From a liquidity point of view, Target has done much better than Wal-Mart. The current ratio, which measures the
ability of liquid assets that can be turned into cash in one year to cover liabilities that will come due in that same time period, is considerably higher than Wal-Mart's. Target can reasonably expect to take in more than enough to pay its bills,
whereas Wal-Mart will have to some juggling to do. The acid test, which is cash over current liabilities, shows that target even has enough cash to cover its upcoming bills. Target is very cash rich, which allows it to make good bulk purchasing deals and borrow money. Wal-Mart has an extremely tenuous cash position, so most of its current assets are in inventory or accounts receivables, probably the former considering the industry. Should its inventory turnover slow, it might have to liquidate some at a loss to pay their bills.
Target does not do as well in its profitability measures, however. Target only holds 1/3 as much debt as Wal-Mart does. Yet Wal-Mart earned 17.3 times as much as it paid in interest, whereas Target earned only 6.32 as much. Wal-Mart also makes 9.3% return on its assets, whereas Target only makes 5.84%. Given that Wal-Mart makes more of its invested dollars, and that it is highly leveraged which has a fixed cost, the company is doing an excellent job at making the most money possible for its shareholders.
Target is a well-managed, conservative company that manages its affairs well. They even turn their inventory over more times a year than Wal-Mart does. Wal-Mart is aggressive enough to do make more money with each dollar that shareholders invest in it, but takes on significantly more risk in the process. The price to earnings ratio is the rate of return that investors are willing to get from each company. Since target pays a higher return while being a more conservative company, it seems to be the better stock buy.
...