Wal Mart Analyzing Wal-Mart\'s Market

Wal Mart

Analyzing Wal-Mart's Market Value, P/E Ratio and Profitability

Wal-Mart's market value and continued profitability is directly attributable to the continual improvements in supplier relationship management and the use of technology to continually ensure the mass merchandiser reduces operating costs (Mottner, Smith, 535). This has been a highly effective strategy as the company continues to concentrate on its core market segment, the price-value shopper (Zimmerman, et.al.). According to Wal-Mart the price-value shopping segment of their customer base comprises 16% of all shoppers and is responsible for the majority of the profitability the firms achieves (Frazier, 34). As Wal-Mart has continues to concentrate on the unique combination of their supply chain, technology to enable greater efficiency, and on working to keep the price-value shopper loyal, the mass merchandiser has been able to increase Net Income and grow profitability despite a global recession (Zimmerman, et.al.). The intent of this analysis is to evaluate Wal-Mart's Market Value, Price-Earnings Ratio and Profitability.

Assessing Wal-Mart's Market Value

With a market capitalization of $209B and Gross Margin of 24.55%, Operating Margin of 5.71%, and Net Profit Margin of 3.47%, Wal-Mart's strategy of concentrating on cost reductions through investing in streamlining their supply chains are working (Frazier, 34). Net Income actually increased through the recession, beginning at $8B in 2003, increasing to $13.4B at the close FY2008. Evaluating the Profitability Ratios of the last seven years for Wal-Mart also shows that the company has become very adept at internal efficiencies to increase the utilization of assets. The use of RFID technologies to better manage supplier relationships (Sodhi, Son, 937) and streamline inventory management have contributed to Return on Assets (ROA) stabilizing from 9.03 in 2003 to 8.17 in FY 2009. Return on Equity (ROE) has also stabilized despite a severe economic downturn impacting much of the retail industry globally. From 21.6 in 2003 to 20.58 in 2008, Wal-Mart continues to stabilize this aspect of their financial performance as well. These measures of financial performance are provided in Appendix A, Wal-Mart Stores Ratio Analysis, 2003 -- 2009.

Wal-Mart emphasizes the use of internal process improvement and a continual commitment to increasing supplier and distribution network performance based on disruptive technologies including Radio Frequency Identification (RFID) to also reduce costs. As a result of these strategies throughout the last seven years the company has been able to actually increase EBITA Margin % from 6.79 in 2003 to 7.27% in 2009. In addition, Revenue Per Employee increased from $176,089 in 2003 to $192,618 in 2009. Wal-Mart has defined a series of internal strategies that allow them to capitalize on asset efficiencies and coordinate them to increase profits over the long-term. An example of this type of strategy is the reliance on continual supplier relationship management significantly improving the company's asset turnover from 10.38 in 2003 to 11.61 in 2009. Wal-Mart also relies on an intensive knowledge and information sharing network that includes pricing and sales uploads every night from each of their stores via satellite link. This data is then analyzed in the Bentonville, Arkansas headquarters and used for managing inventories, pricing, and suppliers more effectively than their competitors. This is also the factor leading to the company's higher inventory turns and more efficient use of assets as well.

Assessing the Price/Earnings Ratio