A Comparison between Sears and Wal-Mart
Sears vs. Wal-Mart
Questions Accompanying the Case
Create a table and calculate the following ratios for the three years for both Sears and Wal-Mart:
Current ratio, quick ratio, , total assets turnover, fixed assets turnover, inventory turnover (using cost of good sold), inventory turnover per day (days payable), days sales outstanding, days payable outstanding, debt ratio, time-interest-earned, fixed charges coverage, return on sales, net operating profit after taxes ratio, return on total assets, basic earning power, and return on equity.
Where there are equity and total assets, use AVERAGE figures (for example, average the total assets for 1998 will be the 1997 and 1998 figures divided by 2). ADays@ mean per day based on 365-days year.
1. Compare the trends of these ratios for the two firms.
2. How do the retailing strategies of Sears and Wal-Mart differ?
3. Wal-Marts=s average return on equity for the 1997 fiscal year was 19.7% [$3,525/($18,503+17,143)/2] while Sears= average return on equity over roughly the same period was 22.0% [$1,188/($5,862+4,945)/2]. Don Edwards was puzzled by these numbers because of Wal-Mart=s reputation as a premier retailer and Sears= financial difficulties not long ago. What is driving the performance of these two companies during fiscal 1997?
4. What ratios are most important in assessing current and predicting future value creation for Sears? For Wal-Mart?
5. How useful are financial ratios in evaluating the current performance of each of the two companies?
6. How useful are financial ratios in comparing the relative performance of these two
Questions Accompanying the Case
Create a table and calculate the following ratios for the three years for both Sears and Wal-Mart:
Current ratio, quick ratio, , total assets turnover, fixed assets turnover, inventory turnover (using cost of good sold), inventory turnover per day (days payable), days sales outstanding, days payable outstanding, debt ratio, time-interest-earned, fixed charges coverage, return on sales, net operating profit after taxes ratio, return on total assets, basic earning power, and return on equity.
Where there are equity and total assets, use AVERAGE figures (for example, average the total assets for 1998 will be the 1997 and 1998 figures divided by 2). ADays@ mean per day based on 365-days year.
1. Compare the trends of these ratios for the two firms.
2. How do the retailing strategies of Sears and Wal-Mart differ?
3. Wal-Marts=s average return on equity for the 1997 fiscal year was 19.7% [$3,525/($18,503+17,143)/2] while Sears= average return on equity over roughly the same period was 22.0% [$1,188/($5,862+4,945)/2]. Don Edwards was puzzled by these numbers because of Wal-Mart=s reputation as a premier retailer and Sears= financial difficulties not long ago. What is driving the performance of these two companies during fiscal 1997?
4. What ratios are most important in assessing current and predicting future value creation for Sears? For Wal-Mart?
5. How useful are financial ratios in evaluating the current performance of each of the two companies?
6. How useful are financial ratios in comparing the relative performance of these two