Wal-Mart Evaluation Report - Free Essay Example

Sample details Pages: 6 Words: 1735 Downloads: 3 Date added: 2017/09/21 Category Advertising Essay Type Narrative essay Did you like this example? Wal-Mart Evaluation Report Axia College of University of Phoenix Analyzing Wal-Marts annual report provides a positive outlook on Wal-Marts financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely will continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success of the company. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of . 90, and as of January 2008 it had a current ratio of . 81. The quick ratio, which is defined as current assets minus inventory divided by cu rrent liabilities, is a measure of a companys ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of . 25, and as of January 2008 it had a ratio of . 21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores, Inc. The reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies has helped Wal-Mart hedge against inflationary pressures of the United States dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7. 8, and as of January 2008 it was 7. 96. Because Wal-Mart has a lot of sales, it does not have too much of a problem with holding too much inventory. The competitors of Wal-Mart have similar ratios, but they do not have as many sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for the same quality gives them the edge against the competition. As of the year 2007, Wal-Mart had a debt ratio of . 58, and as of January 2008, it had a debt ratio of . 59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a ot more assets than it does debt, so Wal-Mart is not overleveraged. Wal-Mart far exceeds their competition in comparison of assets. Wal-Mart is the 800-pound gorilla in this industry and looks to remain that way. The next ratio to look at is the net profit margin ratio, which basically measures the return of sales. Wal-Mart had a 4% net profit margin ratio in the year 2007, and had a net profit margin ratio of 3% as of January 2008. The industry average is similar, so the comparisons between the competitors remained flat. The ROI or also known as return on assets compute the efficiency of an   investment. Wal-Mart had an 8% in the year of 2007 and as well as of January 2008. Wal-Mart had one of the highest ROI’s in the industry; however the most important of the number is its consistency. Wal-Mart is more consistent than its competitors when comparing ROI, or return on assets. The return on net worth is also known as the return on stockholder’s equity which gives a clear picture of the performance of Wal-Mart, and in the year 2007, it had a ROE of . 19 and as of January 2008, it had a ROE of . 19. Wal-Mart’s dependable profits make it a great company. It was able to get close to a 20% return for its shareholders. The final ratio that solidifies Wal-Mart’s impressive performance is the P/E ratio. It is calculated by dividing the market price per share and the current earnings per share. Wal-Mart had a P/E ratio of 17. 89 in 2007, and as of January 2008 it had a 16. 28 P/E ratio. In general, a high P/E  suggests that investors are expecti ng  higher earnings  growth  in the future compared to companies with a  lower P/E. Wal-Mart’s ability to turn their inventory into cash is remarkable. They have the shortest operating cycle of its industry. By adding the inventory conversion period and receivable conversion period, one would get the operating cycle. Wal-Mart had 49. 36 days for its operating cycle as of January 2008. A very similar computation of Wal-Mart’s bottom line is its cash conversion cycle. It is calculated by subtracting the days of payable deferral period from the operating cycle. The number of days for Wal-Mart to turn its resource inputs into cash is about 12. 36 days. There cash cycles are much more optimized and the best among its competitors. It spells success given that they are able to sell their inventory in a very quick time frame. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the companys bottom line. Wal-Mart ’s system is very efficient because of their superb capability to need less working capital given their short cash cycle. Below is the list of long term debt with maturity dates and yield to maturity. Wal-Mart sells only common stocks with a current selling price of 58. 62 per share. It had a 52-week average price between high 40’s and low 50’s. The average cost of capital for the year 2007 was 5. 3% and as of January 2008 was 4. %. These numbers are very impressive given how Wal-Mart borrows very cheaply. The primary reason why Wal-Mart is able to do so is because Standard Poor’s rates Wal-Mart’s long term debt as â€Å"AA. † Wal-Mart is a good credit risk, meaning bondholders are safe in terms of Wal-Mart’s ability to repay. Their strong recognized brand helps its sales, and I believe along with their great management, Wal-Mart is in no trouble to pay its creditors because it has a strong history of paying its obligations and the c heap borrowing rates reflect that. Wal-Marts stellar performance has created optimism for those invested in Wal-Mart whether it be a shareholder, bondholder, employee, management, and as a consumer. Wal-Mart is a great buy; however, one should wait for the stock to dip a little lower. The current economic conditions in America especially, Wal-Mart might suffer because consumers in America will be less inclined to spend as much money. Though they are still going to grow because Wal-Mart has expanded its operations in emerging markets such as Asia, it will be able to bounce back. Its long term growth and outlook is still positive however stock prices will probably take a dip in the near future as Americas economy begins to decline and contract. Wal-Mart still, however, gathers hundreds of millions of customers and continues in its growth. Their mission of providing low prices will help attract customers who want the most out of their money. Many analysts agree that Wal-Mart will perform well into the future and when looking at Wal-Marts revenue and market cap compared to its competitors, Wal-Mart surpasses and moves ahead. With the right system and leadership in place, Wal-Mart may even monopolize their market as a retailer. It sells a diversified range of products such as foods, consumable goods, clothing, pharmacy, gasoline through distributors, photo processing, video rental stores, and just about everything else one might need. Wal-Mart has become the one-stop-shop place for a person, and it has provided quality as well as quantity. They will continue to be the leader in providing a unique service of diversified goods with a combination of low prices and customer satisfaction. Wal-Mart has given a lot of value to its customers. However, the same cannot be said to its workers. The labor force of Wal-Mart has complained about lack of benefits and low pay. Things are slowly changing, as the CEO of Wal-Mart shared in Wal-Marts annual report that empl oyees will be given more incentives such as health care benefits. There also has been much controversy that Wal-Mart has discriminated against female workers. The CEO of Wal-Mart, Lee Scott, has said in the annual report that Wal-Mart has been constantly promoting women especially in the companys growing market of China. Wal-Mart has better positioned itself for opportunities in all aspects and has become more aware of peoples needs inside and outside of the business. In analyzing investments and businesses, numbers tell the story. The eight ratios analyzed were all good or above average in its industry. The current ratio was good, however not the best in the industry. The primary reason why it has more current liabilities than it does current assets is because the capital used to buy wholesale products and sell retail are used heavily to keep the business booming. Many customers are constantly shopping in Wal-Mart, and this need has to be met with enough inventories. The quic k ratio which measures short term obligations, suggests that Wal-Mart is capable to pay its creditors and has above average number than the industry. The inventory ratio proves Wal-Mart is the best as it sells a lot more products than its competitors. The inventory is always moving because Wal-Mart sets its prices to sell. The debt ratio of Wal-Mart is good but not the best however has done better than most of its competition. Wal-Mart as a larger net worth and market cap than any of its competitors. There net profit margin ratio is good however is not performing than it should. The problem is that they price it too low. Wal-Mart can raise prices to prove this ratio; however, their volume of business makes up for this. Their ROI on its assets as well as their ROE is consistent unlike its competition. As Wal-Mart gains more market shares, they will dominate their competitors beyond what it is now. The P/E ratio is not too low or high as it suggests that Wal-Mart is poised for more gr owth especially as business is expanded to other markets. Wal-Mart is a great company with very little blemishes, as its management and leadership make small but important changes to improve its bottom line. References Moyer, C. (2007). Fundamentals of Contemporary Financial Management (2nd ed. ). Thomas-Southwestern, OH (n. d. ) Annual Reports. Retrieved August 3, 2008, from https://www. annualreports. com/ (n. d. ) Thomson One. Retrieved August 3, 2008, from https://tabsefin. swlearning. com (n. d. ) Wal-Mart. Retrieved August 3, 2008, from https://finance. yahoo. com/q? s=wmt Don’t waste time! Our writers will create an original "Wal-Mart Evaluation Report" essay for you Create order