Finance Report: Finance Role in Strategic Decision Making for Walmart

This report delves into the critical role of finance within business entities, emphasizing its impact on strategic decision-making, capital structure, and dividend policies, with the ultimate goal of maximizing profitability and shareholder returns. Using Walmart as a case study, the report explores how financial resources are managed and allocated to achieve strategic objectives, including investment in new technologies, store remodels, and share repurchasing. It examines the significance of financial planning, budgeting, profit planning, cost control, capital management, cash management, and risk management in driving business success. Furthermore, the report proposes key financing decisions, such as optimizing interest rates, managing debt, and leveraging financial instruments to enhance financial performance and shareholder value. The analysis covers Walmart's financial performance, investment strategies, and risk management practices, offering insights into how financial decisions influence the company's ability to compete, innovate, and sustain long-term growth in a dynamic market environment.

FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part 1............................................................................................................................................3
Part 2............................................................................................................................................8
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
The term finance is key aspect of all kinds of business entities because by help of it a
wide range of activities and operations are completed (Gunlicks, 2019). Thus, it becomes
essential for companies to manage their financial resources in an effective manner. The key
objective of this project report is to assessing role of finance in strategic decision making, capital
structure and dividend decisions in order to maximise overall profitability and shareholders
return. As well as to spread out knowledge regards to role of finance for business entities to take
strategic decisions. In order to understand in an effective manner, Wall mart company has been
chosen for this project. This company is an American multinational retail company that is
headquartered in Bentonville, Arkansas. The company was founded in year 1962 by Sam Walton
and incorporated on 31st of October, 1969. In current time period, this company operates its
operations into different countries at worldwide level. They provide a wide range of products
such as clothing, footwear, groceries and many more. As per the current financial data of year
2019, this can be find out that their net income is of $6.67 billion and total assets are of $219.295
billion (About financial performance of Wall-mart company, 2019.).
MAIN BODY
Part 1
Role of finance for strategic decision-making.
The finance plays a significant role in order to take many crucial role for business
entities. It is so because if companies have enough amount of monetary resources then it
becomes much more easier to take decisions regards to various aspects (Onchan, 2019). Herein,
below some key role of finance for better strategic decision-making is mentioned that is as
follows:
 Role of finance in Strategic planning of company- The term strategic planning can be
defined as a way of predicting possible opportunities and issues for business entities. By
help of it, companies become able to make an effective planning to achieve their goals
and objectives Navias, 2017). In addition, the strategic planning helps to business entities
in growing and sustaining in economic environment. In the aspect of Wall mart company,
it can be find out that they are planning to to start new stores in order to remodel the exist

stores and to make more investment in new technologies. The company has endowed in
vital range of techniques and technologies such as automatic cleaning of floors, advanced
scanning efficiency in order to sorting the items. The company is making planning to do
remodelling of 500 stores in current year. They predicted a budget of $11 billion. The
Wall mart company is also making re purchasing of its shares such as they purchased
shares of $11.3 billion in year 2019. In addition, they are planning purchase share of $8.7
billion before end of financial year 2019. For repurchasing of shares, the company
allocated a budget of $20 billion. As per the above information about Wall mart
company, this can be articulated that they are making huge amount of investment in own
development. As well as they are trying to align their stores with e commerce and by
doing this their customers will highly satisfied. The main reason of doing this investment
is to sustain in competitive environment and to beat their tough competitors.
 Role of finance in budgeting- The term budgeting can be defined as a way of estimating
futuristic financial needs in a detailed manner (Frieden, 2015). Under this, it is projected
that how much amount of revenues can be generated and how much amount of
expenditures may occur in order to make payment of various kinds of activities. All these
estimations are done on the basis of past financial information. The repurchasing of share
will impact to change in assets and equity in a positive manner that proves to be good
ROA and ROE. From the aspect of investors, it is also beneficial to deduct in number of
company's shares. The Wall mart company is investing $11 billion to enhance their stores
and better customer experience. From the starting of month, the stock price was of $93.87
and after it became of $103.52. Hence the strategic planning and budgeting seems
profitable for Wall mart.
 Role of finance in profit planning and cost control- The profit planning can be defined as
a combination of activities and actions which are taken by companies in order to achieve
an estimated level of profits (Ardalan, 2016). These all actions consist development of an
interlinking set of financial plans which are rolled out into master budget. In the context
of better financial planning role of finance is too crucial. The term cost control can be
defined as a kinds of strategy whose main objective is to minimise overall expenditure
that occur in process of accomplishment of various kinds of activities. This is crucial for
companies to make focus on their investments so that profitability can increase. The

business entities need to increase their investments in new products by expanding exist
business region and by new marketing strategies.
From year 2013 to current year, the Wall mart company enhanced their investments from $300
million to $1.1 billion in the context of e- marketing. The electronic commerce is covering 3 %
of total sales. The online sales revenue of above company is increased and gained 43% during
fourth quarter of year 2019 (About financial performance of Wall-mart company. 2019). With an
objective of achieving higher growth in year 2019, the company is making investment by adding
more commodities in online segment. They have planned to add celebrity inspired cloths and
high ended fashion cloths in their online sites. On the other hand, acquisition of 81% shares of
Indian online business of Flipkart in year 2018 and its loss may lead to negative impact on
profitability of Wall mart till year 2020.
 Role of finance in capital management – The term capital management can be defined as
a kinds of strategy which is related with a systematic process of maintaining enough and
equal level of working capital, current assets and current liabilities (Hempelmann,
Engelen, 2015). Basically, the main objective of this is to help the business entities in
order to meet with their expense obligations along with managing enough level of cash
flows. This is important for companies to make strategic planning for their long term
investments. The businesses should make focus on identifying possible opportunities and
challenges of any project which they are planning to invest. In this aspect, the term
capital management plays a key role. It is so because by help of this, investors get able to
see clear picture of capital management efficiency. For making an effective capital
management analysis, it is important assess return on capital investment and weighted
average cost of capital. In the context of Wall mart company, this can be find out that
their return on capital investment is of 11.27% and weighted average cost of capital is of
5.28 %. In the case when ROIC ratio excess the WACC, then it is considered as a
positive sign for companies. Such as the Wall mart company is able to achieve higher
amount of return on their investments. From the perspective of investors, it can be seen
that company is earning more return on their investment. The above mentioned, WACC
and ROIC are the critical figures and needed to consider before making any conclusion.
As per the last four years data, this can be figure out that the company is able to manage

to enhance their WACC from 3.15 % to current 5.73% (About financial performance of
Wall-mart company, 2019).
The Wall mart company had taken some risky decisions regards to investment and they
got success. It consists higher wages, e commerce, acquisition of various companies and
collaborating with world wide technology businesses of China and Japan. As well as it
shows their capital management is right direction.
 Role of finance in cash management – Apart from the above mentioned role of finance,
another key importance of finance is to better management of cash. The term cash
management can be defined as a systematic process which consists different kinds of
activities such as collection, managing and usage of cash (Law, Kutan, Naseem, 2018).
Apart from it, this includes the assessment of market liquidity, flow of cash and
investment. Assessing cash management of companies benefits in understanding their
efficiency of collecting, paying and investing of cash. There are wide range of advantages
of better cash management. Such as it helps in making effective relationship with
suppliers by providing credit on time. As well as it provides opportunity of investment
and achieving more profits.
The day payable ratio of Wall mart company is of 44.58 which is better then their competitors. It
shows that they are making payment to their suppliers on determined date. As well as their
receivable ratio is of 4.46 that indicates that company can get additional revenues by making

investment or can use this for operational activities. In addition, operating activities of above
company shows that these are positive in last four years with some volume of fluctuation. This
states that they have gathered more cash and spent less amount on expenditures. It means that if
they make investment on their expenditures then they will even have enough amount of funds for
better growth in future. As well as it also indicates that their financial performance is better and
they do not require to sell their assets to make payment of debts. Their amount of net borrowings
has been fell down that is a positive indication to them. So overall, their operating cash flow is
positive and investing & financing cash flows are negative. This shows that they are gaining
sufficient amount from operating activities and they do not need to borrow from operational
activities.
 Role of finance in risk management and in strategic decision making- It is too crucial for
companies to identify volume of risk in different kinds of investment proposals. For this
purpose, proper management of risk is essential. The term risk management can be
defined as a kinds of process that is related with finding, assessing and controlling threats
to a business entity's capital and earnings (Ducastel, Anseeuw, 2017). These risk can
radical from a vital range of sources, consisting monetary uncertainty, legal obligations,
strategic management barriers, natural disasters and many more. For better risk
management, it is essential to consider role of finance. Eventually, companies' financial
health relays on three key activities which are operational, investing and financial. If any
issue occurs in these activities then, this may become cause of ineffective monetary
performance of company. For this purpose, it is essential for business entities to find out
possible risks.
The annual report of Wall mart company shows about their strategic risks, operational risks,
monetary risks and many more. They have not provided any possible alternatives in order to
manage these risks. Though, the company is making investment in automation which can help to
them in minimising operational risks. The company is now aware of making effective investment
plan after making wrong decision of investing in Flipkart. Thus, on the basis of above analysis,
this can be stated that Wall mart company is now concentrated on long term vision that can help
in avoiding risk of failure. As well as this can be find out that they are making investment in an
effective manner for continuous enhancement in working capital. s

Part 2
What finance decision should propose in order to maximise profitability and shareholders return.
This is important for companies to take suitable financial decisions so that amount of
profitability can be increase in a significant manner. Herein, below some key aspects are
mentioned that are as followings: Propose financing- It is essential for companies to borrow financial resources from those
aspects in which rate of interest is lower (Abe, Troilo & Batsaikhan, 2015). This is so
because if cost of getting finance will be lower then it will be easier to gain higher
amount of profits. In the context of Wall mart company, this can be find out that they are
getting funds from vital range of sources that are of short-term and long term. Herein,
below some key sources of above company are mentioned that are as:
Source of finance 2017 2018 2019
Short term debts 3355 8995 7101
Long term debts 36015 30045 43520
Capital leases 6003 6780 6683
Short term debts Long term debts Capital leases
0
10000
20000
30000
40000
50000
3355
36015
6003
8995
30045
67807101
43520
6683
2017
2018
2019
Analysis- The above graph presents that above company is fulfilling their financial needs from a
wide range of resources. Such as they are getting short-term loans $3355 GBP million in year
2017 which raised in next year and became of $8995 GBP million. Same as in the aspect of long
term debts, it can be find out that their need of long term loans are increasing. Such as in year
2017, they were acquiring loan of $36015 GBP million which increased and became of $43520
GBP million in year 2019. Along with another source of finance is capital lease for above

company which is increasing year by year. Like in year 2017, it was of $6003 GBP million
which raised in next two years.
As per the above analysis, this can be stated that above company should focus on minimising
their need of debt. It is so because if they will do so then their profitability will increase and they
will be able to satisfy the need of their stakeholders. They should focus on fulfilling their
financial needs from retained earnings so that their efficiency can be increase. In the aspect of
above company, their retained earnings for year 2017,2018 and 2019 is as followings:
2017 2018 2019
Retained earnings 89354 85107 80785
Retained earnings
76000
78000
80000
82000
84000
86000
88000
90000
92000 89354
85107
80785
2017
2018
2019
The above graph states that their amount of retained earnings is decreasing year by year this is so
because the value of net income is increasing year by year. Hence, it is important to them in
order to focus on increasing the value of net profit so that retained earnings can be increased
effectively. In the case when their net profit will not increase the amount of retained earnings
will also reduce. It is so because, retained earning is achieved from total value of net income of
companies.
Return on assets: This ratio indicates the efficiency of earning return from the available amount
of net assets. In the aspect of Walmart company, this can be find out that their ROA is decreasing
during year 2015-19. It was of 8.02% in year 2015 which reduced and became of 3.15%. This is

so because of unrealised loss from investment on JD.Com. It states that company is not
successful in order to gain return on investment.
ROIC & WACC- The return on invested capital, shows about efficiency of a company of
generating return from invested amount of capital. In the aspect of Wall-mart company, this can
be find out that their ROIC has been decreasing in a significant manner during year 2015-19. It is
decreasing from 14.29% to 11.27%. In addition, the WACC is of 5.88% which is less then to
ROIC and it indicates that company is generating higher amount of return on the investments.
 Propose capital structure- The term capital structure defines about companies' long
term capital that includes an integration of debt and equity (Burgstaller & Wagner,
2015). It can be defined as a kinds of funding which supports in business entities growth
and related assets. This is expressed by below mentioned formula which is as follows:
Capital structure= DO+ TSE

Herein,
DO- Debt obligations
TSE- Total shareholders' equity.
In the aspect of above Wall mart company, their debt obligations and total shareholders'
equity is mentioned below such as:
Debt obligations- These can be defined as those obligations which are essential for companies to
pay on time. Each company gets monetary loans in order to fulfil their needs. In the context of
Wall mart company, their total debt obligations are as:
Debt obligation= short-term debts+ long term debts+ other fixed payments.
2017 2018 2019
Debt obligation 39370 39040 50621
Debt obligation
0
10000
20000
30000
40000
50000
60000
39370 39040
50621
2017
2018
2018
Analysis- The amount of debt obligation for above company is increasing year by year. Such as
in year 2017, it was of $39370 million with reduced by a few margin and became of $39040
GBP million in year 2018. While in year 2019, it increased by huge margin and became of
$50621 GBP million. This is indicating that value of debts obligations are too higher in current
time period as compare to past years. It is so because company is depending on fulfilling its
financial needs from taking loans which is causing as higher volume of debt obligations.
Total shareholders' equity- The term shareholders equity can be defined as variation between
total assets and total liabilities (Zhang, 2018). It is also known as stockholders' equity. Herein, it
is important to know that retained earning is a part of shareholders' equity. In the aspect of above

Wall mart company, the amount of total shareholders' equity is demonstrated below in such
manner:
2017 2018 2019
Total shareholders'
equity
77798 77869 72496
Total shareholders' equity
68000
70000
72000
74000
76000
78000
80000 77798 77869
72496
2017
2018
2019
Analysis- On the basis of above presented graph, it can be find out that their total amount of
shareholders equity is decreasing during year 2018-19. Such as in year 2018, it was of $77869
million which reduced in next year 2019 and became of $72496. In this aspect, it can be analysed
that their value of common stock, retained earnings and additional paid up capital is decreasing.
It is so because of less number of investment and shareholders. As a result, they do not have
enough amount of shareholders' equity.
Debt equity ratio- It can be defined as a kinds of ratio which shows the relationship between total
amount of debts and equity in a systematic manner (Caselli & Negri, 2018). The ideal debt ratio
is needed to be between 1 to 1.5. In the context of above chosen company, their debt to equity
ratio is calculated below in such manner:
2017 2018 2019
Debt equity ratio 0.54 0.47 0.69