This paper is about Wal-Mart's financial condition. There is a brief description of the company and its business. Then, ratios are calculated according to a template. There is then a brief qualitative analysis of the different financial ratios and the statements of Wal Mart for the past couple of years.
Financial Overview
Business Description
Wal-Mart "operates retail stores in various formats around the world and is committed to saving people money" as a business strategy (Wal-Mart 2012 Annual Report). The company operates three main segments, Wal-Mart U.S., Sam's Club and Wal-Mart International. Of these, Wal-Mart U.S. accounts for 59.5% of its total revenues, Wal-Mart International accounts for 28.4% of total sales and Sam's Club accounts for 12.1%. Wal-Mart's total revenues are $443 billion. The company is by far the largest player in the retail industry globally, although this industry is extremely fragmented. Wal-Mart has a dominant share in the United States, and dominates a number of individual product segments, such as groceries. It is also one of the largest online retailers, trailing only companies like Amazon and Apple. Part of Wal-Mart's success lies in its successful execution of the cost leadership strategy, its high volume, and the high level of product and geographic diversification that it has compared with many of its closest competitors. Major retail competitors like Target and Costco, for example, operate in far fewer countries than Wal-Mart and carry narrower product lines.
Financial Analysis
RATIO ANALYSIS (Section 3.1)
Input Data:
2012
2011
Year-end common stock price
$68.23
$59.76
Year-end shares outstanding (in millions)
3,374
3,460
Tax rate
31%
33%
After-tax cost of capital
3.5%
3.5%
Lease payments
$288
$277
Required sinking fund payments
$0
$0
Balance Sheets
(in millions of dollars)
Assets
2012
2011
Cash and equivalents
$7,781
$6,003
Prepaid Expenses & other
$1,588
$2,321
Accounts receivable
$6,768
$5,937
Inventories
$43,803
$40,714
Total current assets
$59,940
$54,975
Net plant and equipment
$143,165
$138,428
Total assets
$203,105
$193,403
Liabilities and equity
Accounts payable
$38,080
$36,608
Notes payable
$14,930
$7,538
Accruals
$18,808
$18,154
Total current liabilities
$71,818
$62,300
Long-term bonds
$54,944
$59,791
Total liabilities
$126,762
$122,091
Preferred stock (400,000 shares)
$0
$0
Common stock (50,000,000 shares)
$332
$342
Retained earnings
$76,011
$70,973
Total common equity
$76,343
$71,315
Total liabilities and equity
$203,105
$193,406
Income Statements
(in millions of dollars)
2012
2011
Net sales
$469,162.0
$446,950.0
Operating costs
$441,361.0
$420,392.0
Earnings before interest, taxes, depr. & amort. (EBITDA)
$27,801.0
$26,558.0
Depreciation
$0.0
$0.0
Amortization
$0.0
$0.0
Depreciation and amortization
$0.0
$0.0
Earnings before interest and taxes (EBIT)
$27,801.0
$26,558.0
Less interest
$2,064.0
$2,160.0
Earnings before taxes (EBT)
$25,737.0
$24,398.0
Taxes
$7,978.5
$7,929.4
Net income before preferred dividends
$17,758.5
$16,468.7
Preferred dividends
$0.0
$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 3.3)
Industry
2012
2011
Average
Asset Management ratios
Inventory Turnover
10.71
10.98
8.1
Days Sales Outstanding
5.3
4.85
2.68
Fixed Asset Turnover
3.28
3.23
n/a
Total Asset Turnover
2.31
2.31
2.4
DEBT Management RATIOS (Section 3.4)
Industry
2012
2011
Average
Debt Management ratios
Debt Ratio
62.41%
63.13%
60.60%
Debt-to-Equity Ratio
1.66
1.71
0.65
Market Debt Ratio
35.51%
37.13%
N/A
Times Interest Earned
13.47
12.30
n/a
EBITDA Coverage Ratio
11.94
11.01
N/A
PROFITABILITY RATIOS (Section 3.5)
Industry
2012
2011
Average
Profitability ratios
Profit Margin
3.79%
3.68%
3.79%
Basic Earning Power
13.69%
13.73%
n/a
Return on Assets
8.74%
8.52%
8.90%
Return on Equity
23.26%
23.09%
21.95%
MARKET VALUE RATIOS (Section 3.6)
Industry
2012
2011
Average
Market Value ratios
Price-to Earnings Ratio
12.96
12.56
16.2
Price-to-Cash Flow Ratio
12.96
12.56
10.4
Price-to-EBITDA
0.12
0.11
n/a
Market-to-Book Ratio
3.02
2.90
3.34
There is some significance to Wal-Mart's ratios in relation to the industry. The company has a higher degree of leverage and it generally has operating ratios that are slightly poorer than the industry average. The degree of leverage helps the company to expand more rapidly and increases the ROE (which is higher than the industry average). That the margins are in line with the industry average is consistent with the intensity of competition within the industry. Overall, Wal-Mart's numbers are roughly comparable with industry norms, and while its solvency and liquidity are less than competitors, the company also has tremendous cash flow and its growth continues to be strong because of its global diversification.
Wal-Mart continues to add cash flows from operating activities. These are generally recovering, having declined in FY2011 from highs in the prior year, but have steadily increased in the past two years. With robust cash flow from operations, Wal-Mart is able to invest in the company. It has high levels of capital expenditures consistent with steady expansion and upgrades. Also, Wal-Mart invests some of its cash flow in dividend payments and stock retirements, the latter of which serve to boost stock prices.
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