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Wal-Mart's capital structure is relatively debt-heavy. For the end of fiscal 2008, Target had a debt/equity ratio of 0.4, indicating a capital structure more oriented towards equity financing. Costco had a debt/equity ratio of 1.25, again lower than that of Wal-Mart (MSN Moneycentral, 2010). These competitors provide interesting comparables in that neither is as heavily leveraged as Wal-Mart. They are very large companies with stable cash flow, just like Wal-Mart, but have chosen to take on less debt in their capital structure.
The financial crisis has also had an impact on Wal-Mart's capital structure. When planning the optimal capital structure, firms need to consider the ability of the company to whether economic slowdowns. In Wal-Mart's case, the impacts of the slowdown were delayed somewhat, but eventually sales began to slump. The company increased its long-term debt in both 2009 and 2010. The debt/equity ratio...
This indicates that the company has targeted an capital structure of around 1.40.
Overall, Wal-Mart has significant borrowing capacity. This is fueled by the strength of the firm's revenue streams. Wal-Mart seeks to lower its cost of capital by increasing its degree of leverage. As a result, the company has more debt than its closest competitors. The economic slowdown initially had a negative impact on Wal-Mart's capital structure but the firm took steps in fiscal 2010 to bring the capital structure back in line with the company's debt policy. While Wal-Mart could borrow more, the company clearly views debt over the 1.4 debt/equity ratio mark as being less than optimal, and seeks to maintain healthy liquidity by placing constraints on its long-term borrowing.
Works Cited:
MSN Moneycentral. (2010).…
Works Cited:
MSN Moneycentral. (2010). Retrieved November 23, 2010 from http://moneycentral.msn.com
Wal-Mart 2008 Annual Report. In possession of the author.
There are a few weaknesses, however, that could be exploited by competition. One such weakness is that reputation that Wal-Mart has for low quality items. While this reputation does not exist among all consumers, among some segments of the population Wal-Mart has a bad reputation and that creates opportunities for firms to enter the market with a differentiated strategy. Another weakness that Wal-Mart has is that the company has alienated
Wal-Mart's Strategic And Financial Planning: Since its inception about 50 years ago, Wal-Mart has continued to remarkable growth as a firm that focuses on providing customers with a wide range of merchandise at great prices. In its initial years, the company only operated in one store that has contributed to changes in the way retail works. Currently, the firm operates over 10,000 retail units within 69 distinct banners in 27 countries
Wal-Mart Financial Analysis Wal-Mart Store Inc. is a multinational retailer corporation branded as Wal-Mart in 2008. Founded in 1962, Wal-Mart has now become one of the largest American corporations with chain of retail stores. Wal-Mart sells varieties of consumer goods such as consumer electronics, toys, automobiles, furniture, video games and several other consumers goods. Presently, Wal-Mart enjoys the patronages of 200 million customers per week making the company to record the
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The online business is completely separate. They have their own people and their own infrastructure. Me: Does the website help your business or hurt your business? What do your customers tell you about their impressions of the website? WMT: They love it. And I really think it helps what we do at the store level. A lot of people don't really want to buy things over the Internet. But they want
WMT Equity The beta for Wal-Mart, according to MSN Moneycentral, is 0.29. According to Yahoo! Finance the yield to maturity on a Treasury bond that is due 15-Mar-12 is 0.296%. We will assume a market risk premium of 7%. With these figures, the cost of equity for Wal-Mart can be calculated using the capital asset pricing model (CAPM): Ra = RF + ? (Rm -- Rf) Ra = 0.296 + (.29)(7) Ra = 2.326% This