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FINANCIAL ANALYSIS OF SEARS VS. WAL-MART Table Content Background Analysis------------------------------------------------ 3 Financial Ratio analysis--------------------------------------------- 4 Weighted Average Cost of Capital (WACC)--------------------- 12 Working Capital Management--------------------------------------20 Dividend Policy and Tax Treatment------------------------------- 23 Conclusion------------------------------------------------------------24 Background Analysis Wal-Mart Wal-Mart Stores, Inc., incorporated in 1969, is an international retailer. In the United States, the Company operated 1,568 discount stores, 1,258 Super centers, 525 SAM's CLUBs and 49 Neighborhood Markets as of January 31, 2003. Wal-Mart's…show more content…
But Wal-Mart has a lower gross margin that is because Wal-Mart believes in higher volume and low mark-ups. Operating profit/sales Operating profit is for a certain period divided by revenues for that period. Operating profit margin indicates how effective company is at controlling the costs and expenses associated with their normal business operating. Refer the exhibit 1-1, We can observe that Wal-Mart and Sears performed the costs and expenses controlling effectively almost in average situations. However, Wal-Mart has a little bit higher than Sears in 1998. But Sears had caught up in 1999 and still growing up in 2002. EBIT/sales EBIT is a measure of company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes. EBIT ratio is examined for how profitably a company produces and markets its goods, particularly useful for those determining whether a company can pay its interest expense and with what degree of safety. Comparing with operating profit/sales ratio, it implied the interest expenses had more impact on Sears' operation than Wal-Mart. EBITDA/sales EBITDA is a good measure and widely to use to evaluate the core profit trends. This ratio can be used to evaluate the profit potential between companies because it eliminates some of the extraneous factors and all the outside influences and timing effects on the company's profitability figure. Refer
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