This analysis shows that the financing need will be $ billion, and that the net income will account for $13.749 billion of that. Wal-Mart will then need to find additional financing of $3.257 billion in order to fund its operations for the coming year.

Part II.

The sustainable growth rate for Wal-Mart is the ROE * (1-dividend payout ratio). The ROE for Wal-Mart last year was $13643 / $80535 = 16.9%

The dividend payout ratio, the dividend per share divided by the EPS, was $2.00 / $4.40 = 45.4%

This means that the sustainable growth rate for Wal-Mart is 16.9 * (1-.454) = 9.2%

Over the past two years, Wal-Mart did not experience sales growth. There was sales growth in 2017, but in 2016 the company's revenues fell. The 2017 rebound only got Wal-Mart back to where it was in 2015.

What we see is that Wal-Mart's growth rate is well below its sustainable growth rate. The company is going to have trouble paying its dividend without taking on more financing. Clearly, the company has relatively low leverage so it can take on more debt in order to finance the dividend (and the share buybacks it has been engaging in as well), but the reality is that Wal-Mart is paying out too much relative to what it should be given its growth rate. As a low-growth company, with limited growth upside at this point, Wal-Mart is going to have to take on financing. The company grew for years, and a lot, so the dividend probably made sense. And it has not been increasing that much of late, but clearly there is a disconnect between the growth rates that Wal-Mart is currently experiencing and its payout ratio.

Part III.

Even though Wal-Mart is a massive company and a leader in its space, that does not mean that it without weaknesses. And there are certainly threats. In fact, on balance, Wal-Mart has a lot of strengths, some key weaknesses, few really good opportunities, and many threats. The threats are exposed by the reality that slim margins and slow growth have left Wal-Mart is a somewhat vulnerable position financially. That said, this is still a very well-run company, and that means that Wal-Mart can find a way out of its situation, especially if it can effectively identify new opportunities that it is able to exploit by leveraging those strengths. The only really significant downside to that thinking is that Wal-Mart`s competitors are also among the best-run companies in the world, and they will doubtless put pressure on Wal-Mart – it won`t be able to get competitive advantage for long.

Strengths

Weaknesses

Opportunities

Threats

Marketing

Tight margins

Global expansion

Competition

Supply chain mgmt.

HQ location (HR)

HQ2?

China slowdown

Corporate culture

Sam's Club / online laggard

Emerging technology

Increasing costs in key supplier markets

There are a few things that Wal-Mart does exceptionally well. First, it markets itself very well. It has one of the highest-valued brands in the world, and the Wal-Mart is brand has very high visibility in most of its markets. The brand strength is supported with the strong association that the brand has with being a low cost provider, if not the lowest cost. There is evidence to suggest that Wal-Mart is not the lowest cost provider, but many people think that they are. So marketing has long been a position of strength for the company.

In order to support the strategy of being a low cost provider, Wal-Mart has developed supply chain excellence. The company is a technological leader in supply chain, introducing RFID, cross-docking, and now it is even exploring how it can leverage blockchain in its supply chain (Purdy, 2017). This technological leadership has allowed it to maintain its reputation for low cost, and that in turn is a key demand driver for the company.…– to Vietnam or India, for example – but for a lot of goods China has efficiencies of scale and expertise that other countries cannot match. Thus, if the cost of doing business increases in China, there isn't much that Wal-Mart can do other than pay more.

Overall, what this shows is that Wal-Mart has a lot of things it does right, but that despite its size and apparent market dominance, there are some weaknesses and threats. Consider what this means in the context of the financial analysis. The company saw negative revenue growth in 2016, so that its gains in 2017 just put it back to the 2015 level. Wal-Mart's net gain in 2 years for its revenue is almost nothing. The sustainable growth rate is more like 9%, so there is clearly a need for external financing, or an increase in the growth rate. Wal-Mart's business, however, because of the intensity of competition, and the lack of major growth opportunities, is such that the company might have trouble meeting its sustainable growth rate at any point in the future.

This reality has some fairly significant implications for the company – it will need to rethink its dividend. While Wal-Mart is still run well, its emphasis on prices means that its margins will always be tight, which makes it vulnerable to the threats that have been identified. IF these threats manifests in a worse way than expected, or if demand drops suddenly, then Wal-Mart's vulnerability will be exposed.

The only good news for Wal-Mart is that it generally runs countercyclical to the economy – people trade down to Wal-Mart during recessions, so at least if it can hold ground through this stretch, it will be able to enjoy some success when recession hits, which is might well be doing now that there is some signs of asset bubbles creeping back into the economy, and the Fed has signalled a string…