Financial Analysis Walmart Vs Target Essay

Unformatted text preview: Wal-Mart Financial Analysis Your name Subject Instructor name Date Company’s background Wal-Mart Stores, Inc. is an American public corporation that operates a chain of enormous price cut retail stores and a chain of warehouse stores. Wal-Mart controls over 11,000 retail units or point of sales under 65 banners across 28 countries. Wal-Mart Stores, Inc. perform online sales through an e-commerce platform in 11 countries. Considered to be the world’s largest merchant and grocery chain by sales. More than half of its operations are placed in the United States and the other half are internationally placed in Central America, South America and China. Executive summary The company under its performance statement emphasizes on having the cheapest costs in its industry, earning $446.98 billion in profit in 2014, a 6% rise in sales in 2013based on Wal-Mart financial statement (2011-2014). Wal-Mart (NYSE:WMT)can buy its retail at the lowest cost, exchange high buying volumes for low price for customers to save. The company worldwide operations consists in variate formats. Its major operating segments are Walmart U.S., Walmart International and Sam’s Club. Company’s’ economic background includes consistence on paid dividends since 1974 meaning 42 years of dividend payments in a row. At the same time it’s located as one of the 60 companies, which can be purchased through the “commission-free purchase.” Company most recent dividend increase was reported in February 2015, when 2% increase was approved by the Board of Directors equivalent to an increase of .49 cents per share. According with market surveys, the larger competitors for Wal-Mart include Target (NYSE:TGT), Costco (NSDAQ: COST) and Dollar General (NYSE:DG).Wal-Mart ranks No. 1 for the past four years, according to STORES’ 2013 Top Retailers List. Walmart U.S. reported sales of $328.7 billion and Target had $71.96 billion in top line revenue (The City Wire).Currently, the company is valuated at 15.10 times forward earnings with an actual trade of $69.48 per share. Wal-Mart stocks are traded on stock exchange markets. It has 11,000m stock authorized and 3,780m outstanding (Stock Analysis on Net). The owners of the company are constantly changing. Wal-Mart’s Organizational structure include three product divisional structure. The successful world retailers’ business categories include Wal-Mart Stores, Sam's Club, and International stores. About 20% of the company’s total business revenue originated from International stores and is responsible for several types of restaurants and stores including Wal-Mart and Sam's Club in 13 countries. The company is able to do that because of its massive size and purchasing power, many dealers give into Wal-Mart's pressure because they depend on the discount merchant for a majority of their deals. Consumers look for bargains and lower prices that Wal-Mart provides. Especially during economic declines because of its low prices. Consequently, Wal-Mart similar store sales improved by 3.5% during the economic recession (Wal-Mart Corporate, 2014). As an investor viewpoint of business segment analysis, Merchandizing is the secondlargest business in the United States of establishment’s and workers. These are just a few environmental sustainability and corporate governance reasoning’s that are precisely important as an investor. The fact that merchandizing businesses produces $3.8 trillion in merchandise sales, nearly $11,993 per capita. Merchandizing trade accounts for about 12.4% of all business establishments in the United States. Single-store industries account for over 95% of all U.S. merchants, but produce below 50% of all merchant store sales. Gross margin normally runs between 31 and 33% of sales for the manufacturing but differs widely by division. The typical production profit growth rate in 2014 was 8%. Wal-Mart forms trust with individual industrialists and very choosy in their selections of providers. Dealers have to keep up with demand and provide a continuum of quality merchandises. Wal-Mart merchant has high expectation and requirements, and if not met the likelihood of continuous is lessened. All suppliers are obligated to have reasonable prices, monetary steadiness, and proven accomplishment in the marketplace, and offer outstanding merchandises to receive deals with Wal-Mart. Wal-Mart brought in over 15 billion dollars in merchandise. As an investor these are all non-financial reasons to capitalize. Walmart hard working ethics in devoting lower prices and real improvement in merchandising is convincing to invest into this company. Another factor to invest is that Walmart number one priority is to serve and not price. Walmart believes in price effectiveness and capitalize in $2 billion in charges in expenditure savings and production development in the future. Walmart has commenced power, with strength in productivity and lessening the additional expenditures. All the more reasoning’s that Walmart has proved itself as best positioned national and international trading merchandizing stores. To sum it all up and it’s stated in the company’s philosophy of pricing, “Everyday low pricing” (Wal-Mart Corporate, 2014). Walmart major competitor is, is Target Corporation. Target operates in merchandise and food discount stores in the US. Target and Super Target store are the two stores it operates by offers everyday necessities and fashionable merchandise. The company offers all-purpose merchandise at a discount in over 1,500 stores. Target low price market is determined by the retail technique of bookkeeping. Target has positive working capital compared to Wal-Mart. Walmart current assets are 28% of total assets, when Target’s total assets 40% is current assets. Interest coverage ratio of Wal-Mart (12.74) is twice better then Targets (6.4). Target uses more liability for funding than Wal-Mart, this information shows that Target has a higher interest expense. Conversely, Target is the most apparent competitor to Wal-Mart. Wal-Mart Financial Report Financial analysis reports of a company can education someone on how the overall financial condition of that company is. By looking at this information one can also assume how the financial future of the company can look. This type of information is key information to business owners, employees, managers, and investors to that company. A financial report can tell quite a few other things as well. It can show detailed monthly earnings, company’s liabilities and equity structure. One other major thing is that someone can analyze and also forecast the company’s financial future. Predicting the financial future is key to preparing for negative or positive impacts that the company may have. Much time was spent trying to figure out which company to analyze. Wal-Mart was chosen because most of my food allowance is spent their monthly. Also, I have always been very curious as to where Wal-Mart’s financial data stood. The importance of the horizontal analysis will be explained as we take a deeper look into the company’s financial records. We will take a look at the past two years and the topics that will be covered are current ratio, cash to current liabilities ratio, quick ratio, and finally Wal-Mart’s net liquidity potential. Also suggestions on investments will be covered for investors buying future stocks from Wal-Mart. Wal-Mart was discovered in 1969 by a man named Sam Walton. Currently, there are well over 10,000 stores around the globe making it one of the largest chains to have a large variety of merchandise. Wal-Mart retails a large assortment of basic merchandise to consumers such as, food, electronics, house ware, health and beauty, jewelry automotive, hardware and miscellaneous other general products (Wal-Mart, 2015). Wal-Mart stores can be found in 14 other countries. Wal-Mart has its own licensed brands and markets these brands thru private label store brands. (Wal-Mart, 2015) Horizontal Analysis Horizontal Analysis is basically a comparison of historical and current financial statements. Analysts will use this information to forecast data to try and predict if it will have a positive or negative impact. This data is very important. An example of this would be like a meteorologist. They do they exact same thing to try and forecast weather for the next few days. The main difference is in the financial world a forecast can go out even further than a year. Over the past three years Wal-Mart’s revenue has increased $39,736 after taking a look at their financial data. The gross increase has been 9.1%. The cost of sales went up $304,657 million to $335,127 million. I actually thought that this would be a much higher number, but nonetheless increase is this situation is always good. The operating income of Wal-Mart went up from $28,545 million in 2012 to $32,585 in 2014. After taking a look at the balance sheet for 2014, I found that Wal-Mart had a 2% increase in assets over this three year time frame. Wal-Mart’s inventory made up of 78% of the total assets. Something else I found on the balance sheet was that property and equipment was at $170. It shows there was a good increase over that past three years due to new retail stores being built. After reviewing the horizontal analysis, it has helped me understand more about the financial direction of this retail titan. It gives great information. Wal-Mart Stores Inc., liquidity ratios Wal-Mart Stores Inc., liquidity ratios Jan 31, 2015 Jan 31, 2014 Jan 31, 2013 Current ratio 0.97 0.88 0.83 Quick ratio 0.24 0.20 0.20 Cash ratio 0.14 0.10 0.11 Based on the company’s liquidity ratios, Walmart present ratio increased from 2013 to 2014 and from 2014 to 2015. Walmart quick ratio declined from 2013 to 2014, however enhanced from 2014 to 2015 surpassing 2013 ratio. In my conclusion I have evaluated Walmart’s performance based on liquidity ratio and profit growth, which determined my reasons for investing. I included Walmart’s ranking in the industry, and its major competitor Targetand discussed at non-financial factors that suggest investing in Walmart such as merchandise low pricing and international store growth profitability throughout the expansion over the years and forecasting growth to come. Ratio Analysis of Wal-Mart Stores Inc. Financial ratios can tell analysts such as managers and executives how well a company is doing. These ratios can be calculated using the company’s financial statements for the use of planning and decision making. The company under review is Wal-Mart. This paper will review some of the financial ratios that will help analyze how Wal-Mart is doing financially. The financial statements will be reviewed as far back as 2013 for a total of three years. The first financial ratio is known as the current ratio. “The current ratio is a ratio that measures a company’s ability to pay short-term and long-term obligations by dividing the current assets by the current liabilities (Investopedia, 2015).” Liquidity Ratios Current ratio Current Assets/ Current Liabilities= Current Ratio 2015: 63,278,000/65,272,000 = 0.97 2014: 61,185,000 /69,345,000 = 0.88 2013: 59,940,000/71,818,000 = 0.83 For a company to have less than 1 for the current ratio is cause for concern. While a current ratio below 1 shows that the company is not in good financial health, it does not necessarily mean that it will go bankrupt (Investopedia, 2015). A company could have access to other financing options that could prevent them going bankrupt. Although the current ratio is less than one, it has been steadily rising over the last three years, which is a sign of improvement. The next ratio is the inventory turnover ratio. The inventory turnover ratio shows how fast a company sells its inventory. Low turnover ratios mean that there are low sales and excess inventory. A high ratio means that sales are doing well, or not enough products are being purchased. Working Capital Working capital measures the overall health of the company. It is calculated by deducting current liabilities from current assets. The working capital of the company is negative at -$1,994 million. It indicates that the financial health of the company is not good. Acid-Test Ratio Acid test ratio of the company stood at 0.24. The ratio is low and shows that that the company will not be to meet its short term commitments from its quick assets. Inventory Turnover Sales/ Inventory 2015: 365,086,000 /45,141,000 = 8.09 2014: 358,069,000 / 44,858,000 = 7.98 2013: 352,488,000 / 43,803,000 =8.05 Wal-Mart’s inventory turnover ratio averages eight times per year for inventory is cycled out per year. Compared to its other competitors, Wal-Mart is 2 nd in inventory turnover to Costco which as an average inventory turnover of 11. Other competitors include Home Depot, Lowes, and Target, which have much lower inventory turnover (Stock Analysis on Net, 2015). The competitors’ average between 5- 6 on the turnover ratio scale. Overall Wal-Mart has a very solid turnover ratio over the last three years. It had dropped in 2014 but had made a higher mark than 2013 in 2015. The next ratio is the accounts payable turnover ratio. This ratio is used to see the speed of how fast the company pays its suppliers. This ratio is calculated by dividing accounts payable to cost of goods sold. In the table below, it shows the calculations for the last three years. Payables Turnover Ratio = Cost of goods sold / Accounts Payable 2015: 365,086/ 38,410 = 9.50 2014: 358,069/ 37,415 = 9.57 2013: 352,488/ 38,080 = 9.26 Wal-Mart is above the industry average for the payables turnover. The industry average for the payables turnover ratio is at 8. Again, Wal-Mart is second to Costco, which has an average turnover ratio of 11. A competitor that it beat out is Target, which had an average turnover ratio of 6. The last ratio is the gross profit margin ratio. This ratio is a type of profitability ratio that measures the percentage of revenue available to cover operating costs and other expenditures (Stock Analysis on Net, 2015). This ratio is calculated by dividing the net sales by the gross profit times 100 to get the percentage needed for the analysis. Days Sales in Inventory Days sales in inventory measures the number of days the inventories are kept before being sold. The ratio is 5.13 and indicates that company sells its inventory quickly. Accounts Receivable Turnover It calculates the number of times the company has converted its accounts receivables in cash. The ratio of the company is 71.68 which show efficiency of the company in managing its accounts receivable. Days Sales in Receivables This ratio calculates number of days credit sales is outstanding. The ratio for the company stood at 5.13 in which is good. Free Cash Flow These are the funds that are available with the company for investment in their expansion and growth plans. The free cash flow for the company is $16,400 which is quiet high. Solvency Ratios Debt-to-Equity Ratio This ratio measures the percentage of capital the company is having financed from creditors and investors in comparison to its common shareholder’s equity. The ratio for the company is 1.45 which indicates that the company has taken low debts. Interest Coverage The ratio of the company is 0.33 for the year 2015. The low ratio shows that the company is making less payment of interests. This ratio calculates the percentage amount of income that the company will use to pay its interest expenses. Profitability Ratios Assets Turnover This ratio measures how efficiently the company has used its assets in generating sales. The ratio for the company is 2.38. The ratio of the company is low and indicates an inefficient utilization of its assets in generating sales. Return on Sales This ratio calculates the percentage of operating income of the company in relation to its sales. The ratio for the company is 5.63% and it is low. Gross Margin It calculates the percentage of gross profit the company has earned over its sales. The ratio of the company is 24.29%. The gross margin of the company is good. Gross Profit Margin Ratio = 100 x net sales/ gross profit 2015: 117,143/ 482,229 x 100 = 24.29% 2014: 115,007/ 473,076 x 100 = 24.31% 2013: 113,626/ 466,114 x 100 = 24.38% Wal-Mart’s gross profit margin ratio has depreciated over the last three years from 24.38% in 2013 to 24.29% in 2015. A decline in a business' gross profit margin means fewer funds are available for operating expenses and taxes (Avenir, 2015). The result is lower profits for the company to work with. What this means is that the sales or the costs of goods sold have risen. Other competitors have seen such as Target has seen similar ratios. Companies such as Home Depot and Lowes have seen a rise in their gross profit margin over the last three years. Wal-Mart is operating in good condition as described by the financial ratios that were discussed. The company needs to work on improving their profitability ratios which show a decline in sales over the last few financial periods. Reviewing these ratios has shown Wal-Mart’s improvement over the last few years, they should look to see what Costco is doing as they are the number one competitor. Return on Assets This ratio for the company tells how efficiently the company has used its assets in generating profit. It is a profitability ratio that measures the net income produced by the assets during the year. The ratio of the company is 8.37%, which shows that the company is not managing its assets efficiently in generation of net income. Return on Equity This ratio for the company is 21.07% this ratio tells how much profit the company has earned from each dollar of shareholder’s equity. The return on equity of the company is less. Book Value per Share It calculates the value of shares of the company in relation to the common shareholder’s equity. The ratio of the company is 21.25 which cannot be considered as good. bad on its equity available to common shareholders. The book value per share stood at 25.21. Earnings per Share The earnings per share for 2015 is $5.07 per share. This ratio calculates the income earned per share of common stock. The ratio of the company is good.. Price Earnings The ratio for the year is 16.56. This ratio calculates the market price per share in relation to the earnings per share. Dividend Yield Dividend yield measures the dividend distributed to shareholders with relation to the market value of the share. The dividend yield of the company is too low at .02. Dividend Payout It measures the percentage of net income that the company has distributed in form of dividend to its shareholders. The ratio of the company stood at 37.87 which is high. WAL MART STORES INC Vertical Analysis of Income Statement (Amounts in millions except per share data) Fiscal Year Ended January 31, 2015 Revenues: Net sales $4,82,229 Membership and other income 3,422 4,85,651 Costs and expenses: Cost of sales 3,65,086 Operating, selling, general and administrative expenses 93,418 Percent 99.30% 0.70% 100.00% 75.17% 19.24% Operating income Interest: Debt Capital leases Interest expense Interest income Interest, net Income from continuing operations before income taxes Provision for income taxes: Current Deferred Total provision for income taxes Income from continuing operations Income (Loss) from discontinued operations, net of tax Consolidated net income Consolidated net income attributable to non controlling interest 27,147 5.59% 2,161 300 2,461 -113 2,348 24,799 0.44% 0.06% 0.51% -0.02% 0.48% 5.11% 8,504 -519 7,985 16,814 285 17,099 -736 1.75% -0.11% 1.64% 3.46% 0.06% 3.52% -0.15% Consolidated net income attributable to Walmart $16,363 3.37% WAL MART STORES INC Horizontal Analysis of Income Statement Fiscal Year Ended January 31, Revenues: 2015 2014 Change Percent $9,153 $204 1.93% 6.34% $4,73,07 Net sales Membership and other income $4,82,229 3,422 6 3,218 4,85,651 4,76,294 $9,357 1.96% 3,65,086 3,58,069 $7,017 1.96% expenses Operating income Interest: Debt Capital leases Interest expense Interest income Interest, net Income from continuing operations before income 93,418 27,147 91,353 26,872 $2,065 $275 2.26% 1.02% 2,161 300 2,461 -113 2,348 2,072 263 2,335 -119 2,216 $89 $37 $126 $6 $132 4.30% 14.07% 5.40% -5.04% 5.96% taxes Provision for income taxes: Current Deferred Total provision for income taxes Income from continuing operations Income (Loss) from discontinued operations, net of 24,799 24,656 $143 0.58% 8,504 -519 7,985 16,814 8,619 -514 8,105 16,551 -$115 -$5 -$120 $263 -1.33% 0.97% -1.48% 1.59% tax Consolidated net income Consolidated net income attributable to non 285 17,099 144 16,695 $141 $404 97.92% 2.42% controlling interest Consolidated net income attributable to Walmart -736 $16,363 -673 $16,022 -$63 $341 9.36% 2.13% Costs and expenses: Cost of sales Operating, selling, general and administrative WAL MART STORES INC Vertical Analysis of Balance Sheet (Amounts in millions except per share data) January 31, ASSETS 2015 Percent Current assets: Cash and cash equivalents Receivables Inventories Prepaid expenses and other Current assets of discontinued operations Total current assets Property and equipment, at cost Less accumulated depreciation Property and equipment, net Property under capital lease Less accumulated amortization Property under capital lease, net Goodwill Other assets and deferred charges Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year Current liabilities of discontinued operations Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes and other Redeemable non-controlling interest Commitments and contingencies Shareholder’s equity: Common stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total Walmart shareholders' equity Non controlling interest Total equity $9,135 6,778 45,141 2,224 0 $63,278 1,77,395 -63,115 1,14,280 5,239 -2,864 2,375 18,102 5,671 $2,03,706 4.48% 3.33% 22.16% 1.09% 0.00% 31.06% 87.08% -30.98% 56.10% 2.57% -1.41% 1.17% 8.89% 2.78% 100.00% $1,592 38,410 19,152 1,021 4,810 287 0 65,272 41,086 2,606 8,805 0 0 0.78% 18.86% 9.40% 0.50% 2.36% 0.14% 0.00% 32.04% 20.17% 1.28% 4.32% 0.00% 0.00% 323 2,462 85,777 -7,168 81,394 4,543 85,937 0.16% 1.21% 42.11% -3.52% 39.96% 2.23% 42.19% Total liabilities and shareholder’s equity $2,03,706 100.00% WAL MART STORES INC Horizontal Analysis of Balance Sheet (Amounts in millions except per share data) January 31, 2015 2014 Change Percent ASSETS Current assets: Cash and cash equivalents $9,135 $7,281 $1,854 25.46% Receivables 6,778 6,677 $101 1.51% Inventories 45,141 44,858 $283 0.63% Prepaid expenses and other 2,224 1,909 $315 16.50% Current assets of discontinued operations 0 460 -$460 -100.00% Total current assets $63,278 $61,185 $2,093 3.42% Property and equipment, at cost 1,77,395 1,73,089 $4,306 2.49% Less accumulated depreciation -63,115 -57,725 -$5,390 9.34% Property and equipment, net 1,14,280 1,15,364 -$1,084 -0.94% Property under capital lease 5,239 5,589 -$350 -6.26% Less accumulated amortization -2,864 -3,046 $182 -5.98% Property under capital lease, net 2,375 2,543 -$168 -6.61% Goodwill 18,102 19,510 -$1,408 -7.22% Other assets and deferred charges 5,671 6,149 -$478 -7.77% Total assets $2,03,706 $2,04,751 -$1,045 -0.51% LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year Current liabilities of discontinued operations Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes and other Redeemable non-controlling interest Commitments and contingencies Shareholder’s equity: $1,592 38,410 19,152 1,021 4,810 $7,670 37,415 18,793 966 4,103 -$6,078 $995 $359 $55 $707 -79.24% 2.66% 1.91% 5.69% 17.23% 287 0 65,272 41,086 2,606 8,805 0 0 309 89 69,345 41,771 2,788 8,017 1,491 0 -$22 -$89 -$4,073 -$685 -$182 $788 -$1,491 $0 -7.12% -100.00% -5.87% -1.64% -6.53% 9.83% -100.00% Common stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total Walmart shareholders' equity Non controlling interest Total equity Total liabilities and shareholder’s equity 323 323 2,462 2,362 85,777 76,566 -7,168 -2,996 81,394 76,255 4,543 5,084 85,937 81,339 $2,03,706 $2,04,751 $0 $100 $9,211 -$4,172 $5,139 -$541 $4,598 -$1,045 0.00% 4.23% 12.03% 139.25% 6.74% -10.64% 5.65% -0.51% WAL MART STORES INC Statement of Cash Flows (Amounts in millions) Fiscal Year Ended January 31, 2015 2014 2013 Consolidated net income $17,099 $16,695 $17,756 (Income) Loss from discontinued operations, net of tax (285) (144) (52) Income from continuing operations 16,814 16,551 17,704 Depreciation and amortization 9,173 8,870 8,478 Deferred income taxes (503) (279) (133) Other operating activities 785 938 602 Increase in accounts receivable (569) (566) (614) Increase in inventories (1,229) (1,667) (2,759) Increase in accounts payable 2,678 531 1,061 Increase in accrued liabilities 1,249 103 271 (Decrease) Increase in accrued income taxes 166 (1,224) 981 Net cash provided by operating activities 28,564 23,257 25,591 Payments for property and equipment (12,174) (13,115) (12,898) Proceeds from disposal of property and equipment 570 727 532 Cash flows from operating activities: Adjustments to reconcile income from continuing operations to net cash provided by operating activities Changes in certain assets and liabilities, net of effects of acquisitions: Cash flows from investing activities: Proceeds from disposal of certain operations 671 0 0 Other investing activities (192) (138) (271) Net cash used in investing activities (11,125) (12,526) (12,637) Net change in short-term borrowings (6,288) 911 2,754 Proceeds from issuance of long-term debt 5,174 7,072 211 Payment of long-term debt (3,904) (4,968) (1,478) Dividends paid (6,185) (6,139) (5,361) Purchase of Company stock (1,015) (6,683) (7,600) Dividends paid to noncontrolling interest (600) (426) (282) Purchase of noncontrolling interest (1,844) (296) (132) Other financing activities (409) (260) (58) Net cash used in financing activities (15,071) (10,789) (11,946) Effect of exchange rates on cash (514) (442) 223 Net (decrease) increase in cash and cash equivalents 1,854 (500) 1,231 Cash and cash equivalents at beginning of year 7,281 7,781 6,550 Cash and cash equivalents at end of year $9,135 $7,281 $7,781 Income tax paid 8,169 8,641 7,304 Interest paid 2,433 2,362 2,262 Cash flows from financing activities: Supplemental disclosure of cash flow information Vertical and Horizontal Analysis of Income Statement and Balance Sheet Income Statement The overall revenue of the company has increased by 9153 million or 1.96% during the year 2015. The net income of the company has increased by $404 million in the year 2015 which shows an increase of 2.42%. Net income for the company is $17,099 million for the year 2015 as compared to $16,695 million for the year 2014. It shows a positive growth in the income as well as revenue of the company. The company has seen an increase in the interest income during year 2015 up to the extent of 5.96%. The interest increased by $132 million during year 2015. The income tax expense for the company has declined by 1.48% irrespective of high income of the company. Balance Sheet Analysis of balance sheet reveals that the company’s cash and cash equivalents have increased by $1,854 million during year 2015 which is an of 25.46% duo which the current assets of the company have increased. The company has also reduced its current liabilities. The company has made a great reduction in its short-term borrowings in the year 2015. It has paid major part of its short term borrowings. They have come down by $6,078 million or 79.24% The company has also paid off its long term liabilities, The long term liabilities of the company have decreased by $685 million. Despite of payment for short-term liabilities and long-term liabilities the company has been able to increase its cash; it indicates a big inflow of cash from issuing shares. During the year 2015 the company’s common shareholders’ equity has increased by 6.74%. It means the company has made a change in its capital structure by increasing its owners equity and by paying off short term and long term liabilities. Conclusion The financial analysis is important to external users and internal users for various different reasons. Internal users or primary users of the reports are management, employees and owners. They would use the reports as follows: “Management: for analyzing the organization's performance and position and taking appropriate measures to improve the company results. Employees: for assessing company's profitability and its consequence on their future remuneration and job security. Owners: for analyzing the viability and profitability of their investment and determining any future course of action” Introduction to Accounting. External uses or secondary users of the reports are creditors, tax authorities, investors, customers and regulatory authorities. The reports are provided for the use of making successful financial decisions. Wal-Mart’s financial success is the reason why they celebrated 50 years of assisting individuals with saving money so they can live better. The corporation at present has 2.2 million employees globally and services 200 million clients every week at more than 11,000 stores in 28 countries. References 1. Avenir, R. (2015). What Causes the Decline in Gross Profit Margin? Retrieved from http://yourbusiness.azcentral.com/causes-decline-gross-profit-margin-5298.html 2. Dividend Growth Investor retrieved August 7, 2015from http://www.dividendgrowthinvestor.com/2015/06/wal-mart-wmt-dividend-stock-analysis.html 3. Forbes Financial (2010). Retrieved August 7, 2015 from http://finapps.forbes.com/finapps/jsp/finance/compinfo 4. Kimmel, Paul D. Financial Accounting: Tools for Business Decision Making, 7th Edition. Wiley, 2013. 5. Investing Answers. (2015). Retrieved from http://www.investinganswers.com/financial-dictionary/ratio-analysis/quick-ratio-924 6. Investopedia.(2016). Profitability Ratios. Retrieved from http://www.investopedia.com/terms/p/profitabilityratios.asp 7. Loth, R. (2015). Retrieved from http://www.investopedia.com/university/ratios/liquidity-measurement/ratio3.asp 8. Stock Analysis On Net. (2015). Profitability Analysis. Retrieved from https://www.stockanalysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Ratios/Profitability 9. Stock Analysis on Net. 100 US Stock Market Leaders. Wal-Mart Stores Inc. (WWT) Corporate Profile. Retrieved August 7, 2015 from https://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Profile 10. Target and Costco Financial Statements, Retrieved from: (2015) Forbes Web Site, http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp 11. Walther. (2012). Principles of Accounting I (1st ed.). San Diego, CA: Bridgepoint Education. 12. Wal-Mart Corporate, 2014, Wal-Mart Incorporation; retrieved August 7, 2015 from http://walmartstores.com/AboutUs 13. Wal-Mart sits safely atop list of 100 retailers. The City Wire. Retrieved August 7, 2015 from http://www.thecitywire.com/node/28465#.VdUIfvlViko 14. Wal-Mart Stores, Inc. Stock Quote & Summary Data retrieved on August 7, 2015 from http://www.nasdaq.com/symbol/wmt ...
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Financial Analysis Of Sears Vs. Wal Mart

FINANCIAL ANALYSIS OF SEARS VS. WAL-MART

Table Content

Background Analysis------------------------------------------------ 3

Financial Ratio analysis--------------------------------------------- 4

Weighted Average Cost of Capital (WACC)--------------------- 12

Working Capital Management--------------------------------------20

Dividend Policy and Tax Treatment------------------------------- 23

Conclusion------------------------------------------------------------24

Background Analysis

Wal-Mart

Wal-Mart Stores, Inc., incorporated in 1969, is an international retailer. In the United States, the Company operated 1,568 discount stores, 1,258 Super centers, 525 SAM's CLUBs and 49 Neighborhood Markets as of January 31, 2003.

Wal-Mart's greatest advantage is having great bargaining power with suppliers to get the lowest price so they can pass it on to the customer. To further this, Wal-Mart is continuing to lower prices, offer newer and up to date products through their global suppliers' sourcing network.

Sears

In 1886 Sears began the R.W. Sears Watch Company in Minneapolis. Sears, Roebuck and Co was officially formed in 1893. Sears is a leading retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion. Sears operated 863 mall-based retail stores, most with co-located Sears Auto Centers, and an additional 1,200 retail locations including hardware, outlet, tire and battery stores as well as independently owned stores, primarily in smaller and rural markets.

The two retailers, Sears, Roebuck and Co. and Wal-Mart Stores, Inc., have a very similar value for return on equity in the recent fiscal years. We are using the past 5 years information to analyze the strategies and accounting policies for each company, and better understand the companies' performance and predict the companies' trend in the future for each firm. This case provides a good introduction regarding the combination of such information to create a powerful tool for financial statement analysis.

Profitability analysis

Exhibit 1-1 Comparison of profitability ratios

2002 2001 2000 1999 1998

SEARS WMT SEARS WMT SEARS WMT SEARS WMT SEARS WMT

ROS 3.3% 3.06% 1.79% 3.29% 3.29% 3.26% 3.69% 3.22% 2.63% 2.99%

Gross margin 44.0% 22.2% 41.3% 22.5% 38.2% 22.5% 39.4% 22.2% 38.3% 21.9%

operating profit/sale 5.9% 4.9% 3.0% 5.3% 5.4% 5.5% 6.1% 5.2% 4.7% 4.9%

EBIT/sales 8.7% 5.6% 6.4% 6.1% 8.5% 6.2% 9.4% 5.8% 8.3% 5.5%

EBITDA/sales 10.8% 6.8% 8.5% 7.3% 10.6% 7.4 % 11.5% 7.2% 10.4% 6.9 %

Return on sales

ROS ratio compares after tax profit to sales, it displays the proportion of each dollar of revenue is available for the owners after all the expenses are paid to other suppliers. ROS can help us determine if companies are making enough of a return on...

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