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Corporate Finance


Sears and Wal-Mart Attached are excerpts from the Annual Report of Sears for the year ended December 28, 2002, and the Annual Report of Wal-Mart for the year ended January 31, 2003. The questions below refer to both of these Annual Reports as covering fiscal year 2002. 1. Calculate return on equity (ROE) for Sears and Wal-Mart in fiscal 2002. Disaggregate ROE using the DuPont Model and show that ROE = Net Profit Margin × Asset Turnover × Financial Leverage. What is driving the performance of these two companies? In other words, how do Sears and Wal-Mart create value? 2. Which company utilizes its assets more efficiently? Determine the major causes of the overall difference in efficiency by examining turnover of significant categories of assets. 3. Assess the short-term liquidity and long-run solvency of Sears and Wal-Mart.