The financial and strategic analysis

i will tell later

MBA 542: Managerial Finance
Company Report
STUDENT NAME: .
Please note:
1. Please submit (1) this report, and (2) Excel file for ratio calculation through Moodle.
2. Your answers should be typed below each question (12 Times New Roman, black fond
color). Please do not change the format of the document. Content of your answers and
references should follow APA style with single space.
3. Make sure you read each question and its specific requirement carefully to meet all
requirements.
4. Please note that whenever the questions mention “your company”, it refers to the
company you choose to analyze.
Your Report consists of three parts:
Part 1: Background
Part 2: Financial Analysis including your spreadsheet ratios
Part 3: Managerial Actions
Part 1: Background of your company (10 points each)
1.Company
1.1 Brief business description:
 What does your company do? Which industry/industries?
 What is the company’s business model?
Type your answers starting from here:
Walmart Company operates as one of largest American Multinational Retail Company
which operates a number and chain of hypermarkets, discounted department stores and various
other grocery stores. The financial and strategic analysis of the company in particular has been
done for the time period of five years whereby crucial and relevant movement in the financial
performance of the company were taken into account for the purpose of analysis. The analysis of
the Walmart Company in particular has been carried out with the help of the interpretation and
discussion of various strategic issues that has been in faced by the company in particular.
Industry Analysis for the company has been well conducted with the help of PESTEL Analysis
and Life Cycle Analysis of the company. Key economic factors that in particular would be
affecting the performance of the firm has been taken into consideration for better analysis.
Financial Analysis for the company has been done in particularly with the help of ratio analysis
whereby important ratio’s that would be giving us an overview of the financial performance and
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position of the company. The Weighted Average Cost of Capital for the Walmart Company in
particular has been done for the purpose of analysis of the company for the trend period analyzed
(Pope & Pope, 2015).
Company Background
Walmart Company operates as an American Multinational Retail Company whereby the
company operates a chain of hypermarkets, discounted department stores and various other
grocery stores that is headquartered in Bentonville, Arkansas. The company was established and
founded in the year 1962 and is owned and controlled by Sam Walton Retail Warehouses. The
company as per the latest report had stated that they are having around 11,438 stores and various
other clubs that operates in 27 different countries and primarily operates under 55 different
names that are directly linked with the Walmart Company (LeCavalier, 2016). The company
operates under its own name of Walmart in the United States and Canada. On the other hand, the
operations of the company are solely controlled and managed in Argentina, Chile, Canada and
South Africa. It is important to note that analyzed company is said to be one of the largest
company in terms of revenue earned whereby the company reported around US$514.405 Billion
of revenue in accordance with the Fortune Global 500 Report published in the year 2018. The
company also acts as one of the largest employer thereby employing around 2.2 million
employees in the total work force that the company operates. It is important to note that US acts
as the key market for the US whereby majority of the revenue for the company comes from the
economy contributing around 65% of the total revenue that has been reported by the company.
The total amount of sales that has been reported by the company from the US Operations has
been around US$510.3289 Billion (McGee, 2018).
The key sources of revenue that is earned by the company is primarily done with the help
of wide range of products that it caters and that is particularly shown below:
 Electronics: Movies and Music
 Home and Furniture: Home Improvement and Refurbishments.
 Clothing: Apparels
 Footwear
 Jewelry
 Toys
 Health and Beauty
 Pet and Supplies
 Sporting goods and fitness
 Photo Finishing
 Craft and Party Supplies
 Grocery and Retail Items
Business Model
The company operates as a key business model unit whereby the three primary units that
are in 2018 comprises of the Walmart U.S (Approximately 65% of the net sales that have been
reported by the company). Walmart as a company serves to approximately 270 million customers
who visits its total 11,700 reported stores (Muñoz, Kenny & Stecher, 2018). The strategy in
particular that has been followed by the company is primarily based on the leading in the market
with competitive pricing strategy and investing in differentiation of its products which would
provide the company a better edge and a experience of the products offered. It is accordingly
important at the same time to evaluate the distribution process that is followed by the company
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whereby approximately 78% of the purchases done by the U.S Walmart for their store
merchandize were shipped through their 157 distribution facilities that located throughout the
U.S. The remaining merchandize gets shipped directly from the various suppliers that the
company has which has been well shown below with the help of snapshot provided:
Now examining the international level, it is important to note that the Walmart Utilizes in
an all total of 188 distribution facilities that is located particularly in Argentina, Brazil, Canada,
Central America, Chile, Japan South Africa and UK. The facilities that are in particularly owned
by the company processes and distributes both the imported and domestic products to the
operating unit of the Walmart International Segment (Michelson et al., 2018). It is important to
note that by January 2018, I is expected that approximately 83% of the Walmart International
Purchases will be passed through these distribution facilities. A key snapshot of the international
facilities owned by the company is well shown below:
Business Activities
The key business activities that the company does for the purpose of reporting or earnings
total revenue for the company are primarily shown below:
 Walmart US: The operating segment is one of the largest operating segment in all of the
50 states that is operating in US, Washington DC and Puerto Rico. The company
primarily follows three store formats as well as E-Commerce.
 Walmart International: The Walmart International consists of operations in 27
countries that is outside of U.S and it comprises of three major categories:
 Retail,
 Wholesale
 And Other.
The categories in particular consist of many formats, which includes the following:
 Supermarkets
 Supercenters
 Hypermarkets
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 Warehouse Clubs
 As well as E-Commerce
 Sam’s Club: The club consist of membership-only warehouse clubs which primarily
operates in 44 states and in U.S and Puerto Rico as well as E-Commerce. Sam’s Club
accounted for in total of 12% of the net sales that has been reported by the company. The
products and services that are offered by the Merchandise are particularly Grocery and
Consumables including Diary, Fuel and other category which primarily consist of
gasoline stations, tobacco, tools and power equipment and battery centers. Other products
in the field of Home and Apparel sections including home improvement, outdoor living,
grills, gardening, furniture, apparel, jewelry, housewares are some of the key product
sections.
1.2 Life-cycle analysis: where is your company and its product in the life cycle? Explain your
answers in detail.
Type your answers starting from here:
Walmart Company operates in a highly competitive environment whereby it operates
under the Omni-channel retail stores markets where the company business are operated. The
company faces strong sales competition from other discounts, departments, drugs, dollars,
variety and other specialty stores. The company is committed in helping out there customers for
saving money and live a better life through everyday low prices offered. The first and foremost
objective of the Walmart Company has been in getting strong and effective growth stating that
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we would be focusing on the most productive and best growth opportunities that the company
can have (Industry Analysis | Walmart | Marketing, 2019). The Walmart Company can be well
related in the Mature or High Growth Stage whereby the company has diversified its products
and services that it caters and has brought a turnaround in the financial performance of the
company.
Revenue Analysis
The revenue analysis for the company in specific has been done based on the revenues
that are reported by the company which are in specific coming from different sources and on a
different geographical basis. The revenue breakdown of the company is well shown below
whereby the company reported $514.40 of revenues in the year 2019. The contribution of
revenue can be broadly divided into amount earned from US and Non U.S Operations. The
revenue reported by the company in the year 2018 was around $500,343. The increase in the
revenue has been primarily because of the increase in the US operations that the company has
undertaken for a sum of one year (Panmore Institute, 2015).
392265; 76%
122140; 24%
Revenue Analysis
U.S. operations
Non-U.S. operations
2. PEST Analysis (A look at the overall environment)
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56%33%
11%1%
Walmart U.S Sales
Grocery
General merchandise
Health and wellness
Other categories 26%
25%15%
9%
24%
Walmart International
Sales
Mexico and Central
America United Kingdom
Canada China
Other

 Please note that you should discuss all factors that are relevant to your company and
discuss how each factor and its movement affect the company. You should also predict
the future trend of the factors in order to identify opportunities and threats.
 Since PEST are the factors at geographic level, you should focus on the key markets (or
countries) where your company operates, esp. if your company has a significant global
operation.
2.1 Discuss all relevant political factors that may affect your company. Political factors include
geo-political conditions, intellectual property regulation, privacy policy, consumer protection
laws, and political stability.
Type your answers starting from here:
PEST Analysis
Walmart considers political factors that are particularly that are related to retail market,
which are usually pertaining or related to the government policies. It is important to note that
76% of the revenue of the company comes from the US operations and any changes observed in
this area would be of particular concern to the company (Jurevicius, 2013). The key political
factors that would be affecting the company in terms of analysis would be as follows:
 Stability in the political environment of U.S.
 Political support of globalization (Opportunity).
 Pressure of Political parties for higher wages and salaries that is offered by the company.
Walmart operates in the retail industry whereby the company business activities are expanded on
a worldwide basis. It is important for the company to control and manage the issues that are in
particular arising so that threat and opportunity can be identified well by the company. The
success of the Walmart Company depends on the political situation evolving around US and
areas where the operations of the company is concentrated.
The importance of political factors in the PESTLE analysis for the suppliers and
manufacturers of Walmart cannot be understated. Political stability is extremely essential for
Walmart in succeeding in the expansion of the business. This also applies to the areas in which
the manufacturers and suppliers of the entity are located. Political stability allows them to focus
on meeting the company’s requirements and in maintaining acceptable levels of standards.
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The level of success achievable by Walmart is dependent on the opportunities presented
by the Chinese market while also safely negotiating the threats faced by the business entities.
The activities of the Chinese politicians play an important role in determining the political
landscape of the country. Hence, sufficient importance should be given to the activities of these
politicians. Previously, Walmart had sold a prohibited product in the Chinese market and its
business in the country was shut down in Chongqing for a long period of time. The increasing
pressure on Amazon is related to increasing the wages of the workers. An example of an
influential political factor is the introduction of a bill called “Stop Walmart Act” by the Senator
of Vermont. This bill was aimed at preventing the buyback of stocks by Amazon and Walmart
until they increased the minimum wages of the workers to $15 per hour while also laying other
terms and conditions with it. Government Officers and politicians like these can damage the
reputation and brand image of Walmart significantly.
2.2 Discuss all relevant economic factors that may affect your company. You should discuss at
least four economic factors (1) economic growth, (2) interest rates.
Type your answers starting from here:
The economic changes and the instability resulting from them is another tangible threat to
Walmart Inc. which can impact the profitability of the entity worldwide.
As per the annual reports of the entity, these economic factors can also impact the
suppliers of the entity and cause a rise in the cost of the goods sold by them while also impacting
the EDLP pricing strategy of the entity The major competitive advantage of Walmart is its low
pricing strategy. With decreased profit margins or losses, Walmart cannot compete with its rival
entities in the long run. The recent economic recession and slowdown in the United States,
Walmart’s biggest market, has resulted in the adverse demand for Walmart products. This results
in a reduction in the net sales of the company while also adversely impacting its inventory
turnover. Increased interest rates are another factor which can cause a reduction in the profit
margins. Lower profit margins cannot be afforded by Walmart in the present date. The other
factors which can have a visible impact on the business are the increase in the costs of the
resources like electricity and the rise in unemployment levels which significantly weaken the
purchasing power of the consumers.
2.3 Discuss all relevant social factors that may affect your company.
These factors are mainly related to the culture, habits and preferences of the consumers
which can have an impact on the business strategies, growth and performance of the entity. Even
though Walmart is a giant in the United States, it suffered a loss of approximately $1 billion in
Germany and failed. Some critics suggest that the failure of Walmart in understanding the
German culture is a reason behind its failure. The business processes of the entity were more
suitable to the American culture than the German culture. As there is an increasing awareness
about health consciousness on a worldwide scale, Walmart should increase the sale of organic
food items across its retail stores. This will go a long way in boosting the brand image of the
entity in the minds of the existing and potential consumers. The reach of online shopping is ever
increasing. This has also been the case with the older consumers, who cannot go to the retail
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stores at every available opportunity. This opportunity can be used by Walmart in expanding its
presence into the ecommerce business.
2.4 Discuss all relevant technological factors that may affect your company. Technological
factors include technology advancement such as artificial intelligence (AI), machine learning
(ML), financial technology (FinTech), online retail, the Internet of Things (IoT), new
manufacturing technology, and etc..
Type your answers starting from here:
The influence of technology on the retail industry is highly significant. The influence of business
process automation and increasing digitalization on the business of Walmart is becoming
increasingly evident. The annual reports of the entity suggest that it is currently using robots and
automated units for maintaining its stores and processing the online orders. These are still in the
testing phase and the initial responses have been positive. This technology can be considered as a
great opportunity for Walmart in allowing the staff to focus on selling the products and serving
consumers more efficiently. The advent of digital devices like mobiles, laptops and computers
creates a huge market for ecommerce businesses. These companies can focus on their websites
and use them in attracting consumers to improve their position in the market.
An E-Commerce enabled platform is essential for Wal-Mart to stay in touch with its
customers on a 24/7 basis. It also results in the reduction of costs like labour costs, reconciliation
expenses, supervision and data entry costs. These cost reductions help in the improvement of the
profit margins of the entity and gain a competitive advantage in the market.
3. Industry analysis
3.1 Industry overview: focus on the main industry your company operates on:
 Discuss the current size of the industry and its future: whether there is growth or decline,
is there a ceiling on growth?
Wal-Mart Stores, Inc. was established in 1962 by Sam Walton. Being one of the
multinational retail cooperation runs many superstores and discount warehouses. It has almost
11,527 stores around 27 countries and headquarter of this Store is situated in Bentonville and
Arkansas. The competitors of this Stores are Kmart, Safeway, Target, Home Depot and etc. To
meet the everyday demand of the heterogeneous consumer group and socio economic
background is one of a challenge for the retail industry. Many strategies are planned by the
retails stores accordingly.
The strategic management for any business depends upon analysis of different ways for
growth of that company and increasing the competitive advantage as well as the long term
effectiveness. Company can adopt different ways of marketing strategies that helps to retain the
relationship with the customers and also suggests to measure the quality and also how much the
price should be.
The study shows a broad overview of the importance on development, information and
implementation of effective strategies while retailing.
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The concept of retailing is one of the management process which states that retailers
should focus the demand of the targeted audiences. It is very important to fulfil the needs of the
customers before the competitors to retain the customers. Satisfying the targeted customers first
will be beneficial for the retailers to retain the customers more than competitors.
Retail market is stated as category of people who are having similar needs. The retailers
should focus on customers from segments by reviewing their buying behaviors, lifestyles,
demographics and geographic locations which are most important elements to be noted.
To survive in any market, competitors also play vital role and to identify the direct
competitors a company needs to focus on the bigger picture of the market like regional discount
store. The focus should also be on the prices, quality or services provided by the competitors to
the customers. The performance should be evaluated with the competitors like the retail profits,
personal growth, GDP (growth in domestic product), inflation, performance of the economy and
etc.
The evaluation between the industry turnovers should be directly compared with the
competitors. While the evaluation of the financial resources which helps the retailers to entitle
themselves for the global opportunities, generating short-term profit, commitments on long-term
basis and planning like the Costco face and Wal-Mart, their rigid financial position has helped
the companies to retain their success in the market.
In U.S the second largest industry is retail industry as it provides almost 12%
employment to the nation. Wal-Mart provides their majority retail revenue by chains. They
produce and sell the products which are fast moving and also super competitive in the global
retailing market. The products they produce are sustainable for the consumers and also for the
environment. The products also possess good reputation, productive in the retail marketing and
goodwill around the globe. Wal-Mart also commits and maintains the environmental measures as
well as the quality of their products. It is one of the big retailing stores which helps the
communities and the consumers for saving some money and also to have healthy lifestyle with
better health.
3.2 Competitive Strategy: Position your company in the matrix below. Briefly discuss your
answer:
Type your answers starting from here:
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ReferenceForBusiness.com states that different products and services are provided by Wal-Mart to
apply the differentiation strategy to acquire the customers. The strategy is to provide the customers
with the product which they believe possess some special characteristics. The products should let the
customers feel that it is one of the exclusive product in the store. Wal-Mart provides their customers
with exclusive offers and warranties on products to maintain their brand image. This strategies makes
the consumers believe that they are being provided with some special offers which are not provided
by other competitive stores in the market.
3.3 Competition details: list the company’s top 2-3 main competitors. Comment on the
company’s competitive advantage, focus on what the company does better than its competitors
and how long you think the company will keep the competitive advantage (core competence). Or
if the company is not doing better than its competitors, discuss the situation and whether you see
the potential for your company to improve.
Type your answers starting from here:
Wal-Mart has announced that they are going to adopt a new service which will allow the
consumers to get the products on home delivery and also they are going to expand their business with
four new establishments. The new stores will be located in different four states and new partners will
provide the Wal-Mart’s new scheme of home-delivery into 800 different stores. 800 additions are
also expected in this year. Wal-Mart has continued to make the tech inroads.
In National Retail Federation, the Chief technology officer Jeremy King has announced the
failing attempts of the Scam & Go pilot of the stores which allowed the customers of 125 stores to
use their personal cell phones and to check themselves. He also stated that the attendees of the stores
scrapped the Scan & Go device as it was full of errors. Jeremy is quite optimistic regarding usage of
the computer vision soon in all the stores.
Walmart is also compared with the Best Buy by the Gutman as because they both are outperforming.
“Hallmarks provides investment in the online services and stores. The Omni channel retailing is also
optimized here. Reinvesting and maintaining close relations with the vendors can profit the company
to make savings and also providing competition to construct process which will be efficient for the
business and removing the unwanted system expenses”.
From analysis it is found that Wal-Mart has almost 15% of total sales in retaining the
groceries, electronics, furnishings, apparel, and sport goods. Office suppliers and general
merchandise also adds to the average by almost $10.6 billion sales p.a.
Wal-Mart has dominated with 23% shares and 2.5 times to the next huge retailer in the
grocery department. In the e-groceries section, it is found that 17% of customers have ordered from
the Walmart.com in the last year in comparison with 15% in the year 2017.
In U.S. the ecommerce section has been showing staggering stage. Morgan Stanley has stated
that the sales component of flywheel has been turning successfully.
The below list are the top Walmart competitors:
1. Costco
2. Amazon
3. Kroger
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4. The Home Depot
5. Tesco
6. Carrefour
7. Walgreens
8. CVS Health Corp
9. Target
Part 2: Financial Analysis (10 points each)
1. Short-Term Solvency:
1.1 Current and quick ratios:
1) Current Ratio
2) Quick Ratio
Comment on the ratios above and discuss your company’s general ability to pay off its current
liabilities.
Type your answers starting from here:
Current ratio shows the ability of the company in meeting up with the current liabilities
of the company. The ratio for the Walmart Company has been around 0.80 times, which states
the amount of current assets the company is currently having in proportion to the current
liabilities. On the other hand, the ratio for the Costco Company has been around 1.01 times
stating the amount of current assets is comparatively larger than the current liabilities. It is
important to note that the Walmart Company should pay focus on the overall liquidity position as
the same can crucially affect the overall business operations of the company.
Quick Ratio for the Walmart Company has been around 0.18times which is very poor and
states that inventory plays a major or a crucial role in the overall current assets that has been
reported. On the other hand, the ratio for the Costco Company has been around 0.47 times which
is comparatively better than the Walmart Company.
1.2 Turnover ratios:
1) Inventory Turnover
2) Account Receivable Turnover (Assuming 100% Sales Are Credit Sale)
3) Account Payable Turnover
4) Cash Cycle
5) Defensive Interval Ratio (DIR)
Comment on the ratios above and discuss your company’s cash cycle in general and compare
cash cycle with its DIR.
Type your answers starting from here:
1. Inventory Turnover Ratio: The inventory turnover ratio for the Walmart Company has been
increased for the company from 8.25 times to around 8.75 times in the year 2017-2019. On the
other hand, the ratio for the Costco Company has been around 11 times and which has remained
constant in the three year time frame. Costco Company on a comparative basis had a better
inventory management system.
2) Accounts Receivable Turnover Ratio: The receivable turnover ratio for the Walmart
Company has been around 84.80 times and the same has increased to around 86.48 times in the
three year time frame. On the other hand, the ratio for the Costco Company has decreased.
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3) Accounts Payable Turnover: The ratio has been comparatively better for Costco Company
as analyzed in the three year time frame as compared to Walmart Company in collecting the due
amount from payables.
4) Cash Cycle: The cash conversion cycle has been comparatively much better for the Walmart
Company as compared to Costco Company whereby Walmart Company just has around 1.81
days and Costco Company had 3.16 days.
5) DIR: The defensive interval ratio for the company has been comparatively much stable for the
Walmart Company which has stayed around 45 times and on the other hand the ratio for Costco
Company has been around 58 times comparatively better than Walmart Company. The DIR
Ratio well shows the amount of liquid assets the company has for meeting its daily cash
requirements.
1.3 Cash Cycle: Discuss at least 5 ways through which your company could reduce its cash
cycle.
The key ways that can be considered for reducing the cash cycle are as follows:
 Never Offer Extended Terms
 Adjust or Split the Fees for better and fast recovery
 Optimization of Inventory
 Get Lean
 Striking a right balance between raw materials purchases
1.4 Cash position: Discuss the company’s cash position in general –is the company holding too
much, right just, or not enough cash?). Your answer should be based on the ratios you calculated
above and consider the company’s balance sheet, income statement, cash flow statement, and its
business strategy. (Cash = cash & equivalent + ST investments)
Type your answers starting from here:
The cash position of the company can be well compared with the help of the current ratio for the
Walmart Company which well stated that the Cash position of the company is not optimal in
terms of meeting the current liabilities or obligations of the company, The management of the
company must take crucial steps for improving the liquidity and availability of the working
capital for better operational efficiency of the business.
2. Long-Term Debt Policy:
2.1 Ratio:
1) Debt to Asset Ratio
2) Equity Multiplier
3) Interest Coverage Ratio (Times Interest Earned)
Comment on the ratios above and discuss your company’s overall financial leverage.
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The debt to asset ratios for the business represents the proportion of debt which is used by the
business for the conducting the operations. The debt to asset ratio for the business shows that the
debt of the business is significantly high but the management of the company is trying to reduce
the debt capital of the business. In the case of the Costco, the debt to asset ratio reflect the ability
of the business to finance the operations of the business with the help of debt capital of the
business.
The equity multiplier for the business reflect the ability of the business to finance the assets of
the business with the help of equity share capital of the business. The equity multiplier for the
business is looking positive for Walmart which means that the management of the company is
putting in steps for reducing the debt capital and financing the assets of the business with the
help of equity capital of the business. In the case of Costco, the equity multiplier for the business
is shown to have reduced which suggest that the management of Costco relies more on debt
capital for the purpose of financing the operations of the business. The interest coverage ratios
reflect the ability of the business to focus on effective management of debts of the business so
that the business can maintain the liquidity position in the organization.
2.2Based on Higgins 5-Factor Model of Financing Decisions, analyze your company against
each of the 5 factors, and weigh the relative importance of these five factors. Should the
company use high or low level of debt? (read Chapter 6)
The five factors which the management of the company needs to considering the requirements of
the business are appropriately shown below:
 Market signal which shows the market conditions and also reflects the fluctuations which
takes place in debt capital which is used by a business.
 Flexibility is also a factor which needs to be considered for the purpose of taking
decisions regarding the debt capital which is used by a business.
 Distress costs also forms one of the factors affecting the decision of taking more debts
 Tax benefit are other factors which can impact the decision-making process of the
business.
 Management Incentives are also a factor which forms part of Higgin model of financing
decisions.
The management of the company needs to reduce the debt capital mix in the capital structure and
therefore changes needs to be made in the capital structure of the business.
2.3Give advice to the company in terms of its debt policy—should the company reduce its debt,
issue more debt, or stay in the current situation, explain your answers in details.
The management of the company needs to reduce the debt capital of the business so that the
operations of the business can be conducted in an effective manner. The management needs to
make changes in the capital structure of the business so that the risks and returns of the business
can be managed appropriately.
3. Asset Utilization:
3.1 Ratios:
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1) Total Asset Turnover
2) Working Capital (WC) Turnover
3) Fixed Asset Turnover
Comment on the ratios above and discuss your company’s turnover ratios.
1) Total Asset Turnover: The total asset turnover ratio for the Walmart Company has been
around decreased from 2.45 times to around 2.35 times in the year 2017-2019. On the other
hand, the Costco Company had a better turnover ratio of around 3.55 times but the same has
marginally decreased to around 3.36 times.
2) Working Capital Turnover Ratio: The ratio for the Walmart Company or the working
capital turnover ratio has been around -52.59 times which has decreased to around -33.02 times.
On the other hand, the ratio for the Costco Company has been around -724.86 times which
became to 615 times in the year 2017-2019.
3) Fixed Asset Turnover Ratio: The ratio for the Walmart Company has been remained stable
to around 3.50 times in the three years-time frame. On the other hand, the Costco Company had a
ratio of around 6.50 times which is comparatively higher than Walmart Company.
3.2 If you see any problem with the company’s total asset turnover, WC turnover, or fixed asset
turnover, identify the problem and suggest two ways through which the company could improve
its asset utilization. If you do not see any problem, also suggest two ways through which the
company could maintain its current position.
The Walmart Company is well managing the assets deployed in terms of utilization and
efficiency of the assets that are deployed. At the same time when compared with the competitor’s
company the company can well try in improving or increasing the efficiency of the asset
utilization by optimum utilization of resources.
4. Profitability:
4.1 Ratios:
1) Gross profit margin
2) Operating margin
3) Net profit margin
4) Effective tax rate
Comment on the ratios above and discuss on your company’s overall profitability.
1. Gross profit margin for the entity discloses the ability of the business to produce profits
from the operations of the entity. The gross profit margin for the corporation is shown to
be on downfall from last year which is not a good sign for the business and the same is
shown to be 25.1% which may be due to increase in costs of the entity. The senior
officials needs to focus on enhancing the profits of business so that the entity can achieve
growth. The business of Costco has lower gross profit which shows that the performance.
2. Operating Margin for the business reveals the ability of the business to appropriately
finance the operations of the business and ensure that the business is able to maintain
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operating profits of the business. The operating profit for Walmart is shown to have
declined significantly over the years and the same is shown to be 3.1% during the period.
3. The net profit margin for the entity is also shown to be have decreased during the period
which is primarily due to enhancement of costs of the operations. This shows that the
senior officials needs to manage the costs so that the profitability of the business can
increase. The business of Costco has incurred losses during the period which is a serious
matter which should be dealt immediately.
4. The effective tax rate for the business reveals the tax which is paid by the entity for the
requirement of adhering to the regulations which is applicable on the business. The
effective tax rate for the business
4.2 Are the company’s margins changing? Why and what are the underlying business cause—
changes in competition, changes in input costs, or poor overhead cost management?
The main reason for the purpose of decline in the profitability margins of the business is due to
ineffective management of the costs of the business and also for the purpose of ensuring that the
operations of the business are appropriate management by the business. The management of
Walmart needs to manage the costs of the business so that the profitability can be reduced.
4.3Now look at the company’s SG&A: is the company managing its overhead and administrative
costs well? What are the business activities driving these costs? Are these activities necessary?
The SG&A effectively shows that the management of the company is trying to reduce the
overheads costs of the business. The management of Walmart is trying to manage and allocate
the costs effectively so that the operations of the business is appropriately managed.
4.4Discuss the company’s tax planning strategies and whether it strategically locates certain
operations in tax havens, (hint: you can find the information on the company’s annual report). Is
the company’s effective tax rate affected by the US tax cut?
The company tax planning strategies appropriately shows that the business is trying to reduce
the taxes so that the profits of the business can be managed in n appropriate manner.
4.5Suggest two ways through which the company could improve its net profit margin, if
necessary; or if you think the company’s current net profit margin is fine, you can also suggest
two ways specifically to keep it or even further increase it.
The two ways in which the management of the company can improve the net profit margin of the
business are appropriately presented below:
 The senior officials need to lessen the operating expenses of the entity so that the same
does not affect the profitability of the business. The management of the company needs
to specially manage the overhead costs of the business.
 The management of Walmart can generate profit by properly promoting the products of
the business so that the operations are well supported and the focus of the management
should be on online operations which are efficient means of promoting the products of
the business.
5. Return on Investment:
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5.1 Ratios:
1) ROA
2) ROE
Comment on the ratios above and discuss your company’s return on investment.
The ROA of a business effectively shows the returns which is generated by the business with the
use of the assets of the business. The ROA of Walmart is shown to be 3.1 while the same for
Costco is shown to be 8.5 for 2019 which shows that the business of Costco is performing better
than Walmart.
The ROE of Walmart is also shown to be lower than that of Costco which reveals that the
management of Walmart is not appropriately managing the expectation of the shareholders as in
appropriate revenue is generated by the business.
5.2 Suggest two ways through which the company could improve its ROE, if necessary; or if you
think the company’s current ROE is fine, you can also suggest two ways specifically to keep it or
even further increase it.
The two ways for increasing the ROE for a business is appropriately listed below considering the
financial situation of the company:
 The management of the company needs to increases the source of revenue for the
business so that the business is able to enhance the profits of the business and thereby
provide more returns for the shareholders.
 The management of the company can use the reserves to meet the expectations of the
shareholders for dividends and also focus on maximizing the wealth of the shareholders.
5.3 Dividend Payout:
1) Dividend payout ratio
2) Dividend yield
Comment on the ratios above and discuss your company’s payout. Read the company’s most
recent annual report, what does it say regarding its dividend payout policy? Should your
company return more or less cash to stockholders?
The dividend payout ratio reveals the ability of the business to pay dividends from the profits
which is available to the shareholders of the business. The dividend payout ratios for the business
is shown to have increased which is a positive sign for the business.
The dividend yield ratio represents the ability of the business to manage the expectations of the
shareholders and the same should be low as this would be discouraging the shareholders of the
business.
6. Market ratios:
6.1 P/E Ratios:
1) P/E
2) Price to Sales
3) Market to Book
Comment on the ratios above and discuss your company’s overall market valuation.
The price earning ratio for a business is show to be 42.78 which reflect the relation between the
earning per share and market price per share of the business. The same estimate for Costco is
shown to be lower as per the computations shown in the analysis.
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The price to sales estimates for a business appropriately shows the relation between the market
capitalization and the sales revenue which is achieved by the business. The price to sales of the
business reveals the valuation of the company in terms of market trends.
The market to book value estimates shows comparison between market value and book value for
the shares of the business. The estimate for Walmart is shown to be lower than the estimates
which is achieved by Costco which suggest that the same needs improvements.
6.2 Growth Ratios:
3) EPS Growth Rate
4) PEG Ratio
5) Sustainable Growth Rate
Comment on the ratios above and discuss your company’s overall growth.
The EPS growth rate for the business shows the ability of the business to generate profits and
continue the operations of the business. The EPS growth rate for Walmart is shown to be lower
than that of Costco which is mainly due to fall in the net profits estimate achieved by the
business.
The PEG ratio shows the earning growth relations for the business with the market value of the
company. The PEG which is close to 1 or equal to 1 is considered to be ideal for a business. The
PEG ratio for the business of Walmart is shown to be negative which is not a good sign for the
business.
The sustainable growth rate for a business refers to the growth rate which is achieved by the
business reflects the ability of the business to sustain growth in the operations of the business so
that the business is able to maintain its growth rate.
6.3Based on your company’s sustainable growth rate, revenue growth rate, EPS growth rate,
stock price growth rate, PEG, and P/E ratio; look at your company and its competitors, is your
company’s stock overvalued, undervalued, or correctly valued?
The valuation ratios of the business shows that the market value of the shares might be slightly
overvalued considering the losses which is incurred by the business considering the estimate of
net profits of the business.
7. Creditors’ decision:
If you work for a bank and the company approaches you for debt financing. Which ratios are
important considerations? Will you issue loans to the company? Why?
The key ratio that would be considered for analysis purpose will be debt to equity ratio,
interest coverage ratio and operating margin ratio and profitability ratios for the company.
8. Weighted Average Cost of Capital (WACC)
8.1
1) Beta
2) Cost of equity
3) Credit rating (if credit rating not available, show synthetic rating)
4) Weighted average cost of capital
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Comment on the numbers above and discuss your company’s overall cost of capital.
Please note that you need calculate and discuss above numbers of your company, and its two
competitors.
The weighted average cost of capital for the company has been well estimated with the help of
the various financing sources that the company has deployed in the due course of its operations.
The key financing sources that the company has deployed for the purpose of its financing are
equity and debt financing. Important factors like beta has been estimated by using the data from
the yahoo finance whereby stated numbers were well taken into account for the purpose of
analysis.
1. Beta Value: The beta value reflects the sensitivity of the stock in respect to the market index
showing the movement of the stock in terms of sensitivity. The beta value for the Walmart
Company has been around 0.38 times which states that the sensitivity of the stock with respect to
market index has been comparatively low. The value derived well shows that the company’s
stock price is less sensitive in comparison to market index.
On the other hand, it is important to note that the beta value for the Walmart Company
has been around 0.88 times which states that the stock has been prone and much more sensitive
with respect to the market index.
2. Cost of Equity: The cost of equity for the company has been well calculated with the help of
the Capital Asset Pricing Model whereby key and important factors like risk free rate, return on
market and beta value has been specifically taken into consideration for the purpose of valuation
of the stock. The key formula that has been applied for the purpose of calculating the WACC are
as follows:
Cost of Equity (Ke): Risk Free Rate (Rf)+Beta*(Return on Market-Risk Free Rate).
Risk Free Rate: 1.90% (Prevailing Risk Free Rate in U.S)
Return on Market: 10.33% (Return generated by the S&P 500 Index, a broader market
representative of the US Stock Markets, whereby 5 year data has been taken into consideration
for the purpose of calculating the market return).
Beta: Walmart: 0.38 Times and Costco: 0.88 Times.
Cost of Equity (Walmart): 5.10%
Cost of Equity (Costco): 9.32%
3. Credit Rating: It is important that since credit ratings on the debt borrowed were not
available so synthetic ratings were created for both the analyzed companies. In the case of
Walmart Company the credit ratings would be as follows:
Walmart Company: BB-
Costco Company: BBB+
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The key reason for Walmart Company has been based on the fact that Walmart Company is
having a comparative higher cost of debt and a higher weightage of debt in the financing
structure of the company as compared to Costco Company.
4. WACC: The WACC for the company in particular has been derived with the help of the Cost
of Equity and Cost of Debt that has been well calculated for the companies analyzed. The result
of the same are well shown below:
Weighted Average Cost of Capital Weighted Average Cost of Capital
Walmart Company Costco Company
Cost of Equity Cost of Equity
Capital Asset Pricing Model Capital Asset Pricing Model
Risk Free Rate 1.90% Risk Free Rate 1.90%
Return on Market 10.33% Return on Market 10.33%
Beta 0.38 Beta 0.88
Cost of Equity (Ke) 5.10% Cost of Equity (Ke) 9.32%
Cost of Debt Cost of Debt
Interest Cost 2346000 Interest Cost 150000
Long Term Debt 43520000 Long Term Debt 5124000
Pre-Tax Cost of Debt (%) 5.39% Pre-Tax Cost of Debt (%) 2.93%
Effective Tax Rate 30% Effective Tax Rate 22.27%
Post-Tax Cost of Debt (%) 3.77% Post-Tax Cost of Debt (%) 2.28%
Equity Value 72496000 Equity Value 15243000
Long-Term Debt 43520000 Long-Term Debt 5124000
Weight of Equity 62.49% Weight of Equity 74.84%
Weight of Debt 37.51% Weight of Debt 25.16%
WACC 4.60% WACC 7.55%
8.2 Where do you see the company’s WACC going, increasing, decreasing, or remaining at the
same level? Why?
Type your answers starting from here:
The weighted average cost of capital for the companies has been well calculated with the
help of the various financing sources the company has helped and by taking the cost and value or
weights of each of the financing source that has been deployed. The forecasting of the WACC
for the analyzed companies can be well predicted with the help of the
The WACC for the Retail companies can be well analyzed based on the historical weightage of
equity and debt that has been given by the company. The Walmart Company on a comparative
basis has constantly increased the weightage of debt financing in the overall financing structure
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of the company on a comparative basis as compared to equity finance. The cost of debt is
comparatively less than cost of equity for the company and as per the historical trend followed
by the company the company has increased the debt position which if continued by the company
will lead to a fall in the WACC of company on a comparative basis.
8.3Discuss two ways to improve the company’s WACC, your answers should relay to the
general market condition, as well as the company’s debt structure & policy.
Type your answers starting from here:
An Optimum financing structure is important and should be well followed by the company by
keeping an optimal mix of debt and equity financing in the capital structure of the company
whereby the company can take advantage of both financing. After analyzing the capital structure
of the WACC of the Walmart Company it can be well recommended that the company must well
try to reduce the debt financing as higher amount of debt in the overall financing of the company
can increase the risk that is associated with the company in the form of financial risks.
9. Others
Discuss one more thing that’s not discussed above but you find worth noticing from the
company’s income statement, balance sheet, or cash flow statement.
Type your answers starting from here:
Business Operations of the WALMART Company has grown well across the various
business operations and activities that it controls and manages and the same can be well seen
with the help of the financial performance that has been well generated by the company in the
past three years. In terms of efficiency and activity also the management of the company has
shown recommendable efforts in well improving the financial position of the company. The
increase in the financial performance and position in turn would be helping the company in the
long run development and growth in various business activities that it caters.
Part 3: Managers’ Perspectives & Actions (20 points each)
1. From a CEO/CFO’s perspective, summarize the company’s overall strengths and weaknesses
in (1) operation, (2) investment, and (3) financing. What is your company’s overall core
competence? Does it have a wide or narrow economic moat?
The above analysis effectively shows that the management of the company effectively engages
in operational process which is subjected to significant risks and therefore effective planning
needs to be undertaken so that the operations of the business can be effectively supported. The
major decisions of the business are taken by the senior management of the company. The
management of the company is looking to expand the operations by acquiring smaller businesses
which would be providing synergy effect. The management of the company is looking to expand
the operations of the business through online operations or with the help of e-commerce settings
in a business. The management of Walmart is also looking to make investments in other smaller
companies so that the management of the company is able to gain competitive advantage over its
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competitors. As per the annual report of the company for 2019 shows that the management of the
company has made investments in Flipkart which is its largest investment for the purpose of
expanding the sales of the business. The strategy which is formulated which is formulated by the
management also aims to ensure that the business makes investments in joint ventures and
ecommerce development so that the business is able to enhance the operations and revenue of the
business.
In terms of financing activities of the business, the management of the company relies heavily on
debt capital which may be from short term sources and also from long term sources of extracting
debt capital. The financing activities of the business also involves effective utilization of
resources of the business so that the management of the company is able to enhance the revenue
and assets base. As per the annual report, the focus of the management is to enhance the core
retail capabilities of the business so that the level of efficiency in the operations can be enhanced.
The management of the company also aims to ensure that the business is able to develop e-
commerce facilities in the operation. The analysis reveals that the management of the company
would be aiming to enhance the profitability and also enhance the operations of the business.
2. From a CEO/CFO’s perspective, understand your value drivers and various ratios and suggest
how the company could increase its value. Your analysis here should be based on both your ratio
analysis and valuation.
The perspective of the CEO and CFO reveals that the management of the company focuses more
enhancing the revenue and operational structure of the business. The management of the
company needs to focus on enhancing the sales revenue of the business and thereby also enhance
the network of e-commerce settings in the business. The management of the company is also
looking to achieve sustainable growth in the operations of the business for the purpose of further
enhancing the revenue of the business.
What are some ways that your company can further its growth? (hint: you can read Chapter 4 but
please apply it to your company specifically; you can also draw on your analysis above on PEST,
industry trend, and firm-specific factors)
The management of the company can further achieve growth from the operations of the business
by further diversifying the operations of the business and also making the operations more
efficient in nature. The PEST factors are also some of the factors which are considered for the
purpose of taking decisions regarding the operations of the business. The interest rate and
economic factors are important conditions which are used for the purpose of ensuring that the
management is able to expand the operations of the business. The analysis also shows that the
management of the company also focuses on developing technology of the business. The
analysis also shows that the management also puts emphasis on increasing the revenue of the
business.
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