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Head of Securities Department

Essay by   •  February 24, 2011  •  Case Study  •  841 Words (4 Pages)  •  1,245 Views

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TRODUCTION

Financial statements are used in decision making(Meigs,1995). The financial statements of Sears company are compared with the financial statements of Walmart Company. The Sears company data is taken from its balance sheet and income statements for the year 1997. The Walmart company financial data are taken from its 1998 balance sheet and income statement accounts.

Liquidity ratios are used to determine the company's ability to pay its obligations(Helfert,1994). Also, Solvency leverage ratios are used to determine the company's ability to pay long term obligations(Weston, 1981). Further, Asset management ratios are used to determine how a firm uses its assets to generate revenues and income(Bernstein, 1993).

BODY

FINANCIAL STATEMENT ANALYSIS

LIQUIDITY RATIOS = Ability to pay current obligations Millions of USD

A

Sears

Current Ratio = Current Assets = 30682 = 1.943129

Current Liabilities 15790

The current ratio of Sears for the year 2007 is arrived at by dividing the current assets of that year amounting to $30,682 by the current liabilities of the same year amounting to $15,790. The results is 1.94 times. This is a good indication that the company will be able to pay its current obligations when their time of payment arrives.

Walmart

Current Ratio = Current Assets = 19352 = 1.338313

Current Liabilities 14460

The current ratio of Walmart above is the result when the current assets for the year 1998 amounting to $19,352 is divided by the current liabilities for the same year at $14,460. The answer will be 1.34. this is a good sign that the company will be able to pay its obligations when they fall due.

Based on both current ratios above, Sears company has a better current ratio at 1.94 when compared with the current ratio of Walmart of only 1.34.

B

Sears

Acid Test ratio = Quick Assets = 20201 = 1.279354

Current Liabilities 15790

The quick assets are arrived at by adding the cash, cash equivalents, receivables and marketable securities. The quick ratio is arrived at dividing the quick assets for the year 2007 of $20,201. The quick ratio is 1.28 times.

Walmart

Acid Test ratio = Quick Assets = 2423 = 0.167566

Current Liabilities 14460

The quick ratio here is arrived at by dividing the quick assets of $2,423 for the year 2007 by the current liabilities amounting to $14,460 for the same year. The acid test ratio or quick ratio is .17

Based on the above data, Sears has a better quick ratio with its higher rate of 1.28 as compared to the quick ratio or acid test ratio of Walmart at only .17.

C

SOLVENCY LEVERAGE RATIOS = Ability to pay long term obligations

Sears

Total Debt Ratio = Total Liabilities = 32838 = 0.848527

Total Assets 38700

The total debt of sears

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