Financial Ratio Analysis: WalMart

Subject: Business
Type: Profile Essay
Pages: 4
Word count: 1172
Topics: Walmart, Finance, Investment
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Introduction

The selected Fortune 500 Company is Wal-Mart and operates under retail products sector. It was established in 1962 which implies that it has been in the industry for the last 55 years. The core founders of Wal-Mart were the Walton Sam. The company headquarters are in the United States. Some of the key products offered by Wal-Mart include all home items including electronic products, furniture’s, clothing, footwear, sporting goods among other items.  Wal-Mart also offers services such as money cards, Walmart pay and pick up today services.  Currently, the company has numerous subsidiaries located in different parts of the world. For example, there is Wal-Mart Canada, Mexico, and Chile. The company has employed over 2.3 million across the globe as at 2016 and over 1.4 million people in the United States alone. The key competitors of Wal-Mart include Sunbury and Tesco. The success of Wal-Mart is attributed to its key source of strength which includes being the largest retailer in the world, it tends to enjoy economies of scale and has a significant market share (Wal-Mart, 2017). Therefore, the paper focus to provide ratio analysis of Wal-Mart in 2015 to find out whether it performance have been improving or not.

Wal-Mart Financial Ratio Analysis 2015/2016

Ratio analysis is an essential tool that may help to provide vital information about the company financial performance. The finical ratio information may be utilized by the managers to make informed decisions on future business trends. Also, the investor and shareholders may use financial ratio analysis information to identify whether the company is working towards maximizing the shareholder’s wealth (Brigham, & Ehrhardt, 2013). Some of the key ratios that were used to analyze Wal-Mart include  

Current Ratio

The current ratio helps to measure whether the company is in a position to meet its current debt obligation. If the current ratio is high, it is an indication that the firm is in a good position of meeting its debt obligation (Brigham, & Ehrhardt, 2013). Below is a summary indicating Wal-Mart financial ratio in 2015 and 2016.

2015 2016
•Current Ratio 97.0% 93.2%
Current Assets 63,278,000 60,239,000
Current Liabilities 65,253,000 64,619,000

From, the table it can be scrutinized that in 2015 current ratio was 97.0% while in 2016 it was 93.2%. It is clear that in 2015 the ability of Wal-Mart to meet its current debts obligation was higher, however, in 2016 its ability to meet its short term obligation declined.

Quick Ratio

The quick ratio is commonly known as acid test ratio; it tends to be more accurate and comprehensive measure of the firm ability to meet its short-term obligation using its liquid assets. The table below shows the Wal-Mart acid test ratio as computed in the Excel.

  2015  2016 
•Quick Ratio 24.4% 22.2%
Cash + Marketable Securities + Accounts Receivable 15913000 14329000
Current Liabilities 65,253,000 64,619,000

Based on the liquidity ratios computed it can be seen that in 2015, Wal-Mart quick ratio was 24.4% while in 2016, its quick ratio was 22.2%. The ratio indicates that in 2015 Wal-Mart had a good liquidity position in 2015 as compared to 2016. 

Debt Equity Ratio

The ratio measures the company proportion of debt to equity. The table below shows the portion of the debt to equity for Wal-Mart between 2015 and 2016.

   2015 2016 
•Debt Equity Ratio 53.4% 54.7%
Total Debt 43,495,000 44,030,000
Total Equity 81,394,000 80,546,000

From the table, it can be observed that in 2015, the proportion of debt to equity was 54.4% while in 2016 it was 54.7%. Based on this ratio it is clear that the level of leverage in Wal-Mart increased significantly in 2016 as compared to 2015 which is quite risky for the company. 

Inventory Turnover Ratio

Inventory turn-over ratio helps to measure the number of times an inventory can be sold or used; it acts as a measure of liquidity (Brigham, & Ehrhardt, 2013).

  2015  2016 
•Inventory Turnover Ratio 8.087680822 8.117654996
Cost of Goods Sold 365,086,000 360,984,000
Average Inventory 45,141,000 44,469,000

It is evident that in 2015 the number of times inventories were sold was 8.087 times while in 2016 it was 8.11. It is an indication that the level of efficiency in stock usage was significantly lower in 2015 as compared to 2016. 

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Receivables Turnover Ratio

The receivable turnover ratio is an essential ratio in decision making because it determines the number of times in a year that a firm collects its receivable.

   2015 2016 
•Receivables Turnover Ratio 71.65107701 85.7272404
Net Sales 485,651,000 482,130,000
Average Account Receivables 6,778,000 5,624,000

Based on the above table it is evident that in 2015 the number of times that Wal-Mart was able to collect its receivable was 71.65 times, however, in 2016 the number of times increased to 85.72 times. Such increase is an indication that the level of efficiency in Wal-Mart to collect its receivable declined. 

Total Assets Turnover Ratio

The total Asset turn-over ratios measure the ability of the business to generate sales. The ratio is important in decision making because it helps managers to know the kind of decisions they should put in place to improve sales (Brigham, & Ehrhardt, 2013).

  2015  2016 
•Total Assets Turnover Ratio 2.386608679 2.415710914
Net Sales 485,651,000 482,130,000
Average Total Assets 203,490,000 199,581,000

The table above indicates that the total asset turnover ratio in 2015 was 2.386 while in 2016 it increased to 2.414 which means that the ability of Wal-mart to use its assets to generate sales was lower in 2015 than in 2016. 

Profit Margin (Net Margin) Ratio

The profit margin ratio is an important decision-making tool that helps financial managers to know the amount of income generated from each dollar of sales (Brigham, & Ehrhardt, 2013).

     
•Profit Margin (Net Margin) Ratio 3.4% 3.0%
Net Income * 16,363,000 14,694,000
Net Sales 485,651,000 482,130,000

The table above indicates that in 2015 the profit margin in 2015 was 3.4% while in 2016 it was 3.0%. The ratio shows that Wal-Mart was making a profit at a higher margin in 2015 than in 2016 which indicates that there are more improvements in 2016. 

Return on Assets Ratio

The return on assets ratio is essential in determining how the firm was able to utilize its assets to generate profits. The table below indicates the return on asset ratio for Wal-Mart Company in 2015

•Return on Assets Ratio 8.0% 7.4%
Net Income * 16,363,000 14,694,000
(Beginning + Ending Total Assets) / 2 203,490,000 199,581,000

From the table it can be observed that in 2015 the company was has a ratio of 8% while in 2016 the ratio declined to 7.4%. It implies that in 2015 Wal-mart ability to use total assets to generate profits was higher than in 2016. 

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Conclusion 

In conclusion, it can be scrutinized that the fortune 500 company selected is Wal-Mart which operate under the retails industry. The ratios analysis shows that in 2015 the performance of Wal-mart was low as compared to 2016. The improvement in its performance may be attributed to efficient financial management and proper utilization of its assets.

Did you like this sample?
  1. Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
  2. Wal-Mart (2017). About Wal-Mart. Retrieved :< http://corporate.walmart.com/our-story/>
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