Need help with analysis portion of this spreadhseet. I\'m not sure what I need t
ID: 2657153 • Letter: N
Question
Need help with analysis portion of this spreadhseet. I'm not sure what I need to provide. Here is the details of the assignment:
MBA 520 Module Two Activity Guidelines and Rubric
Overview: For this task, you will analyze the financial health of two competitors in the same industry based on their ratios, using the provided Excel spreadsheet template. Then, you will complete your analysis by writing a short synopsis of your findings in the space below the analysis.
Prompt: Follow the steps below to analyze the financial health of two competitors. Use the Module Two Activity Template to complete this task.
Select two companies operating in the same industry (for example, Macy’s and Dillard’s). The companies have to be in the same business for the ratios to be valuable to your analysis. Then, complete the template, providing the following:
? Ratio Research: Use the template to analyze the selected ratios (profitability, financial strength, valuation, management effectiveness, dividends, and efficiency) for both of the competitors. To complete this part, you can reference the Morningstar website in the Module Two resources to obtain the ratios. You can also use the SEC EDGAR Company Filings resource from Module One to obtain the ratio from annual reports. Please note: The ratios have to be from the same time period (the same year for both competitors). For training on how to use Excel, visit the Hoonuit training site or search YouTube to find appropriate Excel training videos.
? Industry Ratios: To analyze ratios for the companies, you also need to obtain the ratios for the industry that the competitors operate in. Industry values for the ratios can be found in the index column. If no index value is available, put the five-year averages for both companies in the industry column and use these figures for the industry comparison of your ratio analysis.
? Ratio Analysis: Compare the two companies based on their ratios. Use the last column in the template to write in detail how each company is doing based on the ratios. Compare the company ratios to the industry and each other.
? Summary: This short write-up should be done directly in your Excel spreadsheet.
o What is a ratio analysis? Briefly explain in about one paragraph. Please quote your resource.
o Referring to the ratio analysis, in which company would you be willing to invest and why?
Note: This is a theoretical exercise. You should not be investing according to this analysis.
Summary
Referring to your ratio analysis above, in which company would you be willing to invest, and why?
RATIOS RETAIL WALMART TARGET ANALYSIS Profitability Ratios (%) Gross Margin 25.37 25.82 EBITD Margin 9.31 8.19 Operating Margin 3.28 5.16 Pretax Margin 2.18 5.07 Effective Tax Rate 20.28 22.65 Financial Strength Quick Ratio 0.2 0.3 Current Ratio 0.76 0.95 LT Debt to Equity 0.46 96.65 Total Debt to Equity 0.58 98.96 Interest Coverage 12.35 Valuation Ratios P/E Ratio 26.94 14.71 Price to Sales (P/S) 0.52 0.6 Price to Book (P/B) 3.25 3.89 Price to Tangible Book 4.19 3.89 Price to Cash Flow 11.32 Price to Free Cash Flow 9.26 7.07 Management Effectiveness (%) 4.82 7.62 Return On Assets 8.41 11.81 Return On Investment 12.66 26.35 Return On Equity Dividends Dividend Yield 2.5 3.09 Payout Ratio 46.62 Efficiency Revenue/Employee 227,429 208,345 Net Income/Employee 4,783 8,487 Receivable Turnover 90.45 85.67 Inventory Turnover 8.26 5.71Explanation / Answer
Ratio analysis is the analysis of a company's financial health using the data in the financial statements. We can gain insight about the various aspects of a company such as its profitability (Gross margin ratio, Net profit margin ratio,etc), liquidity (Current ratio,Quick ratio, etc.), ability to service debt (Interest coverage ratio, Financial leverage, etc.) and so on. It provides a relatively simpler method to compare firms.
RATIOS RETAIL WALMART TARGET ANALYSIS Profitability Ratios (%) Gross Margin 25.37 25.82 Target is marginally more profitable implying its COGS is slightly lower than that of Walmart. EBITD Margin 9.31 8.19 The operating expenses except Depreciation is higher for Target. Operating Margin 3.28 5.16 Depreciation expense is much higher for Walmart as compared to Target since Walmart's EBITDA margin is higher while operating margin is lower than that of Target. Pretax Margin 2.18 5.07 Target is more profitable. Effective Tax Rate 20.28 22.65 Higher tax rate for Target will lower its profitability. Financial Strength Quick Ratio 0.2 0.3 Target has higher percentage of assets in liquid form such as cash and receivables. Current Ratio 0.76 0.95 Target has higher percentage of assets in relatively liquid form ( such as cash, receivables, inventory) which can be converted in cash relatively fast. LT Debt to Equity 0.46 96.65 Higher ratio for Target implies higher leverage resulting in higher interest cost which adversely impacts profitability. Total Debt to Equity 0.58 98.96 Higher ratio for Target implies higher leverage resulting in higher interest cost which adversely impacts profitability. Interest Coverage 12.35 Valuation Ratios P/E Ratio 26.94 14.71 Higher P/E ratio for Walmart implies that the market is valuing walmart more. Investors are willing to pay almost 27times the earnings per share for Walmart while for Target, they want to pay only 14.7 times the EPS value. Price to Sales (P/S) 0.52 0.6 P/S ratio is generally used when a company has negative net income. In this case, it implies that market is valuing Target at 0.6 times the sales per share. Higher P/S ratio for Target while lower P/E ratio might imply lower number of shares of Target. Price to Book (P/B) 3.25 3.89 Higher the P/B ratio, costlier is the stock. Price to Tangible Book 4.19 3.89 Higher the ratio, costlier is the stock. However, since it is same as P/B ratio for Target, it implies that Target has no intangible assets. Price to Cash Flow 11.32 Price to Free Cash Flow 9.26 7.07 Higher ratio implies that the stock is costlier. Management Effectiveness (%) 4.82 7.62 Return On Assets 8.41 11.81 Target has more efficient assets as they are able to generate more income per unit of assets. Return On Investment 12.66 26.35 Target is managing its investment in the business in a much better way than Walmart since Target is able to earn more income per unit of investment made in the business. Return On Equity Dividends Dividend Yield 2.5 3.09 Target returns more cash back to the shareholders than Walmart. Hence Target generates better returns for the investors. However, higher dividend yield may also imply that the company does not have much growth opportunities to invest the cash which is not a good sign for long term. Payout Ratio 46.62 Efficiency Revenue/Employee 2,27,429 2,08,345 Revenue per employee is higher for walmart which means it earns more revenue per employee than Target. It may mean that walmart is a more aggressive player. Net Income/Employee 4,783 8,487 Higher ratio for Target means that the cost control is much better at Target. Receivable Turnover 90.45 85.67 Higher ratio is desirable as it means that less cash is stuck with debtors in form of receivables. Inventory Turnover 8.26 5.71 Higher ratio is desirable as it implies higher liquidty as the company is able to quickly sell its products. Asset Turnover 2.46 1.88 Higher ratio is desirable as it implies higher asset efficiency, i.e. each unit of asset is able to generate more sales.