Comparing with Sears and Wall-Mart in fiscal years, it displays that Wall-Mart’s ROAR is far higher than Sears, it means, Wall-Mart, the higher the profit per dollar of assets, the less asset-intensive a business. For Sears, the more asset-intensive a business, the more money must be reinvested into it to continue generating earnings. Inventory Turnover Inventory turnover tells how often a business’ inventory turns over during the course of the year. For most companies, inventory is a very large asset, a high inventory turnover ratio is generally positive.
On the other hand, an unusually high ratio compared to the average for same industry could mean a business is losing sales because of inadequate stock on hand. Comparing with Seas and Wall-Mart, it showing Wall-Mart is using its financial resources efficiently by maintaining low inventories. Days’ inventory The inventory turnover ratio also can be expressed as the number of days goods are kept in inventory. The days’ inventory is computed by dividing a company’s ending inventory by its cost of sales, and multiplying this result by the number of 365 days.
From exhibit 1-2, we can find the days’ inventory of Sears is increasing also higher than Wall-Mart. On contrast, Wall-Mart is decreasing its day’s inventory. Reviewing the inventory turnover with days’ inventory, the trend shows us Wall-Mart is more efficient use of cash. Account receivable/day’s sales outstanding Account receivable is the sales made for credit for which payment has not been received. The ratio of accounts receivable to net sales indicates the relative reapportion of the company’s sales made on credit and still outstanding at the end of the reporting period.
Comparing with Sears and Wall-Mart, we are surprised for the huge ratio difference between two companies. The reason for Sears has immense proportion of account receivable and average 234. 3 day’s sales outstanding (still increasing) is because Credit cards have been a big part of Sears business over the years, representing 60%, or 1 . Billion, of the company’s annual operating income. As for Wall-Mart, we are also amazing its low ratio of account receivable with average 3. 6 day’s sale outstanding. The reason for Wall-Mart is they adopt the Layaway Plan, cash paid for with credit or debit cards.
Accounts payable to purchases/payable payment period Accounts payable to purchase indicates how much the firm owes to its suppliers in relation to what it purchased from them and how efficient the company manages its short-term liabilities. Companies that use their suppliers as a source of funding will have longer payable payment periods. In exhibit 1-2, we can recognize Sears has longer payment period (still increasing) to its suppliers. But owing to its day’s sales outstanding slower than payable payment period, it carries Sears in negative.