Accounting and Finance Comparison of Selected Financial Case Study

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Accounting and Finance

Comparison of Selected Financial Performance Data for WalMart and Target

WalMart and Target compete in very similar markets, competing in the supermarket segment of the retail industry, with some diversified interests. To assess the performance of these two firms, their results for the financial years ending January 2012 and 2013 may be examined and compared. This paper will look at the performance in terms of revenues, cost of goods, accounts receivable and payable and inventory management.

Revenues

The performance of a firm often starts with an assessment of the revenue that is generated and the way in which this changes over time. The revenues for both WalMart and Target are shown in table 1.

Table 1; Revenue for WalMart and Target 2012-2013

WalMart

Target

2012(Jan)

2013(Jan)

2012(Jan)

2013(Jan)

Revenues ($ millions)

446,950

469,162

69,865

73,301

Change in revenues from previous year

The levels of revenues demonstrate that WalMart is the larger firm; the revenues are more than 6 times the size of Target. However, in both cases the firms are showing a growth in their market share. In the financial year which ended the January 2012 saw WalMart make the larger proportional gain, 5.95% compared to 3.67%. IN 2013 it was Target that made the larger proportional gain, but in nominal terms WalMart still increased its revenues by a larger dollar value. However, both companies are growing.

Cost of goods sold

The cost of goods sold is an important element of the firms' costs; the revenue less the cost of goods is the gross profit.

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The most relevant cost of goods figure is the percentage of revenue, as it allows for a direct comparison. The cost of goods sold is calculated by calculating the cost of goods as a percentage of the revenue.

Table 2; Cost of goods sold for WalMart and Target 2012-2013

WalMart

Target

2012(Jan)

2013(Jan)

2012(Jan)

2013(Jan)

Cost of goods sold

(% of revenue)

75%

75.1%

69.1%

69.6%

Gross profit margin

25%

24.9%

30.9%

30.4%

The results indicate that WalMart have a high cost of goods compared to Target, accounting for 75% and 75.1% of the revenues in 2012 and 2013, whereas Targets cost of goods is less at 69.1% and 69.6%. It may be expected that as a result of the larger size, WalMart may benefit from the economies of scope and scale. This may indicate that this is not the case, however, it may also be the result of other factors; lower prices creating a lower gross profit margin. Different types of products which have a lower gross margin may also account for the difference. In both cases the firms faced an increase in the cost of goods in 2013 compared to 2012. However, the proportional increase was less for WalMart, having a lower impact on the gross profit margin.

Accounts receivable

The accounts receivable are an indication of how long the firm takes to receive payment for goods sold. The days outstanding.....

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