Wmt Vs. Tgt There Are Term Paper

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However, the company saw a reduction in profits during 2008 (fiscal 2009) and only last year was able to restore profitability to previous levels. Target therefore appears to be less recession-proof than Wal-Mart, and this may be related to the latter company's superior geographical diversification.

Both companies have healthy balance sheets. Wal-Mart's tight margins meant that it traditionally has what in some companies would be considered poor liquidity (current ratio below 1) but in general Wal-Mart has a stable balance sheet. The company's capital structure is debt-oriented, with 62% liabilities. Target is a much smaller company than is Wal-Mart, with assets only one-quarter those of the Arkansas giant. Target has healthier liquidity but as with Wal-Mart maintains a debt-heavy capital structure of 64.5% liabilities.

At the most basic level, both of these firms represent good investments. They are strong firms with healthy balance sheets and the ability to continue to grow revenues -- and for the most part profits -- even during the past few difficult economic years. The companies are trading at relatively low multiples and each is in a favorable position within its 52-week range.

However, Wal-Mart represents the superior investment of the two. In addition to being the industry leader and having better geographic diversification, Wal-Mart was able to increase profits even during the recession.

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Furthermore, Wal-Mart has a consistently better ROI, implying that the company's operations are more efficient. This superior efficiency reflects well given that the two companies have similar capital structures. There is little to choose from with respect to stock price and dividend policy, so it is the superior returns that Wal-Mart offers that give it the edge as an equity investment. In addition, the company's better ability to handle recession bodes well for future recessions.

The market is generally ambivalent about the different between these two companies, but the lower price to book ratio implies that the market views Wal-Mart stock as having greater growth potential. As the result of this and the superior financial performance, it is recommended that an investor purchase Wal-Mart stock over that of Target. There are few categories in which Target outperforms Wal-Mart: either Wal-Mart is better or the two companies are more or less neutral. This gives the overall edge to Wal-Mart, although Target is a good investment in its own right. It is just not as good as Wal-Mart given the stock performance and financials of the two firms.

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