Financial Health of Wal- Mart

Wal-Mart

Financial Health of Wal- Mart

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Abstract

The report is explaining the different ways of analyzing financial health of a company, reason of analyzing and outcome of analyzing. Wal-Mart data has been used for this purpose and it has been compared with industrial leaders.

Introduction

Analysis of financial health of a company is possible by using horizontal, vertical and ratio analysis. The horizontal analysis compares the two figures, for example the sale of previous year was 800 and the current sale is 1000, it means that there is increase of 25% as compared to previous year. The vertical analysis helps in developing the percentage of some bases, for example cost of goods sold is 200 and a sale is 1000, it means that the cost of goods sold is 20% of sales. Ratio analysis determines the relationship between two items, for example what is the relationship of current assets to current liabilities.

These analysis help in comparing the company’s current year data with that of previous or comparing the selected company data with the other competitor. The first comparison will show the trend of each item of financial statement whether it is increasing or decreasing, it will help in developing the future forecast of the company. For example the sales figure is showing a rising trend of 25 % in current year so it can be estimated that the sales for future may be more than 25% of current year, it will help in future

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financial planning. The comparative analysis is also possible when the figures of the company selected is compared with the industrial average, it will help in finding out where the company stands and if the difference is significant, the reason may be found and remedial actions are possible.

Comparison of Wal-Mart with market leaders

WMT / Pvt1 / COST / TGT
Market Capitalization: / 204.75B / N/A / 26.60B / 39.17B
Employees: / 2,000,000 / 4,952,871 / 79,000 / N/A
Quarterly Rev Growth : / 4.20% / N/A / 5.50% / 3.20%
Revenue / 408.21B / 122.58B1 / 72.33B / 65.36B
Gross Margin (ttm): / 25.37% / N/A / 12.70% / 30.26%
EBITDA (ttm): / 31.11B / N/A / 2.56B / 6.70B
Oper Margins (ttm): / 5.87% / N/A / 2.50% / 7.15%
Net Income (ttm): / 14.41B / 2.17B1 / 1.09B / 2.49B
EPS (ttm): / 3.697 / N/A / 2.469 / 3.296
P/E (ttm): / 14.56 / N/A / 24.52 / 15.96
PEG (5 yr expected): / 1.25 / N/A / 1.53 / 1.04
P/S (ttm): / 0.5 / N/A / 0.37 / 0.59
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Company / Symbol / Price / Change / Market Cap
Wal-Mart Stores Inc. / WMT / 53.88 / 0.41% / 205.01B
Target Corp. / TGT / 52.55 / 1.68% / 39.13B
Costco Wholesale Corporation / COST / 60.61 / 0.12% / 26.63B
Dollar General Corp. / DG / 24.3 / 1.29% / 8.28B
Dollar Tree, Inc. / DLTR / 56.47 / 1.53% / 4.97B
Family Dollar Stores Inc. / FDO / 35.38 / 8.49% / 4.90B
Statistic / Industry Leader / WMT / WMT / Rank
Market Capitalization / WMT / 205.01B / - / 1/13
P/E Ratio (ttm) / DUCK / 67.02 / 14.57 / 13 / 13
PEG Ratio (ttm, 5 yr expected) / TUES / 4.23 / 1.25 / 7/13
Revenue Growth (Quarterly YoY) / DG / 12.70% / 4.20% / 5/13
EPS Growth (Quarterly YoY) / BIG / 146.60% / 25.90% / 6/13
Long-Term Growth Rate (5 yr) / DG / 19.33% / 10.80% / 11/13
Return on Equity (ttm) / DLTR / 23.90% / 21.19% / 4/13
Long-Term Debt/Equity (mrq) / N/A
Dividend Yield (annual) / PSMT / 2.30% / 2.00% / 2/13

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Wal-Mart Stores, Inc is the largest retailer and grocery chain store of the world. In United States of America 7.5% and 21% of total consumer expenditures on retail goods and groceries, respectively are spent on Wal-Mart goods. Sales in 2009 of the company are more than 50% of total sales of its seven closest competitors. Due to its huge supply the company can get the cheaper goods from its supplier and with the most favorable terms and condition of payment period. That is why the working capital of WALMART is negative. It means that the current liabilities are more than current assets. The current assets in 2009 are 49 billion and current liabilities are 55 billion, it shows the strength of WALMART over its supplier. The success of WALMART based on the theory of low profit margin. It transfers all its strength to customer by selling them at cheaper rate. It is evident from the fact that the total sales for 2009 is 401 billion and net income is 13 billion, which is around 3% of sales. Wal Mart buying is from Chinese market. If Wal Mart would be a country, it would be sixth largest country of China in terms of export.

Currently, the company has declared dividend of $1.21, there is an increase of 11% if it is compared with last year $1.09. The growth is equal to growth in earnings per share which the company has maintained since 1999 to 2008, however in 2009 the company had declared dividend with growth of 15% as compared to previous year. The dividend growth has slowed down in last two years against the growth of 19% from 1999-2008. The difference in growth rate in dividend and earnings per share is due to stock buybacks.

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The current PE ratio of the company is 14.51, while the industry PE ratio is16.09 and the competitor such as Target Corporation PE ratio is 15.68. It shows that the company is selling slightly lower than its industry PE so one can buy it with a hope for future rise in the market price when the PE will be equal to the industry PE. According to industry PE the fair market price should be 3.697 x 16.09 = 59.48 while it is trading at around $54 per share.

Conclusion:

It may be concluded that the Wal-Mart is a giant in its industry and its financial position is strong from all aspects except the net profit margin, as the company does not believe in high net profit margin, which is also reflected in it PE ratio.

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