Wal-Mart: Financial Statement Analysis
WAL-MART FINANCIAL STATEMENT ANALYSIS
Company Description
Wal-Mart Stores Inc. (WMT) is a world largest grocery chain and retail stores. The company operates 8000 stores across three business segments which include apparel, groceries, electronics and small appliances. While the company operates globally, half of the company stores are located in the United States. To complete in the international markets, Wal-Mart also operates its business through subsidiaries in Canada, Argentina, China, Brazil, the United Kingdom and Japan. However, the company majority-owned subsidiaries are located in Chile, and Central & South America. Wal-Mart business strategy is to buy products at rock-bottom prices and pass savings on customers and Wal-Mart has been able to drive up its profitability by purchasing billion of dollars worth of low costs merchandise directly from China and the company has been able to win the trusts of customers by providing its products at low prices. The company uses ruthless efficiencies and economic of scale to offer its products at lower prices than its competitors. To decline the costs, Wal-Mart purchases goods directly from manufacturers and since 2010; the company has been able to increase the sales as well as revenue. In 2010, Wal-Mart generates sales of $405.1 billion and in 2011, the company increased its sales to $418.9 billion revealing the 3.4% increase in the company net sales between 2010 and 2011. (Wal-Mart 2012). However, the company has been able to realize the 5.9% increase in the net sales between 2011 and 2012 because Wal-Mart has been able to generate approximately $443.9 billion in the net sales at the end of the 2012 fiscal year. The company emphasizes on three priorities to improve shareholders values: Growth, Leverage and Returns. Typically, the company efficiently utilizes the company assets to increase its ROI (return on investment).
Objective of this report is to provide Wal-Mart financial analysis. The report uses key financial ratios to evaluate the company strengths.
Table 1: Wal-Mart Financial Statement Ratios
Financial Condition
2012
2011
2010
Industry
Current Ratio
0.88
0.89
0.87
1.19
Inventory turnover
10.90
11.54
12.21
10.4
Debt/Equity Ratio
0.75
0.73
0.58
0.52
Net Profit Margin
3.54%
3.91%
3.54%
4.79%
Return on Equity
22.01%
23.91%
20.26%
15.92%
Price earnings (P/E)
13.25
11.15
14.66
12.74
Wal-Mart Ratio Analysis
The report uses Current Ratio, Price Earning (P/E), Inventory Turnover, Debt/Equity Ratio, Net Profit Margin, and Return on Equity to demonstrate Wal-Mart financial position.
Current Ratio
Current ratio measures a company ability to settle its short-term debts and other current liabilities. Current liabilities are company financial obligations that need to be settled within a year. A firm current assets are cash and other assets that could be converted into cash within a year. A company having current ratio of exactly one shows that such company has the same current assets with current liabilities Investors generally look for companies having current ratio of 2:1 meaning that such companies have twice of current assets to current liabilities. A current ratio less than one reveals that such companies might have problems to meet their short-term financial obligations. When the ratio is too high, it indicates that a firm is not efficiently using its short-term financing facilities or its current assets. Generally, the current ratio demonstrates ability of a company to remain solvent.
A formula to calculate current ratio is as follows:
Current ratio = Current assets + Current liabilities
As being revealed in Table 1, Table 2 and Fig 1, Wal-Mart current ratio deteriorated between 2010 and 2012. In 2010, the company current ratio was 0.87 and improved to 0.89 in 2010. However, at the end of the 2012 fiscal year, the company current ratio slightly deteriorated to 0.88. The calculation below reveals the Wal-Mart current ratio in 2012.
Current ratio = Current assets + Current liabilities
Current ratio = 54,975 + 62,300 = 0.88
The company current ratio in 2012 is 0.88 showing the ratio of the company current assets to current liabilities. This reveals that the company only has 0.88 in possession for every $1 of current liabilities. The results indicate that Wal-Mart current ratio is below one and the company may face challenges in meeting the short-term obligation to its creditors. The company current ratio is below the industry average showing that the company has 0.12 of more current liabilities than current assets at the end of the 2012 fiscal year.
Table 2: Wal-Mart Current Ratios
2012
2011
2010
2009
2008
Current Ratio
0.88
0.89
0.87
0.88
0.81
Fig 1: Wal-Mart Current Ratios
Return on Equity (ROE)
Return on Equity measures the rate of returns investors expect to realize from the money invested in the company stocks. The ROE demonstrates the ability of a company to generate profits from shareholders' total equity. In other word, ROE reveals the extent...
Financial Analysis of Wal Mart Financial Analysis of Wal-Mart Company Overview Wal-Mart Stores Inc. (WMT) is the largest global retail and chain stores operating in various formats. The company operates more than 8000 stores globally across its business segments, which include electronics, groceries, apparel, and small appliances. Although, Wal-Mart operates a global business, however, more than half of the company businesses are located in the United States. Wal-Mart also operates its global businesses
Indeed, the retailer's current ratio has not exceeded 1.0 in recent times. It is however important to note that given its profitability, it is likely that Wal-Mart converts its inventory into cash at a rate that is much faster than that of its peers in the same industry. For this reason, it is highly unlikely that in the normal course of doing business, the retailer could encounter challenges paying
Wal-Mart Financial Analysis Wal-Mart Store Inc. is a multinational retailer corporation branded as Wal-Mart in 2008. Founded in 1962, Wal-Mart has now become one of the largest American corporations with chain of retail stores. Wal-Mart sells varieties of consumer goods such as consumer electronics, toys, automobiles, furniture, video games and several other consumers goods. Presently, Wal-Mart enjoys the patronages of 200 million customers per week making the company to record the
Wal Mart's Business Environment When most people think of Wal Mart, they will often associate it with the various stores around the globe. This has helped the company to establish a major presence inside the retail marketplace. However, the challenges with the economy and competitive pressures have been impacting the business environment of the firm. To fully understand what is taking place there will be a focus on: the company's financial
0 $0.0 Net income available to common stockholders $17,758.5 $16,468.7 Common dividends $5,400.0 $5,048.0 Addition to retained earnings $12,358.5 $11,420.7 Calculated Data: Operating Performance and Cash Flows 2012 2011 Net operating working capital (NOWC) $1,464.0 ($2,108.0) Total operating capital $144,629.0 $136,320.0 Net Operating Profit After Taxes (NOPAT) $19,182.7 $17,926.7 Net Cash Flow (Net income + Depreciation) $17,758.5 $16,468.7 Operating Cash Flow (OCF) $19,182.7 $17,926.7 Free Cash Flow (FCF) $10,873.7 N/A Calculated Data: Per-share Information 2012 2011 Earnings per share (EPS) $5.26 $4.76 Dividends per share (DPS) $1.60 $1.46 Book value per share (BVPS) $22.63 $20.61 Cash flow per share (CFPS) $5.26 $4.76 Free cash flow per share (FCFPS) $3.22 N/A LIQUIDITY RATIOS (Section 3.2) Industry 2012 2011 Average Liquidity ratios Current Ratio 0.83 0.88 1 Quick Ratio 0.22 0.23 0.3 ASSET Management RATIOS (Section
As noted, the leverage is deliberate, and probably is designed to deliver these ROEs to shareholders. H&M pays out a large portion of its profits as dividends. Nordstrom's dividend is healthy for an American company, but far less than that of H&M. Nordstrom shareholders must rely on capital gains to a greater extent. Given that both companies are growing, H&M's ability to deliver both growth and dividends is superior for
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