RETAILING PRESENTATION

TIFFANYS AND WALMART: COMPARING FINANCIAL PERFORMANCE

SECTION B GROUP 10
SHARON EBENEZER – F20113
JOHN BASTIAN – F20141
SACHIN SAMRAJ – F20165
Question 1:
Using exhibit 2, construct strategic profit models for Tiffany and Walmart using data from the abbreviated income
statements and balance sheets in exhibit 1. You can do these calculations by hand or go to the student side of the Online
Learning Center and use the Strategic Profit Model Excel spreadsheet available.
Walmart’s Strategic profit model
Net sales

Gross margin Net profit

COGS
95086 10939 Net profit
Operating exp margin
Net sales 2.72
Interest exp Total expenses 401244
Return on
84147 asset
cash 6.69
Net sales Assets
Accounts 401244 turnover
receivable Current assets
2.45
48949 Total assets
inventory
163429
Other current Fixed assets
assets 114480
 Tiffany’s Strategic profit model

Net sales

Gross margin Net profit

COGS
1530 262 Net profit
Operating exp margin
Net sales 9.67
Interest exp Total expenses 2709
Return on
1268 asset
cash 7.51
Net sales Assets
Accounts 2709 turnover
receivable Current assets
0.77
2445 Total assets
inventory
3486
Other current Fixed assets
assets 1041
Question 2:
Calculate the gross margin percentage, expenses-to-sales ratio, net profit margin (after taxes), inventory turnover,
asset turnover and return on asset ratio for Tiffany and Walmart using the financial data in Exhibit 1.

Tiffany:
Gross margin percentage: gross margin/net sales = (1530/2709) *100 = 56.47%
Expenses-to sales ratio: total expenses/net sales = (1268/2709) *100 = 46.81%
Net profit margin: net profit/net sales = (262/2709) *100 = 9.67%
Inventory turnover: CGS/average inventory = 1179/1427 = 0.826 times
Asset turnover: net sales/total assets = 2709/3486 = 0.777 times
Return on asset ratio: net income/total assets = (262/3486) *100 = 7.52%

Walmart:
Gross margin percentage: gross margin/net sales = (95,086/401,244) *100 = 23.7%
Expenses-to sales ratio: total expenses/net sales = (84147/401244) *100 = 20.97%
Net profit margin: net profit/net sales = (10939/401244) *100 = 2.73%
Inventory turnover: CGS/average inventory = 306158/34511 = 8.87 times
Asset turnover: net sales/total assets = 401244/163429 = 2.46 times
Return on asset ratio: net income/total assets = (10939/163429) *100 = 6.69%
Question 3:
Explain, from a marketing perspective, why the ratios calculated from question 2 (gross margin percentage, expenses-
sales ratio, net profit margin, inventory turnover and asset turnover) are different for Tiffany and Walmart.

Tiffany and Walmart have different ratios, because they are differently marketed companies. Tiffany is a company that
capitalizes on being luxurious, elite, and expensive. On the other hand, Walmart markets itself as being inexpensive and full
of variety. The pricing for the products within each brand is significantly different, as well as the number of stores existing in
each brand. Walmart reaches a larger mass of people than Tiffany and sells much more products at a lower cost. Tiffany has
a stronger reputation as a high-quality brand, whereas Walmart is branded as a reliably priced brand. Tiffany markets their
brand to the upper class American, so their cliental has more discretionary money to spend. Walmart markets themselves to
the lower to middle class Americans who are price-conscious. Given these marketing differences, the brands are bound to
differ in their financial ratios. Looking at the gross profit margin percentage, it cost Walmart much more to sell their products
in relation to their net sales than Tiffany. Looking at the expenses-to-sales ratio, Walmart has more expenses, which could be
from the number of locations and number of product units their store has. Tiffany has a slightly higher net profit margin than
Walmart. Because Tiffany’s jewelry is so highly priced and sought after, they have the potential to reach a higher gross
margin. Walmart has a better asset and inventory turnover, but this could be because Walmart carries food and other
perishable items.
Question 4:

Using ROA, determine which chain has the best overall financial performance. Why is ROA such a good indicator
of a retailer's financial performance?

Tiffany has a 0.82 percent greater return on assets than Walmart. As a result, we can conclude that Tiffany's financial
performance is superior to Walmart's. Because of this aspect, return on assets is a good gauge of any retailer's
financial performance. Because each merchant sells different items, it's difficult to do a comparison without using a
calculator. However, because we standardize terms while computing ROA, we may compare the financial success of
each shop. It provides information on the net profit margin per unit of total assets, allowing us to compare the
financial results of different companies.