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Accounting: Ratio Analysis in Financial Health

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Discuss the trend for each ratio and what it tells you about the organization's financial health. Ratios are attached.

2008
Ratio Calculations
Wal-Mart 2008
Current ratio = (Current Assets)/(Current Liabilities) Current ratio = (47,585 (m))/(58,454 (m)) Current ratio = 0.814

Debt Ratio = (Total Debt)/(Total Assets) Debt Ratio = (98,906 (m))/(163,514 (m)) Debt Ratio = .6048778

Return on Equity = (Net Income)/(Total Equity) Return on Equity = (12,731 (m))/(64,608 (m)) Return on Equity = 0.19705

Day's Receivable = 365/(Receivables Turnover) Receivables Turnover = Sales/(Accounts Receivable)

Receivables Turnover = (374,526 (m))/(3,654 (m)) = 102.4975 Day's Receivable = 365/102.4975 = 3. 56 days

Ratio Calculations
Wal-Mart 2009

Current ratio = Current Assets/Current Liabilities 48,754 / 55,390= .880194981

Debt Ratio = Total debt/Total Assets 42,218 / 48,949= .8624895299

Return on Equity = Net Income/Total Equity 22,798 / 65,285= .3492073217

Day's Receivable = 365/Receivables Turnover 365 / 102.7513444= 3.552264957

Receivables Turnover r= Sales/Accounts Receivable 401,244 / 3,905= 102.7513444

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Solution Summary

The problem set requires that a company's financial values are evaluated through ratio analysis.

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The solution has brief explanations and a final conclusion that would help in the ratio analysis.

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1. Current ratio: The current ratio is a financial ratio that measures the extent of cover provided by a company's current assets over all immediate liabilities. The ratio aims to answer the question whether the company can cope with the repayment of all current liabilities without going out of business.

(see attached file for chart)

From the above table, you will observe that the final ratio has decreased over the years. This means that over the two ...

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Chidi Ngene, M. Sc.
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  • M. Sc., London South Bank University
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