Analyzing ROE: A Comparative DuPont Analysis of Target and Walmart

This report presents a DuPont analysis of Return on Equity (ROE) for Target Corporation and Walmart Inc., examining their financial performance in 2014 and 2015. The analysis breaks down ROE into its components: Net Profit Margin, Financial Leverage, and Asset Turnover. The ROE of Target Corporation declined significantly from 2014 to 2015, indicating challenges in generating returns for shareholders, while Walmart Inc.'s ROE experienced a slight decline, suggesting a minor downgrade in performance. The report recommends that Target Corporation focus on converting losses into profitability and reducing external debt financing, and that Walmart Inc. enhance its efficiency to improve its ROE. The analysis relies on financial data retrieved from Morningstar in 2015, providing a comparative assessment of the two companies' financial health and strategic implications.

Running Head: DuPont Analysis
Return on Equity Analysis

DuPont Analysis 1
DuPont Analysis:
DuPont Analysis is the extended study of return on equity (ROE). ROE is the measure that
analyses the profitability of the firm. Primarily there are three components of a company’s
ROE. They are: Net Profit Margin, Financial Leverage or Asset Turnover.
(All amounts in USD Million)
Targ
et
Walmar
t
Ratios Formulas 2015 2014 2015 2014
Net Profit
Margin=
Net Profit
-1636 1971 16363 16022
Sales
72618 72596 485651 476294
-
2.25% 2.72% 3.37% 3.36%
Financial
Leverage=
Total Assets
41404 44553 203706 204751
Total Equity
13997 16231 81394 76255
2.96 2.74 2.50 2.69
Asset Turnover
Ratio=
Sales
72618 72596 485651 476294
Total Assets
41404 44553 203706 204751
1.75 1.63 2.38 2.33

DuPont Analysis 2
ROE Calculations:
2015 2014
Target Corp. (Moring
Star, 2015) -11.69% 12.14%
Walmart Inc.(Moring
Star, 2015) 20.10% 21.01%
Interpretation:
Rate of return on equity of a company shows its ability to generate returns from the
investments made by the shareholders of the company.
The ROE of Target Corporation has decline significantly from year 2014 to 2015 which
means that the company is not successful in generating returns using the funds invested by its
shareholders as the its expenses have increased in year 2015. The performance of the
company is therefore cannot be said to be sound. Negative ROE in year 2015 is because of
net loss incurred by the company which has resulted in negative Net Profit Margin. However
the company’s Asset Turnover Ratio has increased in 2015 as compared to 2014 which shows
that company has efficiently utilised its assets to generate sales. Higher financial leverage
ratio of 2015 (in comparison to 2014) shows that company has used more debt to finance is
operations.
The ROE of Walmart Inc. has slightly declined from year 2014 to 2015 which indicates that
the firm has not generated returns using the funds of its shareholders as efficiently as was
done in year 2014. Therefore, the company’s performance has slightly downgraded.

DuPont Analysis 3
However, the increased total asset turnover ratio in 2015 indicates that it has generated higher
sales through the utilisation of its total assets. Also, the reduced financial leverage in year
2015 signifies that the company is using less debt to finance its operations in comparison to
last year. In 2014, the company has used more of external debts to raise funds.
In terms of ROE, Walmart is performing quite better than Target in years 2014 and 2015.
Recommendations:
Target Corporation must make efforts to convert its losses into sustainable profitability by
generating more profits and reducing its overall expenditures. Also, the company must use
less of external debt financing so that its interest expenses could be lowered down.
Walmart Inc. must make more efforts to improve its ROE by enhancing its efficiency.

DuPont Analysis 4
References:
Moring Star, 2015. Target Corp. Retrieved from: < http://financials.morningstar.com/income-
statement/is.html?t=0P000005B5&culture=en-US&platform=sal> Accessed on:
04.06.2018.
Moring Star, 2015.Walmart Inc. Retrieved from: < http://financials.morningstar.com/balance-
sheet/bs.html?t=WMT&region=usa&culture=en-US&platform=sal> Accessed on:
04.06.2018.