on the book Bergevin, P. and MacQueen, M. (2015) Accounting and Finance for Mana
ID: 2809551 • Letter: O
Question
on the book Bergevin, P. and MacQueen, M. (2015) Accounting and Finance for Managers
case 6-1
Explanation / Answer
1)
2) Target should fire the CEO as he is not able to perform his duties in running the company as efficient as its peer Wal-Mart. Wal-Mart is running on a negative working capital and has high free cash flow than Target. Growth wise and return wise also Wal-Mart has beaten Target by decent margin.
Target Corporation 2014 2013 2012 2011 Return on Equity (Return on equity = Net Income/Total shareholders’ equity) 12.1% 18.1% 18.5% 18.9% Return on Total Assets (Return on Total Assets = EBIT/Total Assets) 9% 11% 11.4% 12% Operating Profit Margin (Operating Income/Total Revenue) 6% 7% 4.2% 4.3% Asset Turnover (Total Revenue/Fixed Assets) 2.2 2.2 1.5 1.54 Working Capital (Current Assets - Current Liabilities) -1204 2357 2162 7413 Current (working capital) ratio (Current Assets/Current Liabilities) 0.9 1.2 1.151 1.709 Inventory Turnover (Inventory/Sales) 8.3 9.3 6.0 6.02 Days in Inventory (Inventory/Cost of Sales*365) 62.5 57.0 60.4 60.6 Accounts receivable turnover (Sales/Receivable) 0.0 12.5 11.8 11 Days in accounts receivable (Receivable/Sales*365) 0.0 29.1 31.0 33.3 Operating Cycle = (365/Inventory turnover ratio+365/Accounts receivable turnover ratio) 0.0 68.4 91.4 94.0 Accounts Payable Turnover (Cost of Sales/Payables) 6.7 7.2 7.0 6.9 Days in accounts payable (Payables/Cost of Sales*365) 54.8 50.9 52.3 52.9 Net cash coversion cycle (inventory days + turnover days - payable days) 62.5 17.7 39.1 41.1 Debt to Capital (Total Debt/Total Capital) 0.6 0.7 0.7 0.7 Debt to equity (Total Debt/Total Shareholder Equit) 1.7 1.9 2.0 1.8 Times interest earned (earnings coverage) (EBIT/Interest) 3.8 7.0 3.4 3.9 Cash flow adequacy (CF from operations / Long term debt paid+Fixed assets purchased+cash dividend distributed) 1.1 1.5 1.1 1.9 Long term debt paid 2029 -1052 11626.0 Wall Mart Stores 2014 2013 2012 2011 Return on Equity (Return on equity = Net Income/Total shareholders’ equity) 19.7% 20.8% 20.7% 23.0% Return on Total Assets (Return on Total Assets = EBIT/Total Assets) 13% 14% 13.7% 14.1% Operating Profit Margin (Operating Income/Total Revenue) 6% 6% 3.5% 3.9% Asset Turnover (Total Revenue/Fixed Assets) 3.3 3.3 2.3 2.3 Working Capital (Current Assets - Current Liabilities) -8160 -11878 -7325 -6591 Current (working capital) ratio (Current Assets/Current Liabilities) 0.9 0.8 0.9 0.9 Inventory Turnover (Inventory/Sales) 0.0 0.0 8.2 8.7 Days in Inventory (Inventory/Cost of Sales*365) 1.9 1.6 44.3 42.0 Accounts receivable turnover (Sales/Receivable) 71.3 69.2 75.3 82.9 Days in accounts receivable (Receivable/Sales*365) 5.1 5.3 4.9 4.4 Operating Cycle = (365/Inventory turnover ratio+365/Accounts receivable turnover ratio) 91072.5 110293.9 49.2 46.5 Accounts Payable Turnover (Cost of Sales/Payables) 9.6 9.3 9.2 9.4 Days in accounts payable (Payables/Cost of Sales*365) 38.1 39.5 39.9 38.9 Net cash coversion cycle (inventory days + turnover days - payable days) -31.1 -32.6 9.3 7.6 Debt to Capital (Total Debt/Total Capital) 0.6 0.6 0.6 0.6 Debt to equity (Total Debt/Total Shareholder Equit) 1.5 1.5 1.6 1.5 Times interest earned (earnings coverage) (EBIT/Interest) 12.1 13.4 7.3 8.2 Cash flow adequacy (CF from operations / Long term debt paid+Fixed assets purchased+cash dividend distributed) 1.0 2.1 1.3 1.4 Long term debt paid 4518 -5796 4413.0Related Questions
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