Financial Management
Introduction
Basing the analysis according to the financial statements of Walmart, the purpose of this financial analysis is to provide a report. The report to be provided may help the investors to know if Walmart is either a buy or a sell stock. The complete report will interpret various trends supported by some of the main ratios; this analysis will include liquidity analysis, horizontal and vertical analysis, solvency, and profitability analysis. Through those mentioned ratios, one can determine how Walmart is performing compared to the industry and the additional information that could influence the investment decision. The main ratios in this analysis are vertical and horizontal analysis, whereby about vertical analysis, an expression of every item in each statement for a period equal to a base figure. In the case of horizontal analysis, evaluation of trends is done over some time.
A. Interpretation of Trends
Horizontal and Vertical Analysis
Horizontal analysis is given by the formula = amount in the year of comparison- the amount in the base year divided by the amount in the base year and the answer multiplied by a hundred.
Horizontal analysis helps determine trends of the same data in the financial statement over some time. In our case, we have three years as given in the balance sheet; Y1, Y2, and Y3. The total assets of Y1 is 203,105,000, Y2 is 204,751,000 and Y3 is 203706,000.
The horizontal analysis (Y3-Y2) = Y3 Total assets: 203,706,000 Y2 Total assets: 204,751,000.
(203,706,000- 204,751,000)/ 204,751,000= -0.005104
-0.005 in percentage is -0.5 %. It shows a 0.5 decrease
(Y2-Y1)= Y2 Total assets: 204,751,000 Y1Total assets: 203,105,000
(204,751,000-203,105,000)/ 203,105,000=0.8104
(0.0081) (100) = 0.81% increase
In the calculation of vertical analysis using a comparative balance sheet, the table requires the analysis of Y2. To obtain the percentage of the current assets of Y2, the percentage is computed by dividing the value of the current assets with the base item that is shown for the total assets. For instance the base item value of the current assets of Y2 is 61, 185,000 while the base item of the total assets amounts to 204,751,000. When given as a percentage the value will be (61,185,000 divided by 204,751,000) = 0.2988
= (0.2988) (100) = 29.8%
In the case of Y1, (59,940,000)/ (203,105,000) = 0.295
(0.295)(100)=29.5%
In Y3, (63,278,000)/ (203,706,000) =0.31
(0.31)(100)= 31%
Similarly, vertical analysis helps show the size of each item of every asset in the balance sheet. The size is given as a percentage of the total assets. On the liability section, each item is also presented in percentages of the total liabilities and the amount in the equity section. From the analysis, it is clear that the size of each asset increased from Y1 to Y3. On the other hand, the total equity was reduced from Y1 to Y2 and increased in Y3. This analysis is critical since it gives a financial statement compared to other companies. The second advantage is that we can compare the different financial statements of Walmart with the previous financial years. It has also helped in understanding several components of the balance sheet like; assets, liabilities, and costs of goods that have been sold.
There is a primary difference between horizontal and vertical analysis. Vertical analysis is based on the relationship of the numbers found in a specific reporting period; in other words, it is also referred to as a common-size analysis. It has been revealed in the balance in our case study. On the other hand, the horizontal analysis focuses on financial statements that have been spread over many years. That is why it is also called trend analysis.
Liquidity Analysis
This ratio helps determine the ability of an organization like Walmart to have its...
…use this to bring it down. Therefore, Walmart should rectify this trend. This particular ratio helps to measure the size of a company's profitability compared to the obligations. It helps a financial analyst know how a company may continue meeting the debts, which are obligations. The formula for this ratio is given to be; the net after-tax income+ non-cash expenses)/ (short term liabilities + long term liabilities).Analysis involving debt to equity= (total liabilities)/stockholders equity).
While it is correct that Walmart is financially performing well and is stable, there are some areas I would like to have my recommendations. The areas include improving the margin profit that the company is operating; this can be through adjustments of marketing strategies so that there can be a surety about the profits growth for this company. Although some ratios have been falling over the years provided, others have increased. However, the tendency observed overall is positive, and it is true that the net sales in the balance sheet will continue to increase as time goes. Therefore, the company will always remain attractive to the owners and those investing in it. The different years have been provided to compare the financial statements. The position is estimated from the past about the present. The efficiency of operation is also identified. The financial analysis is in two types, namely, vertical and horizontal analysis, as indicated above. Comparing these statements to Walmart is that horizontal analysis helps in comparison on an intra-firm basis.
In contrast, vertical analysis is essential in both intra-firm and inter-firm comparisons. The comparative aspect of the financial statements shows profitability and the status of Walmart in terms of finance. However, in vertical analysis, the comparison is between items of the same financial statement. Hence, the future trends are forecasted using this analysis because they provide the company…
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