Walmart Financial Analysis: Liquidity, Assets & Profitability
This paper presents a comprehensive financial analysis of Walmart, the world's largest retailer, using data from its FY2011 and FY2010 annual reports. The analysis evaluates Walmart's creditworthiness through four lenses: liquidity ratios (current ratio, quick ratio, receivables and inventory turnover, times interest earned), asset structure (debt-to-worth ratio and capital structure), profitability ratios (pre-tax ROE, ROA, and sales-to-assets), and cash flow patterns. Each metric is benchmarked against RMA industry standards for general merchandise retailers. The paper concludes with a lending recommendation supported by the ratio findings, arguing that Walmart's strong operating efficiency, short cash conversion cycle, and consistent profitability make it a low default risk.
- Introduction: Walmart's Business Model and Competitive Position: Overview of Walmart's strategy and analysis scope
- Liquidity Analysis: Current ratio, quick ratio, and turnover metrics
- Asset Analysis: Capital structure and debt-to-worth ratio
- Profitability Analysis: ROE, ROA, and asset-to-sales conversion ratios
- Cash Flow Analysis: Sources and uses of cash, leverage shifts
- Recommendation and Conclusion: Lending recommendation based on ratio findings
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What makes this paper effective
- Each ratio is clearly defined with its formula before results are reported, making the analysis accessible to readers unfamiliar with financial metrics.
- Every calculated ratio is benchmarked against RMA industry standards, giving the analysis an objective external reference point rather than relying solely on year-over-year comparison.
- The paper consistently connects financial findings back to Walmart's specific business model (just-in-time inventory, cost leadership), demonstrating that ratio interpretation requires contextual judgment.
Key academic technique demonstrated
The paper demonstrates ratio contextualization — the practice of explaining why a ratio that appears unfavorable by standard benchmarks may actually be appropriate or even positive given a company's operating model. For example, the low current ratio is reframed as a natural consequence of Walmart's deliberately lean inventory strategy, and the quick ratio is introduced as a more suitable measure for this context. This technique shows analytical maturity beyond mechanical ratio calculation.
Structure breakdown
The paper follows a classic financial-analysis structure: a brief introduction establishes the company and scope, four analytical sections (liquidity, assets, profitability, cash flow) work through specific ratio categories in sequence, and a concluding recommendation synthesizes the findings into a lending decision. Financial data tables for the balance sheet, income statement, and cash flow statement are appended after the narrative, serving as transparent source documentation for all computed ratios.
Introduction: Walmart's Business Model and Competitive Position
Walmart is the world's largest retailer. The company operates primarily in the discount retail industry, competing with a cost leadership strategy. It is also active in a number of export markets, the most important being Mexico, Canada, China, and the United Kingdom. The company also competes in the warehouse club segment of the retailing industry, where its Sam's Club brand trails Costco in market share and revenue. Walmart is the world's second-largest online retailer, behind Amazon. The company became successful based on its strengths in logistics and purchasing. Walmart uses its bargaining power and economies of scale to drive down prices to consumers, and uses this as a source of competitive advantage.
This paper focuses on a financial analysis of Walmart using data for the two most recent fiscal years (FY2011 and FY2010). This analysis will result in a determination of whether or not to lend to Walmart. The figures used in this report come from the 2011 Walmart Annual Report, unless otherwise specified.
Financial Data Tables
Balance Sheet Information
Company: Walmart
Accounts Receivable: FY2011 change: +22.8% | Common size (FY2010): 2.8% | RMA: 4.5%
Inventory: FY2011: $36,318M | FY2010: $32,713M | Change: +11.1% | Common size: 20.1% | RMA: 40.7%
Total Current Assets: FY2011: $51,893M | FY2010: $48,032M | Change: +8.0% | Common size: 28.7% | RMA: 55.4%
Net Fixed Assets (PP&E + Land only): FY2011: $129,484M | FY2010: $122,135M | Change: +6.0% | Common size: 71.7% | RMA: 37.0%
Total Assets: FY2011: $180,663M | FY2010: $170,407M | Change: +6.0%
Accounts Payable (Trade Payables): FY2011: $33,557M | FY2010: $30,451M | Change: +10.1% | Common size: 18.5% | RMA: 15.4%
Total Current Liabilities: FY2011: $58,484M | FY2010: $55,543M | Change: +5.3% | Common size: 32.3% | RMA: 34.1%
Total Liabilities: FY2011: $109,416M | FY2010: $97,759M | Change: +11.9% | Common size: 60.6% | RMA: 64.5%
Retained Earnings: FY2011: $63,967M | FY2010: $66,357M | Change: −3.6% | Common size: 35.4%
Total Net Worth: FY2011: $71,247M | FY2010: $72,648M | Change: −1.9% | Common size: 39.4% | RMA: 35.5%
Total Liabilities & Net Worth: FY2011: $180,663M | FY2010: $170,407M | Change: +6.0%
Income Statement Information
Company: Walmart
Revenue (Sales): FY2010: $421,849M | FY2009: $408,085M | Change: +3.4%
Cost of Goods Sold: FY2010: $315,287M | FY2009: $304,444M | Change: +3.6% | Common size: 74.7% | RMA: 68.1%
Gross Profit: FY2010: $25,542M | FY2009: $24,002M | Change: +6.4% | Common size: 6.1% | RMA: 31.9%
Interest Expense: FY2010: $2,004M | Change: +6.4% | Common size: 0.4%
Net Income: FY2010: $16,389M | FY2009: $14,370M | Change: +14.1% | Common size: 3.9%
Tax Expense: Change: +5.9% | Common size: 1.8%
Pre-Tax Income: FY2010: $23,538M | FY2009: $22,118M | Change: +6.4% | Common size: 5.6% | RMA: 3.3%
Main Sources and Uses of Cash (FY2010)
Company: Walmart
Top 4 Sources:
Income from continuing operations: $15,959M | Proceeds from issuance of long-term debt: $11,396M | Depreciation and amortization | Accounts payable
Top 4 Uses:
Purchase of company stock: $14,776M | Payments for property and equipment: $12,699M | Dividends paid | Payments of long-term debt
References
Loth, R. (2011). Financial ratio tutorial. Investopedia. Retrieved October 31, 2011, from http://www.investopedia.com/university/ratios/
Walmart. (2011). 2011 Walmart Annual Report. In possession of the author.
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