The project for Acc220 will evaluate the financial information of WalMart and Target Corporations. The links to the financial statements will be provided for you. You will need to access the internet to research additional information on the firms.
The project is divided into 3 sections. Part 1 will be submitted at the end of Week 3, Part 2 will be submitted at the end of Week 5 and Part 3 (along with Parts 1 and 2) will be submitted on Sunday of Week 7. The entire project will be graded by the instructor at the end of the final submission in week 7 and one grade will be assigned for the entire project. The project will count for 17.5% of your overall course grade. Unless you receive permission from the instructor to delay the submission, failure to turn in any part of the project by the due date may result in a significantly lower grade, including a grade of zero, for the part involved.
A group leader must be selected for each part – this shares the load throughout the group. The group leader for Part 1 will combine all the materials from the group members and submit part 1 of the project in Week 3. The group leader for Part 2 will submit the project in Week 5 and the group leader for Part 3 will submit the entire project (Parts 1, 2, and 3) in Week 7.
Each group member is required to participate in the discussion board and file exchange on a weekly basis. The minimum expectation of each member is providing a minimum of 3 posts per week to the discussion and submitting one file to the file exchange. Each group determines how to split the work.
Grade Information
Content – 50% A quality report will have correct ratio calculations and conclusions on the analysis. Any assumptions, if made, should be spelled out clearly.
Editing – 10% A quality report will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Ratios will be expressed as numbers or percentages, depending on what is appropriate, as is shown in the textbook. Note that not all ratios are shown as percentages.
Participation – 40% Group participation includes providing substantive content in the discussion board on a minimum of three different days of the week and actively involved in the workload.
Company Basics and Financial Ratios – Part 2
Question 1
Using the most recent three years of available data, compute Wal-Mart’s and Target’s degree of operating leverage. You will have to use the formula, percentage change in pretax income divided by percentage change in revenues. Show your work.
Question 2
Using the last three years of available data, compute Wal-Mart’s and Target’s degree of financial leverage. You will have to use the formula, percentage change in net income divided by percentage change in pretax income (EBIT). Show your work.
Question 3
With each company, multiply the degree of financial leverage times the degree of operating leverage to determine the degree of combined leverage for the two periods.
Question 4
Compare the leverage ratios. Did the degrees of leverage stay the same? Explain the differences between the two periods.
Wal-Mart
Target
Question 5
Go to finance.yahoo.com and get the quotes of Target and Wal-Mart. (Type into the “Get Quotes” box. Click on the “Profile” section on the home page and write a few sentences of each firm’s activities.
Write down each firm’s P/E ratio. Calculate the PEG ratio (the P/E ratio divided by annual growth).
a.) Which firm’s ratios are higher?
b.) Is the stock of each company up or down from the prior day? (See “change” on the home page.)
c.) What is each company’s 52-week range?
d.) Scroll down and click on “Analysts Opinion.” What is the Mean Target, the High Target, and the Low Target? How many brokers follow each firm?
Wal-Mart
Target
Question 6
a.)With each company, compute the $ change in “Total Assets” over the last two years.
b.) Do the same computation for “Stockholders’ Equity.”
c.) Do the same computation for “Long-Term Debt.”
d.) In a brief paragraph describe the changes in total assets, stockholders’ equity and long-term obligations. Do these changes appear to affect the firm? Describe.
Wal-Mart
Target
Question 7
Find the long-term debt and total common equity for the last 2 years. Add the two together to get total capital.
a.) Calculate the weights between long term debt and equity that you would use in a weighted average cost of capital calculation.
b.) What are the weights for long term debt and equity for the last five years? Have they remained stable? Comment on the stability or lack of stability and how it would affect the company’s cost of capital
Wal-Mart
Target
