In-Depth Analysis of Walmart: Financials, Dividend Policy & Issues

This case study provides a comprehensive analysis of Walmart, focusing on its financial performance, dividend policy, and the impact of key issues such as Brexit and the COVID-19 pandemic. The report examines Walmart's dividend policy through the lens of dividend relevance and irrelevance theories, evaluates its capital structure using relevant and irrelevant theories, and conducts a financial analysis using profitability and efficiency ratios. The analysis includes insights into Walmart's return on capital employed, gross profit margin, inventory turnover, and receivable days, offering a detailed overview of the company's financial health and operational efficiency. The study also addresses how Brexit and COVID-19 have influenced Walmart's sales, profitability, and overall market position, providing a balanced perspective on the challenges and opportunities faced by the company. This document is available on Desklib, where students can find a wealth of academic resources, including past papers and solved assignments.

COMPANY ANALYSIS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................3
Analyzing issues of company......................................................................................................3
Explaining dividend policy ........................................................................................................4
Financial analysis is as follows:(all ratios below are found in Appendix 2)...............................7
CONCLUSION ............................................................................................................................10
.....................................................................................................................................................11
APPENDIX 1................................................................................................................................12
Walmart’s financial statement...................................................................................................12
APPENDIX 2................................................................................................................................14
Ratio Calculation.......................................................................................................................14
REFERENCES..............................................................................................................................16
1

INTRODUCTION
Company analysis is the procedure of evaluating crucial factors that affects the growth and
processing of an organization through focusing on product, profile, profitability, etc. In
current era, it becomes important for the company to assess its factors that boost and hinder
performance of firm. The current report is based on Walmart which is multinational
cooperation that operates in retail industry. It is basically having supermarket chain that
deals in groceries products, general merchandising, etc. firm was founded in 1962 and has
club retail warehouses which is one of the reasons that firm is one of the largest retail
revenues generating company in world. Operating activity of company is implemented by
three segments such as Walmart US, international and Sam’s club. Organization has good
marketing and sales efforts that are contributing in achieving good market share in industry.
This company has competitive advantages such as trust among targeted audience which is
attained by offering qualitative products.
Walmart is listed on New York stock Exchange that is one of the most profit-making
organization in USA. This is an internal organization that operates on several platform
which require it to analyse all impacting factor so that crucial improvements can be exerted.
Present case study will comprise issue prevailing in firm to make appropriate determination
of impact on firm’s growth. Current report will focus on dividend policy, capital structure,
financial analysis to get deeper knowledge of Walmart internal practices and liquidity
condition in sector.
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MAIN BODY
Analyzing issues of company
i) Brexit
It is one of the major issues that affected Walmart on large scale through declining the
ability to sustain in industry. There are variety of aspects that has occurred due to
implementation of Brexit which includes reducing purchasing power of customers, creating
scenario for making firm to struggle, etc. Due to Brexit continuous loom uncertain market
surrounding has been created. It all has influenced stability of company in negative manner
(Lumby, 2019). There is requirement to give emphasis on consumer ‘s confidence.
Outcome derived was comparatively less that affected financial performance of Walmart
due to lower prices, profit margin, sales, etc. On the basis of this, it can be articulated that
Brexit has negatively affected financial condition of company.
From the evaluation it can be identified that there is 0.5% fall in sales due to
negatively affect customer spending patterns. Brexit impact has resulted into inflation
which has been measured by consumer price index which reflects downward trend since
2017 and got settled at 1.9% in 2019. It can be identified that less purchasing power has
adversely affected Walmart capacity of generating revenue.
ii) Covid 19
In the present scenario it is essential to address the pandemic crises which is affecting the
all-industry procedure. This has impacted both positively and negatively depending upon the
segment of industry. Walmart as operating in retail industry as international operator got
influenced from the covid 19 crises. Firm operates in retail industry and offers grocery
products which are counted in essential requirement of customers and allowed to deal with
clients in the times of crises. It has enabled Walmart to get the opportunity to increase
revenue generating ability by making higher conversion rate (Hasnawati, 2021). Walmart’s
sales activity has inclined as compared to previous. So, firm has positively got impacted
from these activities. There is some part of distribution found in covid 19 time which cannot
be neglected while addressing this particular issue. Cost structure has become complex to
certain extent due to compliance with prevailing rules and regulations. This is influencing
adversely by decline certain range of profitability and sustainability.
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From the valaution of above chart it can be abnalysed that in category of groceries there is
inclining change in company’sfianncail perfromance which is positiev sign. It has given
opportunity to eran more through incraesings sales by 75%. From the above graph it can be
interpreted that higher increase are seen in grocery segment that contribute in achieving
higher revenue. The increase level of sales can be utilized to identify that profitability is as
well inclining.
Explaining dividend policy
Dividend irrelevant theory (M&M)
This is associated with there should not have little to no influence on stock prices due to
company’s declaration & payment of dividend. It basically articulates that there is no value
addition of dividend to inventors and ultimately affects the financial health of organization.
Walmart can influence its positive financial well-being by issuing dividend to its inventors
(Bajaj, Kashiramka and Singh, 2020). There is involvement of not tax dividend policy is
irrelevant theory as inventors expected to create their own cash flows which affects company’s
monetary health. It comprises assumption like no tax, floatation cost, impact of capital
budgeting, etc. As per this theory there is no impact on stock prices due to organization’s
declaration & payment of dividends. There is no requirement of gaps in raising new equity
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capital. The assumption of no influence on shareholders wealth from the divided make its
unrealistic for the current working scenarios.
Dividend relevance theory
Dividend policy has a positive impact on firm’s position in the stock market. As per the
definition it can be articulated that goodwill of company get influence (Bekaert and Hodrick,
2016). It articulates that dividend decision affect market value of organization. This particular
theory comprises Walter, Gorden, dividend capitalization and signaling models. Tax preferences
states that lower rate of dividend payments should be there to maximize share prices.
Dividend policy of Walmart is concerned with consecutive annual dividend boosts fuelled
by long term revenue growth. Walmart basically focuses on this approach to get higher prices of
shares. It inclines annual cash dividend every year which helps it to focus on attracting potential
and satisfying current shareholders. Firm concentrate on providing dividend in currents scenario
rather than delaying it. Walmart make sure that investors are getting positive approach regarding
present & potential dividend policy adopted by organization.
For instance- Last dividend payout per share $.54 and trailing yield 1.54% as the top line
revenue of Walmart is 137.7 billion as the corona virus has boosted the sales. Walmart utilizes
the dividend discount model as valuation tool and from the analysis growth rate is greater than
8.11%.
Explaining capital structure theories
Relevant theory
This is one of the important theories that is concerned with systematic approach to
financing business activities through combination of equities and liabilities. The below shown
diagram is concerned with relevant theory of traditional approach states that an organization’s
value increases to certain extent of debt capital after which it tends to remain constant and brings
to decrease if there are more borrowings (Vogel, 2020). In addition to this, it depends on
assumption that imply that cost of either debt or equity financing differ in respect to degree of
leverage (Narayan and et.al., 2021). From the below graph it can be understood that there is
moderate level of leverage when benefits of using debt are more than cost of utilizing inclined
cost of equity. There is involvement of assumptions in this particular theory of capital structure
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which comprises utilization of two sources funds, ignoring effects of tax, no alteration in
investment decisions and no income is retained (Jacque, 2014). Change in financial leverage
outcome in modification of capital costs. According to this specific approach of capital structure
cost of debt, equity capital, average cost of capital remains constant.
Irrelevant theory
The financial decision regarding stated subject matter is has direct impact on the weighted
average cost of capital. WACC are proposition to debt and equity (Malik, Sharma and Kaur,
2021). So, it can be address that when organization changes its working capital it automatically
alters weighted average cost of capital. From the diagram it can be understood that change in
gearing will cause WACC to increase which is reflected by U curve diagram. The WACC
remains constant at all levels of gearing then value of the organization is also constant. This
theory indicates that capital structure irrelevance proposition states the assumption that
organization value is not affected by mentioned subject matter. The set of assumption includes
riskless borrowing & lending, no agency cost, investment decisions are unaffected from
financing, investors have same expectations as company’s prospects. Capital market in this
particular irrelevant theory is assumed to be perfectively competitive which is considered to be
most efficient type of market (Lumby and Jones, 2015). Walmart is using mix of debt & equity
in its capital structuring for meeting industry standards. This capital structuring provides
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assistance in accomplishing objectives of firm in effectual manner. Mixture of debt & equity
finance used by organization to funding its assets for getting higher efficient processing
Walmart’s capital structure utilized by company is made by combining the debt and
equity. The organization has given much emphasis on obtaining debt for smooth functioning as
compared to equity. Financial risk is higher due to this particular from of capital structure of
WALMART. The gearing ratio of company for the two years 2019 & 2020 are 1.75% and 2.07
respectively which is indicating that company risk is comparatively low in previous period as
compared to current. This is showing firm has higher equity than debt.
Financial analysis is as follows:(all ratios below are found in Appendix 2)
Profitability Ratios
Return on capital employed
It is associated the efficiency of company in terms of utilizing capital for generating
profit (Marx,Mojon and Velde, 2019). From the evaluation of 2019 and 2020 obtained outcome
of mentioned organization are 25.22% & 27 .57%. It can be articulated that this is in inclining
trend which is positive sign for the growth and it can help Walmart to satisfy its shareholders.
The fluent processing of company can be attained by taking more improvement actions like
paying off debts, selling unnecessary assets, etc to increase efficiency. These mentioned
methods can be sued to sustain the performance through reducing debt or increasing liquidity by
adopting stated strategy.
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Gross profit margin
This is concerned with profit generating capacity of Walmart by reducing cost of goods
sold (Nariswari and Nugraha, 2020.). On the basis of shown (appendix 2) it can be interpreted
that from 2019 to 2020 the profitability has decreased from 25.29% to 24.88%. That is a little
change in gross profit of Walmart. From the evaluation of (appendix 2) it can be stated that
organization is result as compared earlier duration the main reason can be decrease in cost of
goods sold, lower priced suppliers, advanced technology, outsourcing, etc. These mentioned
courses of action due to smooth functioning of company’s marketing & promotional practices
which is increasing brand awareness and inclining GP.
Efficiency Ratio
Inventory turnover
It is associated with in how many days stock of company gets replaced by selling
(Kwak, 2019). The particular matrix of Walmart in 2019 and 2020 are 41.93% to 41.10% days.
On the basis of this it can be interpreted that there is declining trend in this which is one of the
positive signs for having good financial position. The improvement in organizational
performance bought by having significant marketing practices that has increased sales. This has
enabled firm to cover large market share and resulted into higher efficiency in mentioned aspect.
Receivable days
This presents the number of days an organization collects its outstanding payment from
its customer (Manullang and et.al., 2020.). It plays an important role in measuring liquidity
position of firm that shows smooth functioning of company (Grennan and Michaely, 2020).
From the assessment (Appendix 2) it can be interpreted that from 2019 to 2020 it has been
decreased. In 2019 receivable ratio is 4.49 days and in next year 4.41days is found outcome.
This shows that Walmart has effective policy regarding its credit sales and collecting payments.
Walmart’s liquidity is improving due to good customer relationship building tactic, greater
emphasis on providing discounts, etc to get instant payment which has boost the efficiency of
collecting funds.
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Liquidity Ratio
Current ratio
It is utilized to assess ability of paying current liabilities with current assets (Sagala,
2019) . On the basis of appendix 2 it can be interpreted that firm is having 0.79 times current
ratio in both years 2019 & 2020. The ideal ratio is 1.2-1.5 times which is higher than obtained
outcome which requires improvement. From the evaluation it can be interpreted that
organization is having lower margin as compared to standard margin. The main reason behind
declined efficiency can be taken as improper management of assets that is not giving appropriate
output for meeting short term obligations. In order to improve organization, need to concentrate
on improving its fund raising, allocating and optimizing capacity so that better management can
be exerted.
Quick ratio
Walmart’s capacity of overcoming short term liabilities with cash and equivalent assets
can be determined (Wang and vom Hofe, 2020). From the assessment it can be interpreted that
firm in 2019 has 0.18 and 2020 it is 0.20 times quick which too much lower than benchmarking
and needs improvement by selling unproductive assets, etc. The ideal quick ratio is 1 which is
higher than derived outcome which indicates poor financial efficiency. The main cause behind
this is decline in optimum utilization of cash & equivalent resources to overcome current
liabilities. There are little upward directional changes indicates that Walmart is taking respect
effort to improve the same.
Gearing
It shows risk associated with firm's organizational practice by taking total equity and
debt into consideration (Babichevand Storchak, 2018). In 2019 and 2020 outcome derived is
1.75 to 2.07 respectively that presents increase in risk as per appendix 2. There is requirement
of improvement to decline risk to maintain interest of investors in firm for longer duration.
Crucial cause regarding the same it can be said that its capital structure comprises more debt
than equity. There is lack of conservative financial management which has resulted in mentioned
upward direction.
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Investment Ratio
EPS
This presents how much money company makes from its each stock that is widely taken
into practice for analysis financial performance (Laurens, 2018) . By considering table shown
in appendix 2 it can be stated that there are 2.28 to 5.22 results obtain ion 2019 & 2020 years
respectively. There is upward movement shown which reflects positive financial position of
Walmart. On the basis of illustrated calculation, it can be articulated that greater value of
company’s share is perceived in market. The other reasons such as increase in net income or
declined number of outstanding shares.
P/E ratio
It reflects company’s share price to EPS that is basically concerned with expected growth
rate (Mozes, H. A. and Rozen, H., 2017). There is downward movement can be interpreted as in
2019 it is 42.51 and in 2020 outcome is 21.93. It is negative indication of financial performance
as there is declining trend. The crucial reason for the attained result that they are undervalued,
mispricing relative to its past trend, etc cause the declination of PE ration of Walmart.
CONCLUSION
From the above report it can be interpreted that company analysis is important for
evaluating important aspect. Current report has comprised issues, dividend policies and
capital structure to get deeper knowledge of specified firm. Present case study has involved
ratio analysis for evaluating financial performance of company.
Recommendations
 It is recommended to company to have proper cost structuring, price strategy, credit
policy, selling unproductive assets, effective inventory management etc. to increase
financial condition.
 This is advisable to organization to have appropriate market analysis for purpose of
identifying relevant changes that are necessary for making improvement to match
customer’s demand.
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 Walmart is suggested to utilize effective capital structuring method to get desirable
financial position by maintaining interest of stakeholders in company through provide
positive results.
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