Good Research Paper On Financial Analysis: Walmart Inc
About the company
Walmart Inc, is an American Multinational retail corporation that operates a chain of grocery stores around the globe. Founded in the year 1962, Walmart Inc. is the largest company in the world in terms of revenue and also the largest employer with workforce headcount of two million people. At present, the company has 11000 stores in 71 countries under different operating names.
In this section, with the objective of unearthing the financial standing of the company for the past two years, we will be using analysis tools such as Vertical Analysis, Horizontal Analysis and Ratio analysis. Below discussed is the outcome of each analysis activity conducted by us:
-Horizontal Income Statement
-Horizontal Balance Sheet
Referring to the numerical analysis above, we can witness that the year 2014 was indeed a bad one for the company. Although the revenue increased by 1.52%, however, uncontrolled direct costs and operating costs resulted in decline in the operating income and bottom line profit of the company to fell by 3.34% and 5.75%, respectively.
As for the balance sheet, the effect of poor financial performance during the year was very much visible on the statement of financial position. Interestingly, the cash reserves of the company fell by a significant $500 million while the total asset base could manage an increase of marginal 0.8% only. While the asset position of the company was not very encouraging, the company seems to have paid a lot of attention on their liabilities, especially the current liabilities that decreased by a good 3.44%. This will surely have a well needed positive impact on the liquidity position of the company. As for the total liabilities position, in comparison to 0.80% increase in the asset position, the liabilities surged by 1.37%.
-Vertical Income Statement
-Vertical Balance Sheet
As for the vertical income statement of the company, over the year, the gross margin of the company has reduced marginally from 24.87% to 24.82%. However, the major observation was relating to the increased proportion of the operating expenses that surged from 18.94% to 19.18% that further eroded the net profit margin of the company from 3.62% to 3.36%.
Continuing our analysis to the vertical balance sheet of the company, we had few indications that confirmed that over the year, the liquidity of the company has improved as while the proportion of the current assets as part of total assets increased from 29.51% to 29.88%, the current liabilities were down from 35.36% to 33.87%. However, the major concern was increased proportion of liabilities of the company that went up from 62.41% to 62.76%.
Overall, the trend in the balance sheet items was not very much encouraging.
This is the last section of this report where we will conduct the analysis of the financial statements of the company using multiple ratios namely, liquidity ratios, profitability ratios, solvency ratios and efficiency ratios. We believe that introducing multiple ratio sections will provide us a comprehensive conclusion to the financial standing of the company during the year:
-Current Ratio: Current Assets/ Current Liabilities
-Acid Ratio: (Cash+Inventory)/Current Liabilities
Referring to the tables above, we noticed that over the year, the liquidity position of the company has improved as the current ratio multiple surged from 0.83 to 0.88 owing to 2.08% increase in the current asset base and 3.44% fall in the current liabilities, both factors proving positive for the liquidity position of the company.
We even tested the liquidity using the stringent measure of acid ratio and found the similar results as the multiple was calculated to surge from 0.72 to 0.75.
Overall, our analysis indicates that over the year the liquidity roots of the company have gone strong.
ii) Profitability Ratios
-Net profit margin: Net Income/ Revenue
-Return on Equity: Net Income/ Total Equity
Referring to the tables above, we can witness that profitability of the company has been hit hard during the year as while the net profit margin drove down from 3.62% to 3.36%, it was the ROE multiple that could send a negative wave amongst the shareholders of the company as the multiple fell from 22.27% to 9.64%
-Debt Ratio: (Short term debt+ long-term debt)/Current Liabilities
-Time Interest Earned: Operating Income/ Interest Expenses
Noted from the tables above, we can witness that while the debt ratio of the company has soared from 25% to 26% indicating that now higher proportion of the assets are financed using the debt sources. However, what raised concern was that while the company was accepting higher debt in its capital structure, the interest coverage ratio was declining from 12.35 to 11.51 that was an indication that the company is losing its capacity to honor the interest obligations associated with the debt financing.
-Days of Inventory : (365*Inventory)/Cost of Goods Sold
-Days of Receivables: (365*Receivables)/Revenue
Referring to the table above, we can witness that there has been no significant change in the days of inventory and receivables of the company and stood steady at 45 days and 5 days, respectively.
At the end of this report, we can conclude that the year 2013 was indeed a poor financial year for Wal-Mart Inc. as although the company was successful in improving its liquidity standing but reduced profit margin and increased percentage of debt in the capital structure accompanied under low debt-paying capacity is a big sign of worry for the company.
Wal-Mart Inc. (2013). Annual Report 2013.
Wal-Mart- Income Statement. (n.d.). Retrieved February 16, 2015, from Morningstar: http://financials.morningstar.com/income-statement/is.html?t=WMT®ion=usa&culture=en-US
Wal-Mart: Balance Sheet. (n.d.). Retrieved February 16, 2015, from Morningstar: http://financials.morningstar.com/income-statement/is.html?t=WMT®ion=usa&culture=en-US
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