Walmart Financial Analysis: Ratios, Trends, and Investment
This paper presents a comprehensive financial analysis of Walmart based on its balance sheet data across three fiscal years (Y1, Y2, and Y3). The analysis employs horizontal and vertical analysis to identify trends in total assets and equity, alongside liquidity, profitability, and solvency ratios to assess the company's financial health. Findings indicate that Walmart demonstrates consistent growth in net sales and improving liquidity, though its solvency ratio falls below the recommended threshold of 1.5, raising concerns about long-term debt obligations. The paper also considers stakeholder engagement factors that influence investment decisions and concludes with a buy recommendation supported by the overall positive financial trajectory.
- Introduction: Purpose and scope of Walmart financial analysis
- Horizontal and Vertical Analysis: Year-over-year and common-size trend calculations
- Liquidity and Profitability Analysis: Current ratio, quick ratio, and profit metrics
- Solvency Analysis: Debt coverage and long-term obligation ratios
- Walmart's Performance Compared to the Industry: Benchmarking ratios against industry standards
- Stakeholder Engagement and Investment Considerations: ESG, customer, and supplier engagement factors
- Recommendations and Conclusion: Buy recommendation and strategic financial suggestions
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- Grounds every ratio in actual numerical calculations drawn from the balance sheet, making the analysis transparent and reproducible.
- Moves logically from descriptive trend analysis (horizontal and vertical) through operational health (liquidity and profitability) to long-term risk (solvency), building a layered picture of the company.
- Closes with a concrete investment recommendation that is directly supported by the quantitative findings, giving the paper a clear practical purpose.
Key academic technique demonstrated
The paper demonstrates ratio-based financial statement analysis, showing how to compute and interpret standardized metrics — current ratio, quick ratio, debt-to-equity, and gross profit margin — across multiple periods. By applying both horizontal (year-over-year change) and vertical (common-size percentage) methods, the author contextualizes raw figures within industry benchmarks and intra-firm trends, a standard technique in managerial finance coursework.
Structure breakdown
The paper opens with a statement of purpose and scope, then works through four analytical categories: trend analysis, liquidity, profitability, and solvency. A dedicated section compares Walmart's metrics to industry norms. The discussion then broadens to qualitative factors — stakeholder engagement — before ending with actionable recommendations. This funnel structure moves from technical measurement to strategic interpretation, which is characteristic of undergraduate financial management reports.
Introduction
The purpose of this financial analysis is to provide a report based on the financial statements of Walmart that may help investors determine whether Walmart stock is a buy or a sell. The complete report interprets various trends supported by key ratios, including liquidity analysis, horizontal and vertical analysis, solvency, and profitability analysis. Through these ratios, one can determine how Walmart is performing relative to the industry and identify additional information that could influence an investment decision.
The main analytical tools used are vertical and horizontal analysis. In vertical analysis, every item in each financial statement for a given period is expressed as a percentage of a base figure. In horizontal analysis, trends are evaluated across multiple time periods.
Horizontal and Vertical Analysis
Horizontal analysis is calculated using the following formula: (amount in the comparison year − amount in the base year) / amount in the base year × 100. It helps determine trends in the same data across financial statements over time. In this case, three years are represented in the balance sheet — Y1, Y2, and Y3 — with total assets of $203,105,000, $204,751,000, and $203,706,000, respectively.
For the Y3 vs. Y2 comparison: (203,706,000 − 204,751,000) / 204,751,000 = −0.005104, or approximately −0.5%. This indicates a 0.5% decrease in total assets from Y2 to Y3.
For the Y2 vs. Y1 comparison: (204,751,000 − 203,105,000) / 203,105,000 = 0.0081, or approximately 0.81%. This indicates a 0.81% increase in total assets from Y1 to Y2.
For the vertical analysis using a comparative balance sheet, the current assets of Y2 as a percentage of total assets are calculated by dividing current assets by total assets: 61,185,000 / 204,751,000 = 0.2988, or 29.8%. For Y1: 59,940,000 / 203,105,000 = 0.295, or 29.5%. For Y3: 63,278,000 / 203,706,000 = 0.31, or 31%.
Vertical analysis shows the size of each asset item in the balance sheet as a percentage of total assets. Each item in the liability section is similarly presented as a percentage of total liabilities, and equity items are expressed as a percentage of total equity. From this analysis, it is clear that the size of each asset category increased from Y1 to Y3. Total equity, however, decreased from Y1 to Y2 before increasing again in Y3. This analysis is valuable because it enables comparison of financial statements with those of other companies and across prior fiscal years. It also aids in understanding the key components of the balance sheet, including assets, liabilities, and cost of goods sold.
The primary difference between the two methods is that vertical analysis examines the relationship between numbers within a single reporting period — also known as common-size analysis — while horizontal analysis examines financial statements spread over multiple years, which is why it is also referred to as trend analysis.
Liquidity and Profitability Analysis
The liquidity ratio helps determine an organization's ability to pay its short-term debts on time. This information is especially important to lenders and creditors.
The current ratio is calculated as current assets divided by current liabilities. In Y1: 59,940,000 / 71,818,000 = 0.83. In Y2: 61,185,000 / 69,345,000 = 0.88. In Y3: 63,278,000 / 65,272,000 = 0.97. The current ratio improved steadily across all three years, approaching 1.0 by Y3.
The quick ratio provides a more specific measure of a company's ability to meet short-term obligations: (cash + accounts receivable + marketable securities) / current liabilities. The cash ratio is an even more conservative measure: (cash + marketable securities) / current liabilities.
Profitability analysis is used by management to understand how profitability can be optimized. Gross profit is calculated as net sales minus cost of goods sold. In the balance sheet, overall profitability can also be evaluated by comparing total assets to total liabilities and examining the trend in total equity. From Y1 to Y2, total equity decreased by $399,000. From Y2 to Y3, however, total equity increased by $4,598,000 — a significant improvement. This suggests the firm is performing well in terms of retained value for shareholders.
Always verify citation format against your institution’s current style guide requirements.