2.1 by shareholder in 2012, while the Marcy

 

 

2.1 Return on
Equity

 

Return
on equity (ROE) is the amount of net income
returned as a percentage of shareholders
equity. Return on equity
measures a corporation’s profitability by revealing how much profit a company
generates with the money shareholders have invested. (Mawhinne, 2007)

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Return
on equity is calculated using the following formula:

 

 

The data required in calculating Return on Equity will show in table 2.2

 

Table 2. 2 The data required in calculating Return on Equity

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Net Income

$17,756

$1,198

Stockholder Equity

$76,343

$6,051

 

Return on equity of WalMart Stores Inc.

 

ROE =  = 0.232

 

Return on
equity of Macy’s Inc.

                                                           

ROE =  = 0.198

 

The
ROE of the Walmart is 0.232 (23.2%) while the Marcy is 0.198 (19.8%). This
means that Walmart generate a 23.2% profit on every dollar invested by
shareholder in 2012, while the Marcy generate 19.8% profit on every dollar
invested by shareholder in 2012. The higher of the ROE is better. Many
professional investor look for ROE of at least 15% ( (McClure,
2018),
so it is worth for the investor to invest in to both of the company. However, comparing
both of the companies’ ROE, Walmart management is more effective to organize
the shareholder equity to generate income than Marcy’s.

 

2.2 Return on assets (ROA)

 

Return on assets (ROA) is a financial ratio that shows
the percentage of profit a company earns in relation to its overall resources.
It is commonly defined as net income divided by total assets. Net income is
derived from the income statement of the company and is the profit after taxes.
The assets are read from the balance sheet and include cash and cash-equivalent
items such as receivables, inventories, land, capital equipment as depreciated,
and the value of intellectual property such as patents. (Inc, 2016)

Return on assets (ROA) is
calculated using the following formula:

 

 =

 

The data required in calculating Return on assets will show in table
2.3 

 

Table 2. 3 The data required in calculating Return on assets

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Operating Income

$27,801

$2,661

Other Income – (loss) Net

$ 187

-$134

Total Assets

$203,105

$20,991

 

Return on assets of WalMart Stores Inc

 

ROA =  = 0.14

 

Return on assets of Macy’s Inc.

ROA
=  =0.12

 

 

The
ROA of the Walmart is 0.14(14%) while the Marcy 0.12(12%). This shows that
Walmart earned 14% profit on the resources it owned while Marcy earned 12% profit
on the resources it owned. The higher the ROA is better. Professional investor
will consider stock with an ROA less than 5%, So, both of the company are still
have good ROA and are not very differ from the ROE. However, comparing both of
the companies’ ROA, Walmart’s management is more effective to earn profit for
every dollar of its assets.

 

2.3 Net Profit Margin

The net profit margin, which is also called the profit
margin on sales, is calculated by dividing net income by sales Return on Assets
(ROA) is often used as a tool to measure the rate of return on total assets
after interest expense and taxes, the high Return on Assets (ROA) will be good
for the company. Value Return on Assets (ROA) high would indicate that the comp
any is able to generate profits relatively high value assets. Investors would
like the company to the value of Return on Assets (ROA) is high, as companies
with Return on Assets (ROA) which is capable of producing high levels of
Corporate profits is greater than the Return on Assets (ROA) is low Return on
Assets (ROA) is a financial ratio used to measure the degree to which the
assets have been used to generate profits. The greater Return on Assets (ROA)
shows that the better the company’s performance, because of the greater rate of
return on investment (ehrhardt, 2009)

      Return on assets (ROA) is calculated using the following
formula:

 

 

The data required in calculating Net Profit Margin will show in table
2.4 

 

Table 2. 4 The data required in calculating Net Profit Margin

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Net Operating Revenues

$469,162

$27,686

Net Income

$ 17,756

$1,198

 

Net Profit Margin of WalMart Stores Inc

 

 = 0.038

 

Net Profit Margin of Macy’s Inc

 

 = 0.0432

 

 

The
Net Profit Margin of the Walmart is 0.038 (3.8%) while the Marcy is 0.0432
(4.32%). The Net Profit Margin is intended to be a measure of the overall
success of a business. A high Net Profit Margin indicates that a business is
pricing its products correctly and is exercising good cost control (Accounting
Tools, 2017).
Comparing both of the companies’ net profit margin, the Marcy has higher net
profit margin which shows that Marcy management is pricing its product and
exercising good cost control and profitable than the Walmart. Even though
Walmart has higher sales revenue, but due to the ratio of its net income,
Marcy’s ratio is still higher which make Marcy has higher Net Profit Margin.

 

2.4
Asset Turnover

The asset turnover ratio is an
efficiency ratio that measures a company’s ability to generate sales from its
assets by comparing net sales with average total assets. In other words, this
ratio shows how efficiently a company can use its assets to generate sales. The
total asset turnover ratio calculates net sales as a percentage of assets to
show how many sales are generated from each dollar of company assets. For
instance, a ratio of .5 means that each dollar of assets generates 50 cents of
sales. (My Accounting Course, 2017)

Total Assets
Turnover is calculated using the following formula:

 

 

The data
required in calculating will Total Assets Turnover show in table 2.5

 

 

Table 2. 5 The data required in calculating Total Assets Turnover

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Net Operating Revenues

$469,162

$27,686

Total Assets

$ 203,105

$20,991

 

 

Total
Assets Turnover
of WalMart Stores Inc.

 

 = 2.31

 

 

Total
Assets Turnover
of Macy’s Inc.

 

 = 1.32

 

The
Total Asset Turnover of the Walmart is 2.31 while the Marcy is 1.32. This shows
that each dollar of Walmart assets generates $2.31 of sales. And each dollar of
Marcy assets generate $1.32 of sales. Since this ratio is used to find the
efficiency of the company uses their assets to generate sales, a higher ratio
is always better. Low ratio shows that the company is not generate their assets
efficiently and are likely to have management or production problems. Comparing
both of Walmart and Marcy’s Total Asset Turnover, the Walmart has bigger Total
Asset Turnover ratio shows that Walmart using its assets more efficiently than
Marcy.

2.5 Account Payable Turnover (APT)

 

Accounts
payable turnover is a ratio
that measures the speed with which a company pays its suppliers. If the
turnover ratio declines from one period to the next, this indicates that the
company is paying its suppliers more slowly, and may be an indicator of
worsening financial condition. A change in the turnover ratio can also indicate
altered payment terms with suppliers, though this rarely has more than a slight
impact on the ratio. If a company is paying its suppliers very quickly, it may
mean that the suppliers are demanding fast payment terms, or that the company
is taking advantage of early payment
discounts. (Accouting Tools, 2017)

            To calculate the accounts payable
turnover ratio, summarize all purchases from suppliers during the measurement
period and divide by the average amount of accounts payable
during that period. The formula is:

 

 

The data
required in calculating Account Payable Turnover will show in table 2.6

 

Table 2. 6 The data required in calculating Account Payable Turnover

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Cost of Goods Sold

$352,488

$16,538

Account Payable

$ 59,099

$4,951

 

Account
Payable Turnover
of WalMart Stores Inc.

 

 = 5.96

 

 

Account
Payable Turnover
of Mecy’s Inc.

 

 = 3.34

 

The
Accounts Payable Turnover of Walmart is 5.96 while the Marcy is 3.34. This
shows that Walmart pay his vendor/suppliers back on average once every two
months (12months/5.96=2) and Marcy could pay his vendor/suppliers on average of
once every 4 months. (12 months/3.34=4). A higher ratio shows supplier and
creditors that the company pay its bills frequently and regularly that implies
that new suppliers will get paid back quickly (My Accouting Course, 2017). Comparing both of
Walmart and Mary’s Accounts Payable Turnover, Walmart’s are higher shows that
Walmart’s vendor will be payback earlier than the Marcy’s

 

2.6 Accounts receivable turnover

Accounts
receivable turnover is the ratio of net credit sales of a business to its
average accounts receivable during a given period, usually a year. It is an
activity ratio which estimates the number of times a business collects its
average accounts receivable
balance during a period. (Accouting Explained, 2013).

 

Accounts receivable turnover is calculated using the
following formula:

 

 

 

The data
required in calculating Account Receivable Turnover will show in table 2.7

 

Table 2. 7 The data required in calculating Account Receivable Turnover

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Net Operating Revenues

$469,162

$27,686

Net Receivales

$6,768

$371

 

Account
Receivable Turnover of WalMart
Stores Inc.

 

 = 69.32

 

 

Account
Receivable Turnover of Mecy’s Inc

 

 

The
Accounts Receivable Turnover of Walmart is 69.32 while the Marcy is 74.62. This
shows that Walmart collect their receivable about 69.32 times in a year and
Marcy collect their receivable their receivable about 74.62 times in a year.
Accounts receivable turn also indicates the quality of credits sales and
receivable, so the higher ratio shows that the credit sales are more likely to
be collected than a company with a lower ratio (My Accouting Course, 2017). Comparing both of
Walmart and Marcy’s Account Receivable Ratio, Marcy is higher shows that the
credit sales of March are more likely to be collected than Walmart.

 

2.7
The Inventory Turnover

The inventory turnover ratio is an
efficiency ratio that shows how effectively inventory is managed by comparing
cost of goods sold with average inventory for a period. This measures how many
times average inventory is “turned” or sold during a period. A low inventory turnover period and
a low average collection period for receivables usually mean that the
investment in current assets is low. Hence, the current ratio (current
assets/current liabilities) is also low. (Atrill, 2009)

 

The inventory turnover ratio is calculated by dividing
the cost of goods sold for a period by the average inventory for that period.

 

 

 

The data
required in calculating Inventory Turnover will show in table 2.8

 

Table 2. 8 The data required in calculating Inventory Turnover

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Cost of Goods Sold

$352,488

$16,538

Inventories

$43,803

$5,308

 

 

Inventory
Turnover of WalMart Stores Inc.

 

 

 

Inventory
Turnover of Macy’s Inc.

 

The
Inventory Turnover Ratio of Walmart is 8.05 while Marcy’s is 3.12. This shows
that Walmart effectively sold its 8.05 times over while Marcy effectively sold
its3.12 times over. It means that Walmart has shorter period for the finished
good to be sold than the Marcy. Inventory turnover is a measure to know the
efficiency of the company can control its merchandise, so it is important to
have a high turn. This shows the company does not spend a lot of cost by buying
too much inventory and wastes resources by storing non-salable inventory (My Accounting
Course, 2017).
Comparing from both of the company, Walmart has better performance in the
Inventory Turnover Ratio than the Marcy.

 

2.8 Property, Plant
and Equipment Turnover (PPET)

Property,
plant and equipment (PP&E) is a company asset that is vital to business
operations but cannot be easily liquidated, and depending on the nature of a
company’s business, the total value of PP can range from very low to
extremely high compared to total assets. (My accounting Course, 2017)

            Property, Plant and Equipment
Turnover is calculated using the following formula:

 

 

The data required in calculating Property,
Plant and Equipment Turnover will show in
table 2.9

 

Table 2. 9 The data required in calculating PPET

Year ended January 31, 2013 ($ Millions)

WalMart

Macy’s

Net Operating Revenues

$469,162

$27,686

Property, Plant, and Equipment
(PPET)

$116,681

$8,196

 

 

Inventory
Turnover of WalMart Stores Inc.

 

 

Inventory
Turnover of Macy’s Inc.

 

 

The
PPET of Walmart is 4.02 while Marcy’s 3.38. This means that Walmart earned
$4.02 of sales for each dollar of property and Marcy earned $3.38 of sales of
sales for each dollar of investment in Property, Plant and Equipment. PPET
measure of how efficient the company are generating revenue from fixed assets
like vehicle, building and machinery, so, the higher the PPE Turnover, the more
efficient the company with their capital investment. Comparing from Walmart and
Marcy, Walmart is more efficient managing their capital investment than Marcy

2.9
The cash to cash (C2C)

The
cash to cash cycle is the time period between when a business pays cash
to its suppliers for inventory
and receives cash from its customers. The concept is used to determine the
amount of cash needed to fund ongoing operations, and is a key factor in
estimating financing requirements. (Accounting Tools , 2017)

 

The cash to cash calculation is:

 

The data required in calculating cash
to cash will show in table 2.9

Table 2. 10 The data required in calculating Cast to Cash

 

WalMart

Macy’s

Account Payable Turnover (APT)

5.96

3.34

Inventory Turnover (INVT)

8.05

3.12

Accounts Receivable Turnover (ART)

69.32

74.62

 

Account
payable turnover, Inventory Turnover, Account Receivable in weeks are required
in calculating cash to cash, therefore to calculate cash to cash is using
formula:

Table 2. 11 The data required to calculating Cash to cash in week

 

Account Payable in
weeks

Inventory Turnover in
Weeks

Account Receivable
Turnover in weeks

WalMart Store Inc.

 = 8.72

=6.46

= 0.75

Marcy’s Inc.

15.57

16.69

0.70

 

Cash to
cash of WalMart Stores Inc.

 

 = -1.51

 

Cash to cash of Mecy’s Inc.

 = 1.82

The
C2C of the Walmart shows a negative value of -1.51 while Marcy’s 1.82. This
means that Walmart collected their money from the sales 1.5 week earlier
(negative result) to pay its supplier and Marcy collected their money from the
sales 1.82 week later (positive result) to pay its supplier. The more negative
of the Cash to Cash result shows the more competent the company is to convert
their money to become product and to converted back again into the money.
Comparing from Walmart and Marcy, Walmart has more efficient way to in rotating
their money than Marcy.

2.8 Return on financial
leverage (ROFL)

Financial
leverage can described as the extent to which a business or investor is using
the borrowed money. Financial leverage is a measure of how much firm uses
equity and debt to finance its assets. As debt increases, financial leverage
increases.

 

Return on financial leverage is calculated using the
following formula:

The data required in calculating Return on financial leverage is based on the
calculation ROE and ROA will show in
table 2.12

Table 2. 12 The data required in calculating ROFL

 

WalMart

Macy’s

Return on Equity (ROE)

Return on Assets (ROA)

0

 

ROFL of WalMart Stores Inc.

ROFL
of Macy’s Inc.

x

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