Wal-Mart Stores' liquidity and debt situation, and its profitability
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Calculate selected ratios and obtain industry averages for comparison
For each of the financial statement ratios listed below calculate the ratio for the current year and for the prior year. (Note that in most textbooks, some of the ratios call for averaging the beginning and ending balances. However, for this project, use only the year's ending balances.) After calculating the ratio, compare your calculations with the industry ratio as shown in Moneycentral's "Key Ratios" under "Financial Results". Note that there are six or seven groups of ratios in which these ratios might be contained:
a. Current Ratio
b. Inventory turnover (not applicable to service companies)
c. Debt to Equity ratio (Total liabilities divided by Total equity)
d. Net Profit Margin (Net Income as a percentage of Sales)
e. Return on Equity
f. Price earnings ratio (P/E Ratio) [Divide the current market price from a recent newspaper listing by the "basic" earnings-per-share shown on the most recent year's income statement.]
ABOVE IS THE REQUESTED INFROMATION.
Company is Walmart. Requesting your views.
(3) Using Microsoft Word, write a paper (three to five typewritten pages, 1½ line spacing) containing the following:
(a) describes the primary business activity of the company
(b) A table listing the financial statement ratios listed above in which you list ratio figures for the most recent full year, prior year and industry average.
(c) explain what the ratio means and how it should be interpreted, and comment on the trend from last year to this (favorable or unfavorable), and how your company's current year compares with the average for its industry.
(d) Earnings Per Share trend is the principal benchmark for investors. Use Excel to present a bar graph showing Earnings Per Share for the last three to five years (EPS figures for several years are generally shown in the Annual Report).
(e) After commenting on each ratio individually, write a summary which presents your assessment of (1) the company's liquidity and debt situation, and (2) its profitability.
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Solution Summary
Calculate selected ratios and obtain industry averages for comparison in the case.
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Facts obtained from websites mentioned below:-
Wal-Mart Stores, Inc. (Wal-Mart), incorporated in 1969, operates retail stores in various formats worldwide. The Company organizes its business into three principal segments: Wal-Mart Stores, SAM'S CLUB and International. The Wal-Mart Stores segment is the largest segment of Wal-Mart's business, accounting for 67.3% sales during the fiscal year ended January 31, 2005 (fiscal 2005). The segment consists of three different retail formats, all of which operate in the United States. The Company's SAM'S CLUB segment consists of membership warehouse clubs that operate in the United States, and accounts for 13% of fiscal 2005 sales. The international segment consists of retail operations in eight countries and Puerto Rico, and generated 19.7% of Wal-Mart's fiscal 2005 sales. In addition, the Company owns an unconsolidated minority interest of approximately 37% of The Seiyu, Ltd., a retailer in Japan. On January 31, 2005, the Company operated in the United States 1,353 discount stores, 1,713 supercenters, 551 SAM'S CLUBs and 85 neighborhood markets. Internationally, Wal-Mart operated 11 units in Argentina, 149 in Brazil, 262 in Canada, 91 in Germany, 16 in South Korea, 679 in Mexico, 54 in Puerto Rico and 282 in the United Kingdom. The Company also operated 43 stores through joint ventures in China, and Seiyu operated 403 stores throughout Japan. In February 2004, the Company completed its purchase of Bompreà§o S.A. Supermercados do Nordeste, a supermarket chain in northern Brazil with 118 hypermarkets, supermarkets and mini-markets. The discount stores format offers an assortment of general merchandise and a limited variety of food products. The supercenters format offers general merchandise and a full-line supermarket. The neighborhood supermarkets format offers a full-line supermarket and a limited assortment of general merchandise.
(b) A table listing the financial statement ratios listed above in which you list ratio figures for the most recent full year, prior year and industry average.
Please see the attachment Wal-Mart Ratios.
(c) A paragraph for each of the ratios listed above in which you explain what the ratio means and how it should be interpreted, and comment on the trend from last year to this (favorable or unfavorable), and how your company's current year compares with the average for its industry.
The current ratio for Wal-Mart is 0.9 and this is not satisfactory. This ratio is calculated by dividing Current Assets/Current Liabilities. This ratio should be 1.0 or greater for liquidity. Typically the ratio should be 2. If it drops below 1.0, the ability to pay bills is impaired. If it is greater than 2.0, there is a possibility that assets are not being ...
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