchedgar/companysearch.html. 2. FINRA website that contains reported financials, market, and industry data. To find industry averages for several financial ratios, use the FINRA link below to search for Walmart using the Walmart ticker. The industry information is contained in the 'Industry Peer' tab (on the far right of the horizontal menu). You will use the Walmart industry averages for both Walmart and Target as they are in the same industry. FINRA market data link: http://finra-markets.morningstar.com/MarketData/Default.jsp 2
General Questions: 1. A portion of Walmart's total revenue comes from membership fees. Walmart receives payments in advance for memberships and recognizes membership fee revenue over the year. a. How much revenue did Walmart recognize for membership fees, and what percentage of total revenue came from membership fees for the fiscal year ended January 31, 2017 (FYE 1/31/17)? As a percentage of total revenue, how has membership revenue changed compared to the previous year? b. What percentage of current liabilities consisted of deferred membership fee revenue for the balance sheet dated January 31, 2017?
2. Walmart's international operations provide credit to consumers and have consumer credit receivables. a. What was the reserve for doubtful accounts as a percentage of total consumer credit receivables for FYE 1/31/17? b. How did this percentage change over the previous year? What factors could have caused the change (describe briefly)?
3. Both Walmart and Target use the straight line depreciation method. a. What percentage of Walmart's depreciable long-term assets classified as 'Property and Equipment' has been depreciated as of 1/31/2017? b. How does this percentage compare to that of Target for Target's FYE 1/28/17? c. Based solely on this comparison, which of the two companies might require additional investments in these long-term assets sooner?
4. Did either company report an impairment of property and equipment during the fiscal year ending January 2017? If so, indicate the amount and which income statement line item would incorporate the amount.
5. Did Walmart record any goodwill associated with acquisitions during FYE 1/30/17? If so, which company did Walmart acquire, how much was paid, how much goodwill was recorded, and what was the implied fair value of the acquired company's net identifiable assets?
6. Did either company record goodwill impairments during the fiscal years ending January 2017 or January 2016? If so, indicate the amount, which income statement line item would incorporate the amount. Liquidity, Solvency, Profitability:
7. Calculate Current and Quick Ratios for both companies for FYE 1/2017. Which company is more liquid? How has liquidity changed for each company relative to the previous year?
8. Calculate Long-Term Debt-to-Equity Ratios for both companies for FYE 1/2017. What can you infer from a comparison of the ratios for the two companies? How do the ratios for these companies compare to the industry average (interpret the comparisons)?
9. Calculate Return on Asset (ROA) and Return on Equity (ROE) for both companies for FYE 1/2017. Describe the different information the two profitability ratios provide. Which company is more profitable? How has profitability changed for these companies relative to the previous year?
