Walmart vs Target Comparison

A Balance Sheet is a critical financial statement as it provides a picture of the company's performance at a specific time and is broken up into assets, liabilities, and shareholder's equity. The total value of assets must always equal the sum of the liabilities and shareholder's equity. Since it depicts a company's performance at a specific date, it is impossible to use this statement to get a sense of the trend over more extended which is why it is necessary to compare the balance sheet with a balance sheet during previous periods (Fernando, J. (2022, February 8). It provides a basis for investors to compute the rate of return on their investments and enables evaluating its capital structure (Fernando, J. (2022, February 8). Moreover, lenders also utilize it to assess a company's creditworthiness and management to make efficient financial decisions that will allow the company to make future profits and grow year over year. For my analysis, I would like to look into Target, Walmart's second-largest competitor for the year 2020. Target is the third-largest discount retailer globally and competes with Walmart online and offline. In 2020, Target overtook its competitors' $6 billion worth of market share and saw a 20% revenue growth, while Walmart only had a 9% revenue growth. Even with this difference in revenue growth, Walmart generates almost five times more revenue than Target. Target's comparable sales of 19.3% outperformed Walmart's US comparable sales of 8.7% in 2020.(Top20walmartcompetitors&alternatives. Business Strategy Hub. (2022, February 11)). Target’s current assets grew by $7,854 million (~60%) with majority of the increase coming from cash and cash equivalents ($8,511 mill. in 2020 vs $2,577 mill. in 2019) and inventory ($10,653 mill. In 2020 vs $8,992 mill. in 2019). While Walmart’s current assets grew by $28,261 million (~45%) which was specifically due to a significant increase in its cash and cash equivalents ($17,741 mill. in 2020 vs $9,465 mill. in 2019) and prepaid expenses and other ($20,861 mill. in 2020 vs $1,622 mill. in 2019). These figures alone signify how giant of a company Walmart is and shows its dominance in the retail industry. Additionally, there was a $596 million increase in Target’s PP&E while there was a $13,007 million decrease in Walmart’s PP&E which suggests that Walmart disposed of a large portion of its fixed assets. This is evident by the large increase of $8,276 million in its cash and cash equivalents from 2019 to 2020. Both companies accounted for goodwill as mentioned in its footnotes and no goodwill impairments were recorded by both companies. Walmart’s current liabilities include short-term borrowings which have significantly reduced from $575 mill. in 2019 to $224 mill. in 2020 which signifies that the company has been doing better and has not needed outside funding for its operations. Moreover, from the above description of its current assets and large reserves of cash, it is evident that Walmart can sustain itself for a long time without needing outside funding. There is also a significant reduction in its accounts payable, accrued income taxes, current and non-current long-term debt, current and non-current operating and financial lease obligations and deferred income taxes. On the other hand, Target has an increase in its total current and non-current liabilities of $5,862 mill. from $30,946 mill. in 2019 to $36,808 mill. in 2020 which majority of the increase coming from its current liabilities: accounts payable, accrued and other current liabilities and current portion of long-term debt and other borrowings. While its non-current liabilities have not increased significantly which is good indicator that the company would have a better financial position in the future. Target’s additional paid-up capital increased by $103 mill., retained earnings increased by $2,392 mill., and accumulated comprehensive loss decreased by $112 mill., in 2020. On the other hand, Walmart’s additional paid-up capital increased by $399 mill., retained earnings increased by $4,820 mill., and accumulated comprehensive loss decreased by $1,039 mill., in 2020. Additionally, Walmart also has noncontrolling interest as part of its shareholder’s equity which reduced by $277 mill. in 2020. The above figures indicate that both companies were able to increase their equity funding and reinvest significant portion of its net income into the operations which indicates a stable functioning of the companies. However, comparing both Walmart is again able to contribute more than Target given its strong market hold. Target’s footnotes mentions that the company has grown specifically due to its investment strategy focused on increasing their shopping experience and winning with High Touch service, curating its roster of brands by introducing new owned brands, partnership with Ulta Beauty and making delivery easy and convenient through same-day delivery (SECfilings. Target Corporation. (n.d.)). While Walmart’s footnotes mention that the company has focused on prioritizing strong and efficient growth through productive growth opportunities, increasing comparable store and club sales, accelerating eCommerce sales growth, and expanding omni-channel initiatives while slowing the rate of growth of new stores and clubs and strategic investments which are focused on the long-term growth of the Company.(SECfilings. Walmart Investor Relations - Investors - Financial Information - SEC Filings. (n.d.)) For comparing which of the two is a better company to invest into, we can look at the following two ratios: debt-equity ratio and acid-test or quick ratio. Debt to equity ratio measure of the degree to which a company is financing its operations through debt versus wholly owned funds while quick ratio looks at whether the company has sufficient short-term assets to cover its short-term liabilities. A debt equity ratio below 2 is the best (Debt-to-equityratio:Definitionandformula. Indeed Career Guide. (n.d.)) while acid test ratio greater than 1 means company is sufficiently capable of meeting its short-term liabilities. (Vaidya, A. byM. T. R. byD., Thakur, A. byM., by, A., Thakur, M., Vaidya, R. byD., by, R., & Vaidya, D. (2021, July 17)). These two ratios are not the only ones to consider when choosing which company to invest in, but they are some of the most important. RATIOS 1. Debt to Equity Ratio: Total Liabilities/Total Shareholder’s Equity 1. Acid test or Quick ratio: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities WALMART TARGET COMMENTS = $164,965 mill. / $87,531 mill. = 1.89 =$36,808 mill. / $14,440 mill. = 2.55 = ($17,741 mill. + $0 + $6,516 mill.) / $92,645 mill. = 0.26 = ($8,511 mill. + $0 + $0 ) / $20,125 mill. = 0.42 Walmart is funded more by equity vs debt and is a better company in terms of return on investment while Target relies more on debt funding and has a higher risk. Both Walmart and Target are good in terms of its ability to pay off its short-term liabilities. Replies to other students: Lobsang Kansakar: Lobsang, thank you for explaining your analysis of Amazon and Walmart's Balance Sheet so clearly. Interestingly, Amazon's current liabilities have increased by 44%. This seems to be a significant overall increase and indicates that the company is continuously expanding by relying more on outside financing and getting more innovative products from its suppliers. On the other hand, Walmart does seem to grow consistently while not trying to break ceilings. Additionally, in the future, Amazon is also planning to build its first-ever retail store, which will be about onesixth of Walmart's superstores. Considering these plans, it is only natural that their liability is seeing an increasing trend and getting more equity funding in the company by increasing the share offerings. Amazon is likely to overpower Walmart's strong position in the retail industry in no time and keep it there for years to come. Thank you again for your analysis! That was a great read! HeeLak Lee: HeeLak, that was a fascinating analysis of Kroger's balance sheet. Looking through your analysis, it does seem that the grocery chain is trying to expand its footing. Long term debt increase of $900 million appears to be a significant increase with additional loans and notes issued. However, the company heavily relies on debt which is not a very good indicator for its shareholders. It would be nice to know if Kroger's equity funding increased as well since that would demonstrate some balance in its expansion efforts. Additionally, I also read that the company is trying to build automated warehouses in partnership with a UK company, Ocado, and has committed to building 20 such warehouses. In contrast, Walmart has implemented a robotic system called Alphabot in its warehouses in 2019, and it makes it ten times faster to pick and pack orders (Cox, A., & says:, S. (2021, January 29)). Walmart and Kroger seek to expand, but Walmart expands through equity growth while Kroger expands through debt growth. Thanks for your analysis!