Company Selection
Walmart Inc.
Company industry
Walmart Inc. is a retail and wholesale company that operates in different formats throughout the world. The company operates in three different segments called Sam’s Club, Walmart International, and Walmart U.S. Walmart is the largest retail corporation that provides warehouse stores and discount departments in the world. Walmart U.S operates all the stores within the United States, while Walmart international operates outside the United States. Walmart is also the world’s largest company by revenue and engages in more than $500 billion based on the Global 500 list in 2018("Fortune Global 500 List 2018").
Walmart operates hypermarkets, supermarkets, supercenters, cash and carry stores, drugstores, convenience stores and warehouse clubs in the United States. The company offers grocery products, household consumables, electronics, clothing, and home furnishing. It operates 11,700 stores and several e-commerce websites through 65 banners in 28 different countries. The company operates under the name Walmart in Canada and the United States, Asda in the United Kingdom, Seiyu Group in Japan, and Best Price in India. Walmart has wholly owned operations in South Africa, Canada, Chile, Brazil, and Argentina (Alcácer et al., 2013).
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Stock exchange
Walmart was listed in the New York Stock Exchange in the year 1972. The company offered 300,000 shares to the public and sold it at a price of $16.50 per share. The $5 million initial investment can be translated to $31 million dollars in today’s shares. The company rose to become the most profitable company in the United States by 1988 and became the largest by revenue in 1989. Walmart has outpaced inflation and the broader stock market to become worth more than $500 billion today. Walmart has paid its dividend every year from 1974, with the annual dividend recently hit $2 per share (Kalogeropoulos, 2017).
Competitors
Walmart’s top competitors are in the retail and wholesale industry. Walmart’s biggest competitors are Costco and Target. Costco was founded in 1983 and competes in the Retail Distributors industry. Moreover, Costco operates a series of membership only warehouse clubs. The company operates more than 700 warehouses within the United States. Target Corporation is the second-largest department store retailer operating in the United States. The company deals in the retail distribution industry and generates approximately 13% of Walmart’s revenue (Bhasin, 2018).
5. Financial Ratio Analysis
a. Computation of Financial Ratios
| Liquidity Ratios | ||
| Current Ratio |
=Current assets ÷ Current liabilities =59,664 ÷ 78,521 |
0.76 |
| Solvency Ratio | ||
| Debt-to-asset Ratio |
=Total debt ÷ Total Assets =46,487 ÷ 204,522 |
0.22 |
| Profitability Ratio | ||
| Profit Margin |
=100 × Consolidated net income attributable to Walmart ÷ Net sales =100 × 9,862 ÷ 495,761 = 1.99% |
1.99% |
| Return on Assets |
= 100 × Consolidated net income attributable to Walmart ÷ Total assets = 100 × 9,862 ÷ 204,522 = 4.82% |
4.82% |
| Return on Equity | = 100 × Consolidated net income attributable to Walmart ÷ Total Walmart shareholders' equity = 100 × 9,862 ÷ 77,869 = 12.66% | 12.66% |
Liquidity Ratio
Current Ratio
The current ratio is an efficiency and liquidity ratio which measures the ability of a company to pay its short-term liabilities with the current assets. A current ratio gives investors and the creditors an understanding of how easily a company can pay off the current liabilities. The industry average for the current ratio in the retail industry should be averagely 1 ("Current Ratio", 2018). Walmart has a current ratio of 0.76, meaning that current assets are not sufficient to cater for the company’s short-term liabilities.
Solvency Ratio
Debt-asset Ratio
The debt-to-asset ratio is a solvency ratio which measures the amount of total assets which have been financed by creditors instead of investors. It shows the percentage of assets that have been funded through borrowing compared with resources which have been funded by investors. A debt to asset ratio of 1 means that a company has the same amount of liabilities as assets. Walmart has a debt to asset ratio of 0.22. This means that the Walmart has more assets than liabilities and thus could pay off its obligations
Profitability Ratio
Profit Margin
The profit margin is a profitability ratio that measures the percentage of each dollar which ends up as profit at the end of the year. The most profitable companies in the retail section have an average net margin of 5% Walmart has a net margin of 1.99%. While this may not be the highest in its industry, the company maximizes on huge sales with a revenue of over $500 billion (“Walmart Financial Information”, 2018).
Return on Assets
The return on asset is a profitability ratio which measures the net income produced by the total assets. The ratio measures the efficiency in which a company manages its assets and produces profits during a given period. A higher ratio is more favorable to investors as it shows that that the company can effectively manage its assets (Brigham, 2016). Walmart has an ROA of 4.82%. This shows that the company has an upward profit trend.
Return on Owner’s Equity
The return on equity is a profitability ratio which measures the ability of a firm to generate profits for the shareholders that invested in the company. It shows the amount of profit for each dollar of the stockholder’s equity. The ratio is important to investors because it shows how efficiently a company uses its money to generate their net income ("Return on Equity", 2018). Walmart has a return to equity of 12.66%.
b. Analysis of findings
Walmart’s finding shows that it has a stable financial structure and that it is profitable to invest in the company. The company’s current ratio shows that Walmart may not easily pay off its liabilities in the short term. The company’s debt to asset ratio shows that it has more assets than liabilities and the company can easily pay off its obligations. With a profit margin of 2%, it means that Walmart returns 2% profit for each dollar invested in the company by the end of the year. Walmart’s ROA is 4.82% meaning that it produces more income from its total assets. The high ROE of 12.66% shows that Walmart makes good use of the funds of its investors effectively. Walmart is thus a profitable company and would be a suitable option for investors.
References
Alcácer, J., Agrawal, A., & Vaish, H. (2013). Walmart around the World.
Bhasin, H. (2018). Top Walmart Competitors. Retrieved from https://www.marketing91.com/walmart-competitors/
Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Management: Theory and Practice, Canadian Edition . Nelson Education.
Current Ratio. (2018). Retrieved from https://accounting-simplified.com/financial/ratio-analysis/current.html
Kalogeropoulos, D. (2017). Wal-Mart Stock History: How the World’s Biggest Retailer Created So Much Wealth for Investors. Retrieved from https://www.fool.com/investing/2017/01/01/wal-mart-stock-history-how-the-worlds-biggest-reta.aspx
Fortune Global 500 List 2018. (2018). Retrieved from http://fortune.com/global500/list/
Return on Equity (ROE). (2018). Retrieved from https://www.myaccountingcourse.com/financial-ratios/return-on-equity
Walmart Financial Information (2018). Retrieved from https://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-2018_Annual-Report.pdf
