Introduction
This report analyzes the financial ratios of two retailers of USA; Macy's Incorporation and Wal-Mart. Financial statements of these companies have been used since 2010 for the purpose of analyzing the performance of these companies. This report presents the overall analysis of the two companies including the trends of the two companies, comparison of P/E ratios, strengths and weaknesses of these companies as well as which company would be a better choice for the purpose of investment.
Analysis of ratios
It has been found that the return on sales of Macy's Incorporation has been increasing with the passage of time. Since 2010, the returns on sales have been improving every year. Similar trend has been found with returns on assets and return on equity. So it highlights that the profitability of the firm has been improving since 2010. However the liquidity position of the company is showing fluctuations from 2010 to 2012. The current ratio and quick ratio have initially declined in 2011 but then these ratios have increased in 2012. The debt ratio of the company has remained very much the same in 2011 and 2012.
Trends for Wal-Mart
Returns on sales of Wal-Mart have been showing fluctuations from 2010 to 2012. The returns have however not changed drastically during this time period. The returns have increased in 2011 but then it decreased in the year 2012. Similar pattern has been found in the returns on equity, and return on assets.
The debt to equity ratio of the company has decreased in 2011 and it has remained the same in 2012. A similar trend was followed by Macy's Incorporation. When the liquidity ratios are analyzed then it can be identified that the liquidity position of the company has improved slightly over the period of time.
Which company is stronger
Wal-Mart is a stronger company when compared with Macy's Incorporation. Wal-Mart is the market leader in the retail industry of United States and with increasing sales though a slight reduction has been observed in 2012, the company is and will continue to dominate the market.
Comparison of P/E
Price to earnings ratio of Wal-Mart is 16.16 and the PE ratio of Macy's Incorporation is 13.29. Therefore it is showing that the investors are getting higher earnings to price they are paying on the stocks of Macy's Incorporation in comparison to the earnings to the price they are paying for the stock. This shows that the share of Macy's Incorporation is cheaper than Wal-Mart. However, Wal-Mart being the market leader and is reporting growing sales and profits, thus the risk of making the investment in Wal-Mart is less.
Which company is better for investment
Wal-Mart is a better option in terms of making the investment because of the reason that the earnings of the shareholders of Wal-Mart would be more stable. Although the Price to earnings ratio of Wal-Mart is high indicating that the share of the company is expensive. But being the market leader and dominating the market, Wal-Mart would be a better investment option in the long run.
Strengths and weakness
The strengths of investing in Wal-Mart is that it is able to offer stable and consistent returns to the shareholders. However the weakness is that its price is expensive. In comparison to this, the strength of investing in Macy's Incorporation is that it would yield higher returns on investment of shareholders in comparison to Wal-Mart. The weakness of Macy's Incorporation is that there are more fluctuations in the returns of the company and thus making the investment a riskier option in comparison to Wal-Mart.
