5 Step Ratio Analysis Model

1) Formulate the question - What is the average life of the assets? What are the average age of the assets? How productive are the assets in producing revenues?

2) Gathering information on the financial statements of the companies - It is essential to know the total operating assets of the company and accumulate depreciation and depreciation expense.

3) Calculation the ratio

Average Life = Total Operating assets / Depreciation

Average Age = Accumulated depreciation /Depreciation

Asset turnover -= Revenue / Average Total Assets

4)Comparison of Ratios

5)Interpretation of the ratios.

First Case:

TARGET:

TARGET	2019	2020
Average Life	46185000/2474000 = 18.66	48183000/2604000 = 18.5
Average Age	18687000//2474000 = 7.5	19664000/2604000 = 7.55
Asset Turnover	75356000/40144500= 1.82	78812000/42034500 =1.87

WALMART	2019	2020
Average Life	198570000/10678000 = 1.85	216869000/10987000=1.97
Average Age	87175000/10678000=8.16	89820000/10987000=8.17
Asset Turnover	514405000/211908500=2.42	523964000/227895000=2.3

4) Comparison of Ratios

	TARGET	WALMART
	2019	2020	2019	2020
Average life	18.66	18.5	1.85	1.97
Average Age	7.5	7.55	8.16	8.17
Asset turnover	1.82	1.87	2.42	2.3

5)Interpret the ratios:

The average life and age of Target and Walmart is consistent with other companies in the industry.

The Asset turnover of target indicates that each dollar of assets produces 1.82 and 1.87 times respectively in 2019 and 2020.Similary for Walmart produces 2.42 and 2.3 respectively for 2019 and 2020.

Questions:

How did average age, average life and asset turnover for Walmart and Target get those datas (highlighted)?

Answer rating: 100% (QA)

The useful life of an asset is an accounting estimate of the number of years it is likely to remain in service for the purpose of costeffective revenue generation The Internal Revenue Service IRS empl... View the full answer