FINANCIAL ANALYSIS AND MANAGEMENT

As shown in the graph below, the current ratio has dropped from 2015 to 2018 with the average being 0. This ratio explains whether the company has sufficient funds to pay off its short term debts and its ability to sustain their activities for a year. An increasing current ratio with time shows that a company is growing into its required capacity and vice versa for a decreasing ratio. The most preferred ratio is 2:1 in that the current assets are double the current liabilities. Walmart’s ratio drop was caused by an increase in its current liabilities. It measures a firm’s ability to pay its short term liabilities with assets that are highly liquid. Walmart’s ratio of less than 1 shows that it risks financial difficulty.

However, some firms run on high current liabilities but low cash reserve which means that the low cash ratio is not an indicator of difficulties. The company’s ratio has declined for four consecutive years. It is calculated as: PROFITABILITY RATIOS These are ratios which calculate a company’s capability of raising income with relation to any cost associated to raising the income. Therefore, the company has sufficient funds to cover its operations. Operating profit margin It deals with the analysis of the costs incurred during production or indirect costs incurred in the process of production such as administrative expenses and overhead costs. The formula of calculating this ratio is: The chart below shows the trend of ratios over a 5 – year span (‘000) The ratio has had a continuous deterioration from 2016 to 2018 by 0.

The average of the ratio for the 5 years is 5. Therefore, on every dollar made, the company spends 4 cents with indirect expenses. Therefore, the better the management, the higher the ROA. The chart below shows the ROA trend over the last 5 years. Return on equity This calculates by how much the company is expected to make on every dollar that investors inject into the business. An increasing ROE means that the company without the need of a lot of capital is improving its capability of generating profit. Therefore, a high ROE will be caused by an increased level of debt. Upon analysis as shown in the table below, Walmart’s conversion cycle improved during the period of 2016 to 2018. Other ratios which give the cash conversion cycle under this category include: Formula Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Turnover ratios Inventory turnover 8.

98 Receivables turnover 88. 85 Payables turnover 8. 57 Avg. Debt to Capital The debt to capital ratio is calculated by the total debt divided by the total capital. A low ratio indicates that Walmart has more equity as compared to debt. For an investor, it shows that the company relies more on equity financing and less of debt financing. A high ratio will indicate that the company is highly financing its growth through debt. Ratios that are 0. 67 Price to Book 4. 21 Price to Tangible Book 5. 48 Price to Cash Flow 18. 40 A P/E ratio that is high shows that investors expect high growth in the future or how much its investors will be willing to pay for every dollar of earnings. The average market ratio is 15-25.

Walmart has a strong capital structure, cash flows and financial position but its returns to its shareholders has lagged behind to the industry and competitors over the last 5 – year period. The movement in stock prices has caused the stock of Walmart to shift upwards by 8. 8% since 2014 (Van Horne and Wachowicz, 2008). Walmart is among the ETFs which carefully follow indices such as the SPDR S&P 500 ETF (SPY) which has a weight of approximately 0. 8%, and the SPDR Dow Jones Industrial Average ETF (DIA) which has a weight of approximately 3. Acts of misinterpreting the company’s’ ratios can be minimized by a good understanding of seasonal factors. A good example is that Walmart’s retail inventory will show a hike during the summer season as families prepare for opening of schools.

This will in turn lead to a low return on assets (ROA) and an increase in the firms’ accounts payables. The company’s balance sheet tends to react to inflation rates. Inflation affects a company’s’ overall profits. This means that it only gives partial information that is needed by management to make decisions. Therefore, ratios should be used alongside other types of analysis methods so as to get a comprehensive financial statements analysis. The analysis had the problem of having one term carry different meanings. An example is when calculating a ratio using the company’s profits can be taken as profit after interests and taxes or profits after interest but before taxes, or profits before taxes and interests. Conclusion and Recommendations The financial ratios discussed above indicate that Walmart has a good financial health.

31%   Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Operating income 20,437 22,764 24,105 27,147 26,872 Net sales 495,761 481,317 478,614 482,229 473,076 OPERATING PROFIT MARGIN 4. 68%   Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Consolidated net income attributable to Walmart 9,862 13,643 14,694 16,363 16,022 Net sales 495,761 481,317 478,614 482,229 473,076 NET PROFIT MARGIN 1. 39%   Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Consolidated net income 9,862 13,643 14,694 16,363 16,022 Total assets 204,522 198,825 199,581 203,706 204,751 ROA 4. 83%   Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Jan 31, 2013 net income 9,862 13,643 14,694 16,363 16,022 16,999 shareholders' equity 77,869 77,798 80,546 81,394 76,255 76,343 ROE 12. 27% Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Current assets 59,664 57,689 60,239 63,278 61,185 Less: Current liabilities 78,521 66,928 64,619 65,272 69,345 WORKING CAPITAL -18,857 -9,239 -4,380 -1,994 -8,160   Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015 Jan 31, 2014 Average inventory processing period (A) 43 43 45 45 46 Average receivable collection period (B) 4 4 4 5 5 Average payables payment period (C) 45 42 39 38 38 CASH CONVERSION CYCLE 2 5 10 12 13 Sector – 4 8 10 11 Industry – 11 14 15 17 Debt to equity (2018) 0. 14 Capital Spending - 5 Yr. Growth Rate -4. 17 Financial Strength   Company industry sector Quick Ratio 0. 94 Current Ratio 0. 60 LT Debt to Equity 67. 83 Net Profit Margin - 5 Yr. Avg.