Walmart and its Financial Management

Financial Management

Introduction

Basing the analysis according to the financial statements of Walmart, the purpose of this financial analysis is to provide a report. The report to be provided may help the investors to know if Walmart is either a buy or a sell stock. The complete report will interpret various trends supported by some of the main ratios; this analysis will include liquidity analysis, horizontal and vertical analysis, solvency, and profitability analysis. Through those mentioned ratios, one can determine how Walmart is performing compared to the industry and the additional information that could influence the investment decision. The main ratios in this analysis are vertical and horizontal analysis, whereby about vertical analysis, an expression of every item in each statement for a period equal to a base figure. In the case of horizontal analysis, evaluation of trends is done over some time.

A. Interpretation of Trends

Horizontal and Vertical Analysis

Horizontal analysis is given by the formula = amount in the year of comparison- the amount in the base year divided by the amount in the base year and the answer multiplied by a hundred.

Horizontal analysis helps determine trends of the same data in the financial statement over some time. In our case, we have three years as given in the balance sheet; Y1, Y2, and Y3. The total assets of Y1 is 203,105,000, Y2 is 204,751,000 and Y3 is 203706,000.

The horizontal analysis (Y3-Y2) = Y3 Total assets: 203,706,000 Y2 Total assets: 204,751,000.

(203,706,000- 204,751,000)/ 204,751,000= -0.005104

-0.005 in percentage is -0.5 %. It shows a 0.5 decrease

(Y2-Y1)= Y2 Total assets: 204,751,000 Y1Total assets: 203,105,000

(204,751,000-203,105,000)/ 203,105,000=0.8104

(0.0081) (100) = 0.81% increase

In the calculation of vertical analysis using a comparative balance sheet, the table requires the analysis of Y2. To obtain the percentage of the current assets of Y2, the percentage is computed by dividing the value of the current assets with the base item that is shown for the total assets. For instance the base item value of the current assets of Y2 is 61, 185,000 while the base item of the total assets amounts to 204,751,000. When given as a percentage the value will be (61,185,000 divided by 204,751,000) = 0.2988

= (0.2988) (100) = 29.8%

In the case of Y1, (59,940,000)/ (203,105,000) = 0.295

(0.295)(100)=29.5%

In Y3, (63,278,000)/ (203,706,000) =0.31

(0.31)(100)= 31%

Similarly, vertical analysis helps show the size of each item of every asset in the balance sheet. The size is given as a percentage of the total assets. On the liability section, each item is also presented in percentages of the total liabilities and the amount in the equity section. From the analysis, it is clear that the size of each asset increased from Y1 to Y3. On the other hand, the total equity was reduced from Y1 to Y2 and increased in Y3. This analysis is critical since it gives a financial statement compared to other companies. The second advantage is that we can compare the different financial statements of Walmart with the previous financial years. It has also helped in understanding several components of the balance sheet like; assets, liabilities, and costs of goods that have been sold.

There is a primary difference between horizontal and vertical analysis. Vertical analysis is based on the relationship of the numbers found in a specific reporting period; in other words, it is also referred to as a common-size analysis. It has been revealed in the balance in our case study. On the other hand, the horizontal analysis focuses on financial statements that have been spread over many years. That is why it is also called trend analysis.

Liquidity Analysis

This ratio helps determine the ability of an organization like Walmart to have its bills; short-term debts paid at the right time. It includes several other ratios, and the information it provides is essential to the lenders and creditors.

The first type of liquidity ratio is the current ratio which is given by current assets/ current liabilities as provided in the balance sheet. In Y1 (59,940,000)/ (71,818,000) = 0.83 in Y2, (61,185,000)/ (69,345,000)=0.88 while in Y3, (63,278,000)/ (65,272,000)= 0.97

The second ratio under liquidity analysis is a quick ratio given by the formula= (cash+ accounts receivable +marketable securities)/ current liabilities. This ratio is more specific to the ability of an organization to pay its short-term debts. Finally, the cash ratio is the other ratio under this category. It is given by the following formula; (cash + marketable securities)/current liabilities.

Profitability Analysis

It is a part of an enterprise that is used by leaders so that they can know ways in which profitability can be optimized. Profits obtained from revenues are analyzed using this analysis. It is calculated using the following formula; gross profit= net sales-cost of goods sold. In the balance sheet, we can find the company\\\\\\\'s profit by comparing the total assets to the total liabilities. The other way is looking at the trend of the total equity. It shows a significant increase, and the observed decrease is almost negligible. This shows that the firm is doing well. In Y1 to Y2, there was a reduction of 399,000, while Y2 to Y3, there was an increase of 4,598,000, which was a great shoot.

Solvency Analysis

This kind of ratio helps measure the size of a company\\\\\\\'s profitability compared to the obligations. It helps a financial analyst know how a company may continue meeting the debts, which are obligations. The formula for this ratio is given to be; the net after-tax income+ non-cash expenses)/ (short term liabilities + long term liabilities).

Analysis involving debt to equity= (total liabilities)/stockholders equity). In the case of Y1, (71,818,000)/ (81,738,000) = 0.88 while in Y2, (69,345,000)/ (81,339,000) = 0.85 and Y3 (65,272,000)/ (85,937,000) =0.76

It helps measure how many times an entity income can cover the expense interest.

A. Walmart Performance in Comparison to the Industry

Over the three years represented in the balance sheet, we can derive the financial analysis of Walmart Company. It is because these ratios are a measure of its financial status. There is an increase in the first two years, then a decrease is observed. This shows that Walmart is growing, and it is set in an excellent position to fight against its competitors. Secondly, the vertical analysis of Walmart is seen to improve, which gives a good picture of its performance. The liquidity ratio of Walmart also improves over the given time on the balance sheet. It is a clear indication that the said company can meet its obligations. However, it is also a sign that the assets in the company are not being utilized properly. The company can increase the liquidity ratio by paying off its liabilities. It is also to be noted that a high value in this ratio is not advisable. The profitability ratio shows that the company is making profits; hence its performance is not deteriorating. Finally, solvency analysis is seen to be decreasing over time in the company. This ratio measures a company\\\\\\\'s safety margin when paying interest on its debts. A higher ratio is better, and the figure should be above 1.5. In this case, the ratio for Walmart Company is below 1.5, meaning that the company will experience challenges when it is paying off the interest incurred on its debts. Therefore, according to the balance sheet, Walmart may not be in a position to meet its long-term debts.

B. Suggestions Influencing Investment Decision

The factor that primarily affects the investment decision in this company, Walmart, is the engagement of the stakeholders. The ability of the company to have values that are shared and to create them is dependent on how customers are engaged directly and frequently. Those who are valued and engaged are the community leaders and the associates. The perspectives and feedback obtained from the stakeholders help improve the relevance and the effectiveness of the products and the services that the company offers. How Walmart engages its stakeholders is through ESG initiatives which have excellent consideration to the feedback from the stakeholders; hence Walmart refined the priorities set forth and improved its performance. The company has its top priority as understanding the needs of its customers. The company uses various channels for getting feedback and communicating with the customers. It is through discussions and surveys. The other engagement is that of associates, which has always been the foundation to the company\\\\\\\'s success. Feedback from the associates is also essential, and the company has a lot of avenues in which the associates can share their ideas. The decisions made by Walmart are highly dependent on the feedback made by the associates, and their proposals are adopted. Business in Walmart may not happen without the suppliers and those involved in creating goods and services provided to the customers. The teams in Walmart Company engage suppliers regularly to share the expectations and specifications standards. It helps develop new products, packaging services, and more effective business processes. In return, the company receives feedback on ways to collaborate with its customers, which is an excellent way of measuring its performance and improving its capabilities. Those in the supply chain also target the company to elevate its perspectives. The community is also considered, and the various community relations teams help in the interaction between state and local governments.

C. Recommendations

According to the reported observations in the balance sheet and the calculations made, Walmart is a buy. The profits made by the company reveal the revenues increase in every year. The company\\\\\\\'s earnings and profits, according to the results, beat the market expectations. When determining the suitability of a stock, there is a need to analyze specific ratios that the company provides from the financial statement and, in this case, the balance sheet. In this kind of analysis, Y1 is the base year, and those following years have their statements compared with this year. The realized changes are in absolute figures ad in terms of percentages. These statements help compare the financial ratios to benchmark with the rest of the companies within the industry. These financial ratios act as a way of shedding light to give a company a direction to follow. Concerning vertical analysis, it shows that most of the amount goes to equipment.