Financial Research - The Latest Insights from Experts

Introduction 

The company selected for this financial research is Walmart Inc. Initially based in Rogers, Arkansas, the United States of America, Walmart Inc. is a retail store, which has an admirable financial performance in the USA (Walmart, 2018). Currently, Walmart is based in Bentonville, Arkansas, the United States of America and have achieved the multinational status. The company has extended its cope of service in twenty-seven countries globally as per the end of October 2018, with its stores totaling to 11277 (Walmart, 2018). The company operates under different names in the countries in which it has opened its stores. The company recorded revenue of US $ 500.34 billion in the financial year 2018 and had been ranked as one of the best performing fortune 500 companies in the United States of America (Walmart, 2018). Its 1.5 million workers within the United States and 2.3 million worldwide have been instrumental in Walmart's growth and expansion, which has directly led to its stable financial position in the financial markets across the globe (Walmart, 2018). 

The Rationale for Picking the Company 

Economic Factors 

Walmart is one of the largest firms in the United States of America as well as on earth. The company's perfect financial performance has attracted global attention with many stakeholders competitively bidding for a stake in the organization from the financial reports that the company posted in the fiscal year 2018, it recorded revenue of $ 500.34 (Walmart, 2018). The following is the analysis of the company's revenue performance since 2016. 

From the analysis of the revenue performance at Walmart, it is clear that financial performance has been optimized at the company and thus, the results have been pleasant to the stockholders in the various parts of the world. The most substantial improvement in the revenue of Walmart between 2016 and 2018 has been recorded as the company crossed from the fiscal year 2017 towards 2018. The company's investments and expansion have been attributed to the increase in the sales between the two years. 

Company Position 

Walmart appears to be winning in a declining industry both in the USA and in the rest of the world. The company has been stated to employ 1% of America with 2.3 million people in the international job market (Walmart, 2018). The employee count of Walmart is higher than the population of some of the small countries in the world. As the company embraces the most advanced forms of technology in the world, it is evident that the company's management has geared the organization up for growth. Related to its competitors, Walmart is increasingly rising while most of its competitors are headed downwards in their financial progress. Looking at one of Walmart's competitors, Macy's, which is America's second largest retailer store, had its share price nosedive with a 17% in the first quarter of the financial year 2017 (Efron, 2017). In the fiscal year 2017 as a whole, Macy's was projecting a 3.2% to 4.3% drop in the share price (Efron, 2017). That happened as Walmart was recording increases in the share price quarter after quarter. The following is a graphical analysis if the employee market in the United States. 

Reasons Why the Stock is Suitable 

Straightforward Company Model 

The company model of Walmart is easy to comprehend. In as much as the company has numerous stores in various countries, it becomes particularly easy to analyze how the company operates and the role of leadership in excellent company performance. The administration of the company has put in much work to ensure that all the stores of the company in the different parts of the world are in line with the headquarters' strategic objectives. The stock valuation of Walmart is also straightforward, and the reports that the company makes regarding its financial performance make it easy for research on its economic sector. 

Financial Performance 

Looking at the profitability of the company, there has been an upward trend in the last three fiscal years. In 2016, Walmart recorded a gross profit of $ 121.15 billion (Walmart, 2018). In the following year, Walmart recorded a gross profit of $ 124.62 billion (Walmart, 2018). In the fiscal year 2018, Walmart's gross profit was $ 126.95 billion (Walmart, 2018). The progress in the profits gained by Walmart can be expressed graphically as follows. 

Future Predictions of Performance 

Looking at the past financial performance of Walmart, it is clear that the company is headed even higher in its economic performance compared to its past as well as in comparison with its local and international competitors. According to the reports given by the financial analysts, Walmart is expected to have a revenue of $ 514.25 billion in the financial year 2019, $ 528.37 billion in the fiscal year 2020 and $ 547.18 in the fiscal year 2021(Walmart, 2018). Walmart is set to have an incremental journey towards its financial performance achievements as far as its revenues are concerned. 

Size of the Company 

Walmart operates over 11200 stores in 27 countries across the globe (Walmart, 2018). The company is expansive and is, therefore, an investment worth trying since its size works to its advantage. The total employee count for Walmart across the world is 2.3 million as at the end of October 2018(Walmart, 2018). About 75% of Walmart's store management teams are paid hourly earning anything between $ 50000 and $ 170000 a year (Walmart, 2018). In the fiscal year 2017, Walmart is reported to have promoted around 200000 employees to positions with higher pay (Walmart, 2018). 

Dividends Payout 

With the incremental financial performance, Walmart pays out its dividends increasingly from a year to another. As of October 2018, the dividend payout ratio for Walmart was recorded as 0.90(Walmart, 2018). In the last more than a decade of financial analyses of the company, the highest dividend payout ratio was recorded as 1.18 while the lowest was at 0.28(Walmart, 2018). On average, the dividend payout ratio for Walmart characterizes the company as stable since the payment of large dividends may affect a company negatively. The ratio is also not too low, as it would mean that the invested money in the form of stock does not have high rates of returns. 

Financial Ratios 

Current Ratio 

The current ratio in the financial year 2016 at Walmart was recorded to be 0.93(Walmart, 2018). The current ratio in the same year meant that $ 0.93 of current assets was used to handle current liabilities worth $ 1.00(Walmart, 2018). The current ratio is a measure of the company's ability to meet its short-term financial obligations with the use of the liquid assets. In the following financial year, the current ratio at Walmart stood at 0.86(Walmart, 2018). The reduction in the level of current ratio from the financial year 2016 was an indicator of the decline in the liquidity of the assets at Walmart. In the fiscal year 2018, the level of current ratio further reduced to 0.76(Walmart, 2018). The reduction in the current ratio across the three financial years is an indicator of the weakening ability of Walmart to take care of its short time financial needs using its available cash. The following is the graphical representation of the trend of the current ratio at Walmart between 2016 and 2018. 

The reduction in the current ratio can be attributed to two different causes. The first cause is the reduction in the liquidity of the assets at Walmart. The current ratio depends on the liquidity of the current assets at a company so that the financial obligations can be taken care of adequately. The other cause is the increase in the short-term obligations at Walmart (Boyas & Teeter, 2017). As the revenues of the company shoot upwards, the need to employ more people, train staff to professional levels, and incur more costs in manufacturing and delivery arises. The solution to the downward trend in the current ratio of Walmart is the reduction in the short term obligations and the liquidation of more current assets at the company (Boyas & Teeter, 2017). The days of inventory turnover can also be reduced by increasing the working shifts for the employees and integrating technology more to handle more production and delivery (Boyas & Teeter, 2017). 

Quick Ratio 

Just like the trend seen in the current ratio, the quick ratio at Walmart has recorded a drop in the three financial years from 2016 to 2018. The ratio indicates the ability of Walmart to pay its upcoming bills and other short-term financial obligations while making use of its most liquid assets. The quick ratio at Walmart in the fiscal year 2016 was recorded as 0.24(Walmart, 2018). In the fiscal year 2016, a quick ratio value of 0.24 meant that $ 0.24 of liquid assets were being used to meet the obligations worth $ 1.00. Thus, the performance of the company regarding liquidity was reported to be rather low. In the fiscal year 2017, the quick ratio of Walmart was recorded as 0.22(Walmart, 2018). That meant that $ 0.22 of its liquid assets was being used to manage $ 1.00 of obligations. The reduction in the quick ratio between the two years is an indicator of the decline in the liquidity of the assets and the increase in the financial obligations to be met. The quick ratio of Walmart in the fiscal year 2018 stood at 0.20 (Walmart, 2018). The value meant that $ 0.20 of assets was being used to manage $ 1.00 of obligations. The reduction in the quick ratio of Walmart across the three years is an indicator of the decline in the liquidity of the assets of the company. To counteract the situation, Walmart may choose to reduce the financial obligations that I have to meet in short cycles such as daily, weekly, and monthly bills (Boyas & Teeter, 2017). The company may also consider increasing the current assets that are used in the process of paying the financial obligations that it has. The liquidity of the company is a target point by the current as well as the potential stakeholders as they embark on the investment journey with the company as their focus (Boyas & Teeter, 2017). The following is the graphical representation of the quick ratio analysis at Walmart. 

Earnings Per Share Ratio 

The earnings per share (EPS) ratio for Walmart in the financial year 2016 were 4.57 (Walmart, 2018). In the following financial year, the EPS ratio reduced to 4.38 (Walmart, 2018). In the financial year 2018, the EPS ratio further dropped to 3.28 (Walmart, 2018). The following is the graphical representation of the EPS ratio trend at Walmart in the three financial years. 

The reduction in the EPS ration is a matter of concern as it represents the dwindling financial position of the company in the market. Focusing on the three financial years, between the fiscal years 2016 and 2017, Walmart recorded a slight reduction in the EPS value. The drop between 2017 and 2018 was more than between 2016, 2017, and thus leading to a concern in the weakening position of the company in the retail industry of the United States. Typically, a high EPS value is an indicator of the financial position of a company. Thus, a company with a high EPS value is considered safe to invest in since it indicates a favorable financial performance in its market (Martínez, Galván, & Alam, 2017). However, the financial analysts at Walmart have forecasted that the financial performance of the company may rise in the coming financial years. The increase will be good news for the company as it aims to indicate a high performance in the stock market both in the United States of America and in the entire world. One of the ways that the company can increase the EPS ratio is to have an increase in the net income (Martínez, Galván, & Alam, 2017). An increase in the net income is reliant on the rise in the revenues collected by Walmart. In the same line of argument, the reports from the financial analysts of the company indicate that the company is set to experience increments in its revenues (Martínez, Galván, & Alam, 2017). The increase in the net income will also be brought about by the decrease in the costs that Walmart incur in its daily activities. 

Price-Earnings Ratio 

The price-earnings (PE) ratio of Walmart in the financial year 2016 was recorded as 14.49 (Walmart, 2018). The PE ratio at Walmart indicated the amount of money that investors are willing to pay for a dollar of the company's earnings. The PE ratio in 2016, therefore, indicated that Walmart's investors were willing to pay $ 14.49 for $ 1.00 worth of the company's profits. The amount stated that the shares of the company are valuable in the market. In the financial year 2017, the PE ratio of Walmart increased from the value in 2014 to 15.20 (Walmart, 2018). In the same year, the investors in the company expanded their amount at the company to indicate that they were willing to pay even higher for the stocks at the company. The increase was an indicator of the increment in the value of the shares at Walmart compared to its past financial years. The PE ratio at Walmart increased further to 32.60 in the fiscal year 2018 (Walmart, 2018). The increase was strategic in the attraction of the various stakeholders across the globe who may be interested in buying the stocks of Walmart. The increase in the PE ratio for the company in the three financial years is also an indicator of the competition that has been associated with the purchase of Walmart's shares. The increase in the PE ratio is also a clear-cut indicator of the profitability related to the investment of the stocks at the company (Martínez, Galván & Alam, 2017). Increasingly, the investors are expecting huger earnings from the shares they have invested at Walmart than they have been in the past financial years. The PE ratio of Walmart has, thus, taken up the essential role of communicating with the investors the profitability of the stock investments at Walmart (Martínez, Galván & Alam, 2017). The following is the graphical representation of the trend in the price-earnings ratio at Walmart between the fiscal years 2016 and 2018. 

Net Margin 

The net margin of Walmart has also had a reduction in the last three financial years, which indicates that the company has had slight drops in its profitability. The net margin of Walmart in 2016 was 3.05 %( Walmart, 2018). Each dollar of the sales at the company in the same year generated a profit of $ 3.05. In the financial year 2017, the net margin of Walmart was recorded as 2.81 % (Walmart, 2018). In that year, $ 1 of the sales generated by the company made a profit of $ 2.81. In as much as there was a notable drop in the net margin the retailer, the net margin level in the fiscal year 2017 was still high enough to classify the company as profitable. As the company crossed over to the fiscal year 2018, the net margin dropped to 1.97 % (Walmart, 2018). The figure in 2018 means that a dollar of the revenue that was generated at Walmart was currently making $ 1.97 as profits. The following is the graphical representation of the net margin at Walmart for the three fiscal years. 

The management of Walmart needs to attend to the declining net margin at the company lest it makes the potential stakeholders change their minds. One of the strategies that Walmart has integrated into its operations to solve the issue of the dropping profitability as indicated by the trend in the net margin is to raise the revenues of the company (Martínez, Galván & Alam, 2017). According to the company's forecast, the revenue of the company is expected to rise in the next three financial years. The leaders are also looking into the ways that can be used to cut the costs that Walmart has been incurring in the production and other processes in the company (Martínez, Galván & Alam, 2017). One of the ways of doing so is to integrate the advanced technological levels to increase the production while cutting the time used in the production and delivery. Such an undertaking is set to reduce the costs and thus increase the net income. 

Risk Analysis 

The Risk Level of the Stock 

The most common type of risk that may be associated with the purchase of the stocks at Walmart is the economic risk. A closer look at the various aspects of financial performance at the retailer brings up the following concerns. The first aspect is liquidity. An in-depth analysis of the current and the quick ratios suggest that Walmart is dropping regarding its liquidity while its costs keep rising. The other aspect is profitability. The net margin of Walmart has indicated a downward trend since the financial year 2016 to the present. The reduction in the net margin has been linked with the reduction in the profits of the company as the costs rise each day. A closer look at both the earnings per share and the price-earnings ratios, however, suggests that the company is on an upward trend concerning the stock performance. Therefore, the issue of the risks is only present in the liquidity and profitability of the company while the company's shares are increasing in earnings. 

Strategies to Minimize the Risks 

One of the strategies to mitigate the risks in the investment of the stocks at Walmart is to understand how much value an organization creates for its investors currently and the forecasts on the same (Hoffmann, Post & Pennings, 2015). Looking at the current and the forecasted revenue, it is clear that Walmart has integrated the strategies that may induce constant growth in the next five financial years. Focusing on the earnings per share and the price earnings ratio, Walmart may have an increase in the earnings obtained through dividends in the coming fiscal years. 

The other strategy to minimize the stock investment risks is to analyze the meaningful estimates of a company's financial value (Luo et al., 2015). As aforementioned, it is essential to consider the various economic forecasts that have been made by the company's financial managers. As such, a closer look at the estimates made regarding the revenue indicates that the company has a plan to reduce costs and increase profitability in the coming years. 

Another strategy that can be used to mitigate risks associated with investing in the stocks of Walmart is to comprehend the nature and amount of incoming information that could potentially change the estimations of Walmart (Bromiley et al., 2015). For instance, following the changes in the price of a share at Walmart on the stock markets would potentially affect how one views the investment of stocks at Walmart. The information based on the cost of one share at the company can be incorporated into the estimate of the valuations. 

To minimize the stock investment risks further, an investor may research and understand the best ways of investing their capital wisely in the target company (Yuniningsih, Widodo & Wajdi, 2017). For example, the investor in the case of Walmart may carefully decide on the best amount to invest without constraints and spending a hundred percent of their budget. Such strategies will be essential in the investment at Walmart. 

Recommendations for Buying the Stock 

I would recommend the buying of stock at Walmart Inc. Despite the fluctuations in the company's current and quick ratios in liquidity and the net margin in profitability, the stock performance in the company has hope in the garnering of profits. The increase in the price-earnings ratio from the financial year 2016 to 2018 has been attributed to the forecasts of the company's stock performance, which has indicated that the company may be on the right track regarding the stock investments. Thus, Walmart presents a perfect stock investment company for an investor. 

References  

Boyas, E., & Teeter, R. (2017). Teaching Financial Ratio Analysis using XBRL. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 44, No. 1). 

Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise Risk Management: Review, Critique, and Research Directions. Long range planning , 48 (4), 265-276. 

Efron, L. (2017, March 31). Why Wal-Mart is winning in a losing industry. Forbes . Retrieved from https://www.forbes.com/sites/louisefron/2017/05/31/why-wal-mart-is-winning-in-a-losing-industry/#2742eb744d51 

Hoffmann, A. O., Post, T., & Pennings, J. M. (2015). How Investor Perceptions Drive Actual Trading and Risk-taking Behavior. Journal of Behavioral Finance , 16 (1), 94-103. 

Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate Social Performance, Analyst Stock Recommendations, and Firm Future Returns. Strategic Management Journal , 36 (1), 123-136. 

Martínez, A. B., Galván, R. S., & Alam, S. (2017). Financial Analysis of Retail Business Organization: A Case of Wal-Mart Stores, Inc. Nile Journal of Business and Economics , 3 (5), 67-89. 

Walmart. (2018). Our history . Retrieved from https://corporate.walmart.com/our-story/our-history 

Walmart. (2018). Walmart investor relations - Investors - Financial information - Annual reports & proxies. Retrieved from https://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx 

Yuniningsih, Y., Widodo, S., & Wajdi, M. B. N. (2017). An Analysis of Decision Making in the Stock Investment. Economic: Journal of Economic and Islamic Law , 8 (2), 122-128.