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FIN 301A: Principles of Finance Research Project

A comprehensive research project analyzing key financial principles and applications.

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    FIN 301A: PRINCIPLES OF FINANCE 1 FIN 301A: PRINCIPLES OF FINANCE RESEARCH PROJECT Analyze the financial performance of Wal - Mart Stores, Inc. and Target Corporation using key financial ratios and compare their financial standing within the retail industry. Focus on profitability, asset utilization, debt management, liquidity, and market value ratios. Based on the analysis, evaluate the strengths and weaknesses of each company in the context of their respective market positions. Additionally, assess the implications of their financial strategies on potential investors. Word Count Requirement: Your response should be between 1,800 and 2,000 words .

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    FIN 301A: PRINCIPLES OF FINANCE 2 Abstract In modern day corporations, the analysis of a company’s financials has ensued from the need to establish a company’s financial performance, efficiency as well as its position in the industry. In this project, focus will be on the retail industry with Wal - Mart Stores Inc and Target Corporation as our samples. This project will employ ratio and trend analysis to deduce the performance of the stated companies above. In this regard, the following will be the major financial analysis categories: 1. Profitability ratios 2. Debt management ratios 3. Asset utilization ratios 4. Liquidity ratios 5. Market value ratios The above stated ratios are further segmented into various ratios which are as follows: 1. Profitability ratios a) Gross Profit Margin b) Net Profit Margin c) Return on Assets (ROA) d) Return on Equity (ROE) 2. Debt Management ratios a) Debt ratio b) Debt - Equity ratio c) Equity multiplier 3. Asset Utilization ratios a) Fixed Assets Turnover b) Total Assets Turnover 4. Liquidity/Short - term Solvency ratios a) Current ratio b) Quick/Acid - Test ratio 5. Market Value ratios a) Price - Earnings ratio b) Market - to - book ratio

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    FIN 301A: PRINCIPLES OF FINANCE 3 Financial Analysis of Wal - Mart Stores, Inc Wal - Mart Stores Inc is the leading retailer in the United States retail industry and is engaged in both retail and wholesale of consumer products. An evaluation of its last four - year financial statements obtained from its website revealed the following key statistics: 1/31/2015 1/31/2014 1/31/2013 1/31/2012 Profitability Ratios a. Gross Profit Margin 24.3% 24.3% 24.3% 24.5% b. Profit Margin 3.39% 3.39% 3.655 3.54% c. Return on Assets (ROA) 8.03% 7.83% 8.37% 8.27% d. Return on Equity (ROE) 20.1% 21.02% 22.2% 22.01% Debt Management Ratios a. Debt Ratio 0.604 0.628 0.624 0.631 b. Debt - Equity Ratio 1.503 1.685 1.660 1.712 c. Equity Multiplier 2.503 2.685 2.660 2.712 Asset Management Ratios a. Fixed Assets Turnover 4.134 4.012 3.990 3.948 b. Total Assets Turnover 2.367 2.310 2.292 2.293 Liquidity Ratios a. Current Ratio 0.97 0.88 0.83 0.88 b. Quick Ratio 0.28 0.24 0.22 0.23 c. Cash Ratio 14% 10% 11% 11% Market Value Ratios a. Price - Earnings Ratio ($) 17.59 15.20 14.27 12.78 b. Earnings Per Share ($) 1.54 1.36 1.67 1.50 After a critical evaluation of the statistics derived above, the following conclusions were made: i) The gross profit margin of Wal - Mart is fairly consistent which is good as it shows that the company is able to maintain a fair surplus of its sales to offset its expenses. ii) Similarly, the profit margin is relatively consistent over the four years with a marginal increase from 2013 to 2014. The marginal increase may have been brought about by cutting on expenses while growing sales. iii) Over the four years, Wal - Mart has been able to utilize its assets productively which is evidenced by an average return of 8.125% on its investments. In the transition of its

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