Head of Securities Department
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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 companys ability to pay its obligations(Helfert,1994). Also, Solvency leverage ratios are used to determine the companys 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
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.
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
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.
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