Investment Analysis Paper The publicly traded company selected for this investment analysis paper is Walmart Stores, Inc. Walmart, an American multinational retail firm, is the largest retail chain worldwide by revenue. In particular, the global organization operates as a chain of grocery stores, hypermarkets, together with markdown department stores. The retailer was founded in the 1960s and has over the years extended its operations to more than 25 countries across the world, including North America, Latin America, Europe, and Asia. Walmart is also one of the most valuable firms in the world.

Evaluation of Walmart’s Board of Directors

Walmart Stores, Inc.’s board of directors have a great monitoring potential of assessing and examining the business operations. The amalgamation of the set of skills and the qualifications of the board members makes it possible to perceive that the board is in a great position to offer efficacious oversight and strategic guidance to the management of the company. Presently, there are 11 board members, 10 of who have senior level of leadership. With respect to strategy, there are four key areas in which the board considers oversight, which include retail, marketing or brand management, technology or e-commerce, and global business. It is imperative to note that in each of these areas, there are at least three board directors that offer oversight and monitoring with great expertise and specialty. More importantly, in the areas of governance, there is legal as well as finance and accounting, both of which have five board members who offer insight and guidance to the management of the company (Walmart, 2017).

Board representation ought to equitably mirror the trust that the society at large vests in a huge company such as Walmart Stores, Inc. with the authority to significantly influence the lives of several people within and outside the company. The manner in which Walmart’s board of directors is structured has both its strengths and weaknesses. One of the strengths is that the members of the board is made up of people who cooperatively provide a fitting poise of renowned and notable leadership, diverse perspectives, strategic set of skills, and specialized experience pertinent to the company’s business operations and strategic goals and objectives. All of them are carefully selected on the basis of excellent accomplishment in their professional careers, extensive experience and understanding, individual and professional reliability, capability to make self-determining, systematic inquiries, experience and comprehension of the business setting, preparedness and capability to dedicate sufficient time to Board responsibilities (Walmart, 2017). Another advantage is that in the past financial year, Walmart’s self-examination gave rise to altering the structure of the Board committees. In the previous financial years, the company had only one committee that was dedicated to the extensive scope of executive compensation, selections of the directors and governance. In the contemporary setting, these responsibilities and duties have presently been separated between two different committees, one being the Compensation and Management Development Committee and the other one being the Nominating and Governance Committee. The strong suit to this is that it brings about greater emphasis on management development in addition to the appointment and refreshment of the Board (Walmart, 2017). However, it is imperative to note that there are shortcomings and weaknesses. One of the downsides is that the board members constituted of 15 individuals, which made the process of decision making quite time consuming. At the same time, it is imperative to note that the board consists of three members who are part of the owning family, who are not necessarily experienced in a professional sense and therefore deemed not to make sensible decisions (Walmart, 2017).

Review of Income Statements and Balance Sheets

Walmart faces significant competition in the market from Target. In particular, Target is the second biggest discount store retailer in the United States, with Walmart taking the top spot. In the contemporary market, the company operates just over 1,800 retail stores all across the nation. In particular, Walmart finds its success in the market through the use of low prices as a strategy whereas its key competitor, Target, seeks to appeal to consumers that are younger and are conscious of their image. All investors wish to make the most of the returns on their investments in an organization. The return for an investor is measured by the return on equity. In particular, a DuPont analysis offers discernment and understanding into how a firm’s return on equity was generated through the breakdown of the return into three elements, which comprise...

DuPont Analysis is conducted using the following formula:
Operating Asset Capital Return on

Efficiency Effectiveness Structure Equity

Net Income/ Sales × Sales/ Assets × Assets/Equity = Net Income/Equity

Walmart DuPont Analysis 2017, 2016, 2016

i. Operations Efficiency = Net Income / Sales

2017 = 14,293 / 481,317 = 0.030

2016 = 15,080 / 478,614 = 0.032

2015 = 17,099 / 482,229 = 0.035

ii. Asset Effectiveness = Sales/ Assets

2017 = 481,317 / 198,825 = 2.42

2016 = 478,614 / 199,581 = 2.40

2015 = 482,229 / 203,490 = 2.37

iii. Capital Structure = Assets/Equity

2017 = 198,825 / 77,798 = 2.56

2016 = 199,581/ 80,546 = 2.48

2015 = 203,490 / 81,394 = 2.50

DuPont Analysis 2017 = 0.03 × 2.42 × 2.56 = 0.186 = 18.6%

DuPont Analysis 2016 = 0.032 × 2.40 × 2.48 = 0.190 = 19%

DuPont Analysis 2015 = 0.035 × 2.37 × 2.50 = 0.207 = 20.7%

Target DuPont Analysis 2017, 2016, 2015

i. Operations Efficiency = Net Sales/ Income

2017 = 2,737 / 69,495 = 0.039

2016 = 3,363 / 73,785 = 0.046

2015 = -1,636 / 72,618 = -0.023

ii. Asset Effectiveness = Sales/ Assets

2017 = 69,495 / 37,431 = 1.86

2016 = 73,785 / 40,262 = 1.83

2015 = 72,618 / 41,172 = 1.76

iii. Capital Structure = Assets/Equity

2017 = 37,431 / 10,953 = 3.42

2016 = 40,262 / 12,957 = 3.11

2015 = 41,172 / 13,997 = 2.94

DuPont Analysis 2017 = 0.039 × 1.86 × 3.42 = 0.248 = 24.8%

DuPont Analysis 2016 = 0.046 × 1.83 × 3.11 = 0.262 = 26.2%

DuPont Analysis 2015 = -0.023 × 1.76 × 2.94 = 0.119 = 11.9%

The information used in the calculations above were obtained from the company’s annual financial statements. One of the trends perceived is that the ratio of capital structure for Target is higher than Walmart, which implies that Target finances its assets with debt rather than equity whilst Walmart finances its assets with equity rather than debt. In addition, this means that Target has higher financial leverage and a capital structure that is riskier. With respect to asset effectiveness, Walmart has higher ratios. This implies that the company is more efficacious in generating sales from its assets. Lastly, with regard to operating efficiency, there is significant competition between the two companies, but Target slightly edges Walmart, which shows that in the past three years, it has been more efficient in generating sales into profits (Godwin and Alderman, 2010). The key difference noted is that in the 2016 and 2017 fiscal years, Target had a higher return on equity compared to Walmart. Based on the calculations above, the ROE of Walmart constantly declined in the three years, from 20.7% in 2015 to 19% in 2016, and further down to 18.6% in 2017. In contrast, the ROE of Target showed improvement. The ratio increased from 11.9% in 2015 to 26.2% in 2016 but slightly declined to 24.8% in 2017. The analysis shows that in general, Target was more efficient in generating returns for the shareholders’ equity in comparison to Walmart.

Dividend Discount Model

The Dividend Discount Model (DDM) is formula of valuation in investment that is employed to determine the fair value of a dividend stock. The underlying notion within the model is that it is the succeeding year’s expected divided by a suitable discount rate less the expected dividend growth rate. The model takes into account the notion that the asset’s fair value is the totality of its future cash flows being discounted back to fair value using a suitable and fitting discount rate (Damodaran, 2007). The formula use is as follows:

P = D1 / (r –g)

Based on Walmart’s annual income statement, the current dividend per share is $2. The dividend per share in 2016 was $1.96 and $1.92 in 2015. This indicates a growth rate of 2.10% per annum.

The Cost of Equity can be computed using the following formula:

Cost of Equity = (Dividends per share for next year / Current Market Value of Stock) + Growth rate of dividends (Vaidya, 2017).

Dividends per share for next year = 2 × (1 + 2.10%) = $2.04

Current Market Value of Stock = $78.37

Therefore, cost of equity = (2.04 / 78.37) + 2.10% = 2.13%

Remember, P = D1 / (r –g) = 2.04 / (2.13% – 2.10%)

= 2.04 / 0.03% = 2.04 / 0.0003

= $6,800

The number I arrived at for the…