Financial Analysis of Walmart and Tesco: A Comparative Report

This report provides a detailed financial analysis of Walmart and Tesco, two major multinational retailers. It begins with an introduction to both companies, outlining their market positions and revenues. The core of the report involves a comparative analysis of their financial performance and financial position, utilizing horizontal and vertical analyses of their income statements, balance sheets, and cash flow statements from 2013 to 2016. Key financial metrics such as total revenue, net income, interest expenses, gross profit, current assets, and current liabilities are examined to assess each company's performance. The report also evaluates the working capital and cash flow of both companies to determine their operational efficiency and liquidity. The analysis includes a table summarizing the comparison between Tesco and Walmart based on various financial factors. The conclusion highlights Walmart's stronger financial position compared to Tesco based on the analysis. Overall, the report provides a comprehensive overview of the financial health and performance of both companies during the specified period.

Financial Analysis
Management
&
Entrepreneurship

Table of Contents
INTRODUCTION...........................................................................................................................1
1 Evaluation of the financial performance and financial position of Walmart and Tesco..........1
2. Evaluation of the Working Capital.......................................................................................19
3. Evaluation of cash flow.........................................................................................................20
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
In this report, analyses of the financial performances of two companies Walmart and
Tesco has been done. Both company has compared through ratio analysis and vertical and
horizontal analysis of both the companies. Their working capital has been evaluated in this
report, to find the efficiency of Walmart and Tesco during operations. Cash flow analysis will
recommend which company is more liquid.
Walmart is an American transnational selling corp that run as a chain of supermarket and
deduction division stores. It has 11.695 stores and approaches to 28 countries. Its has
approximate revenue of $480 billion. Tesco is also a British multinational grocery retailer as like
Walmart. It is leaded by Walmart in total number of stores. Because Tesco has only 7000 stores
across the countries. It has recorded $73.59 billion as a revenue at the end of 2016. So again
Walmart is leading with $480 billion revenue which is 5 times greater than TESCO.
1 Evaluation of the financial performance and financial position of Walmart and Tesco
To understand the value a company, investors have to look firm's financial positions
(Burns, 2010). Financial analysis involves the use of financial statements, horizontal and vertical
analysis, ratio analysis, etc. to find the actual positions of two companies. Financial statements
consists Income Statement, cash flow statement and Balance sheet of a company. Below is the
financial statements of Tesco and Walmart over 4 years from 2013 to 2016:
Horizontal Analysis of TESCO's income statement:
 Total Revenue: Company's total revenue is declining continuously from 2013 to 2014 as
in 2013 it records approx $63 billion revenue which decline in 2014 by approx 11% and
2015 it again records approx 5% shortfall in revenues. But due to implementing attractive
strategies its revenue again increased approx 4.2%. Still Tesco needs more improvement.
It should increase advertisements, improve its quality services and should examine the
market.
 Interest Expenses: Tesco's paying more interest on its debts, as from the figure it is
clearly shown that its besides decreasing in its total revenue, its interest expenses is
increasing continuously. Which indicates that the company is utilizing more funds
comparing to previous years. So it can use these funds either in the expansion of the
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business or in promotion. But Tesco has declining revenues thus it is clear that company
has invested its debt funds in opening new stores.
 Net Income: Tesco's net income is not stable. As company is only earning profit in 2013
and 2015. But it has incurred huge loss in 2014 which is approx $5.74 billion. It indicates
that company was fail to control its costs of goods sold and other operating expenses with
the decline in Total revenues.
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(Source: Yahoo finance)
BALANCE SHEET OF TESCO
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(Source: Yahoo finance)
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Horizontal analysis of Tesco's balance sheet:
 Total Current Assets: Companies current assets shows a huge crash in 2014, but after
that it starts improving. The main reason behind this huge declined is inventories.
Because Tesco is failed in producing more groceries due to less demand of the product.
This effect is directly linked with total revenues of the company.
 Long-term Investments: Company has invested huge amount in 2014, but it reduces the
investment amount after 2014. it indicates that Tesco is diversifying its funds into
different sources to improve their portfolio.
 Total Current Liabilities: Company manages to control its current liabilities to match
with inventories level. But in 2015 company is less financially leverage because its
current liabilities is decreasing with increasing in the sales as compared to 2014. This
indicates the operations efficiency of Tesco.
 Equity Stocks: Companies equity stocks are stable which indicates that company is not
raising its funds through issuing stocks but through taking long term debts. Tesco doesn't
have any constant revenue so it is recommended to the company that it should raise its
funds through issuing shares,
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CASH FLOW OF TESCO
(Source: Yahoo Finance)
Horizontal analysis of Tesco's income:
 Operating Activities: Cash flow from transaction only shows positive effect in 2014,
after that it is continuously declining. This indicates that company is not efficiently using
its working capital. Which impact Tesco in long run by collapsing its business. Thus
company should be customer focused and should try to increase the demand.
 Investment activities: A negative cash flows from investing activities indicates that
company is continuously investing large amount in other sources accept its own
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operations. At the same time it is not getting any cash inflows from investing activities.
Tesco is not focusing on its core activities which is also the another reason in declining in
total revenue.
 Financing Activities: In 2015 and 2016, company is showing negative cash flows which
is due to taking more long-term debt and issuing more equities. As company is not paying
any dividend so this couldn't be reason behind this. But the other possibilities may be that
Tesco is repurchasing its own stock to minimise the power of decision making by other
person outside the company.
INCOME STATENT OF WALMART
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(Source: Yahoo Finance)
Horizontal analysis of Walmart's Income statements:
 Total Revenue: Walmart's total revenue is not stable as it shows up downs every year in
income statements, which indicates that company is failing in maintaining its constant
revenue. So it has to focus on demands and preference of the customer.
 Gross Profit: Even after declining in the revenues of the company, Walmart has
managed to increase its gross profit. This indicates that company has smartly control its
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cost of goods sold through reduced raw material costs and labour costs (Stokes, Wilson,
and Wilson, 2010).
 Interest Expenses: Walmart's interest on debt was increased up-to 2015 but company
managed to reduced this expenses, because company internally analyses its strength and
evaluate that it's revenue is not constant so it should raise funds through issuing shares in
the market. This indicates that it has good capital structure.
 Net Income: Companies net income is decreasing instead of increasing in gross profit
trends. This indicates that company is utilizing more cash in its operations like paying
rents, depreciations, etc.
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(Source: Yahoo finance)
Horizontal analysis of Walmart's Balance Sheet:
 Total current Assets: Companies current assets are declining every year, because
of decreasing inventories. This indicates that Walmart is failing in deal with market
changes and thus its demand of product is declining every year.
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 Total Current Liabilities: Walmart's current liabilities is increasing every year
because of increasing in the number of debtors with the decreasing in number of
sales. This indicates that company is not efficiently managing its working capital as
its almost fund is stuck in operations.
 Equity funds: Companies equity stock is declining every year, which indicates
that company is repurchasing its own shares.
CASH FLOW OF WALMART
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(Source: Yahoo finance)
Horizontal analysis of Walmart's Cash flow:
 Operating activities: Walmart has fluctuations in cash flows from operating activities,
which indicates irregular operations of the company.
 Investment Activities: Walmart is also showing negative cash flows from its investing
activities, because it is investing huge amounts on infrastructures and purchasing stocks
of other companies.
 Financing activities: Company is showing continuous cash outflows from financing
activities because it is paying higher dividends to attract more shareholders and investors
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and it is issuing more shares (Rothaermel, 2015). It is also repurchasing its own shares
back.
On the basis of above Horizontal analysis of both the company, below is the comparison between
Tesco and Walmart:
Factors Tesco Walmart
Total Revenue Its total revenue is sloping
downwards till 2015, in 2016 Tesco
showed improvement of 5.42%
Walmart has also don't have constant
revenue trends. There are fluctuations
in the trend of its revenue. So both
companies are at same level at this
factor.
Net Income Tesco has recorded huge loss in 2014,
and the highest net income was
earned only in 2013. After that
company doesn't have steady profits
trends.
Walmart is at stronger position in
comparing with Tesco, because this
company hasn't face any loss during
2013-16, hence it has a strong
financial position than TESCO.
Interest
Expenses
Tesco's interest expense trend is
continuously increasing because
company is raising its funds from
long-term debts.
In case of Walmart, company was
raising its fund through taking more
debt. But in 2016, it records decline in
interest expenses, which indicates that
Walmart has paid some part of debt to
reduce fixed cost.
Gross Profit Tesco's gross profit and total revenue
has a direct relationships because it is
declining with decrease in revenue
and vice-versa. This indicates that
company is failed to control its costs
of goods sold expenses.
Walmart has increasing trend of gross
profit because it is succeeded in
controlling the Cost of goods sold. So
here company has strong position
against Tesco.
Total current Tesco reported huge decline in its Walmart is showing declining trend of
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Assets current assets during 2013-14,
because of the declining in the
inventories. But after 2014 it manages
to improve the trend of current assets
through investing in short-term
investments. So in this factor Tesco is
stronger than Walmart.
current assets in its annual report,
because companies inventories are
continuously decreasing and it hasn't
invest in short-term investments which
reduced its total current assets.
Total Current
Liabilities
Tesco in its annual report showing
irregular trend in current liabilities
due to fluctuations in short-term debt.
This company is also showing
fluctuations in current liabilities. But
the stronger point of Walmart is, this
company has reduced large amount of
short-term debt which indicates the
efficiency of its operations. Hence
Walmart is more strong than Tesco.
Operating
activities
Tesco has fluctuations in its cash
inflow trends of its operating
activities, which indicates that
company doesn't have any efficiency
in its operations.
Walmart is also facing same
consequences, hence both the
companies have same strength.
Investment
Activities
Tesco is in stronger position than
Walmart as it is showing positive cash
flows from investing activities in
2016.
Walmart has failed in its effort to
improve its cash flows from investing
activities
Financing
activities
It has shown good growth in its trends
during 2014, but later it is facing
decline in the trend of cash flows
from financing activities. While
company is not paying any dividend.
Walmart is also facing negative cash
flow effect. But the reason for this is
paying dividend to its shareholders.
Thus Walmart has more goodwill than
Tesco.
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Conclusion: From the above comparison it can be concluded that Walmart is at stronger position
than Tesco because of its various strong factors like goodwill, total current liabilities, gross profit
and net incomes.
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Vertical analysis of Walmart and Tesco on the basis of Income statements:
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On the basis of above vertical analyses, following points can differentiate between these two
firms :
Factors Tesco Walmart
COGS Cost of goods sold of Tesco has
more weight age which is more than
92% as compare to revenues.
Which is not good for the company.
COGS of Walmart covers approx 75%
as compare to sales, which is much
less than Tesco. So Walmart is at
good position on the basis of this
comparison.
Gross Profit Because of more weight-age of
COGS, Tesco has low gross profits,
it has increasing trends since 2014.
Walmart is good enough in earning
gross profit as compared to Tesco,
because it covers less weight-age in
COGS.
Interest Expenses Tesco is showing negative
percentage value, which means its
paying more expenses than earning.
Walmart is earning more interests on
its investments than paying on debts.
That's why it has a positive figures.
Hence Walmart is doing good than
Tesco.
Net Income It has -10% in net income segment
which shows huge loss to the
company. And also companies net
profit weight-age is much less than
of Walmart
Walmart doesn't faced any negative
net income. Hence it is more stronger
than Tesco.
Ratio analysis of Tesco and Walmart( considers only 2016 data):
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Current Ratio: Current ratio shows the ability of a business to pay back its current liabilities in
short span of time (Hitt, Ireland and Hoskisson, 2012). Thus current ratio of Tesco and Walmart
is given below:
Hence from the Current Ratio analyses of both the firm Tesco and Walmart, it can be
concluded that Walmart is more efficient in paying its short liabilities than Tesco.
Quick Ratio:
Hence, from the above quick ratio it is cleared that Tesco is highly liquid in paying its
short term debts than Walmart. Tesco can pay its short-term liabilities within 3 months.
Profit Margin Ratio:
Tesco didn't any profit, thus Walmart is better than Tesco.
P/E Ratio:
Tesco Walmart
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$20.95 $21.37
Source: Yahoo finance
Walmart's P/E Ratio is more than Tesco which indicates that company is growing more
than Tesco.
2. Evaluation of the Working Capital
Working capital has two different concepts which are gross concept and net concept.
Where gross concept indicates quantitative approach and net concept shows qualitative approach.
Accordant to quantifiable approach, the sum of working capital refers to Total liquid assets, on
the other hand qualitative approach suggests the sources of financing capital (Kojo Oseifuah,
2010). This approach gives the formulae of Total CA- total CL. Hence working capital means all
superior resources which are accessible to a concern enterprises from stockholder, investor and
creditors. These resources works in enterprise activity to make revenues and ease future
enlargement and maturation (Pierce and Aguinis, 2013). Working capital consists of those
business assets which are utilizing in actual transactions like receivables, inventories, staple,
stokes, work-in-progress and finished goods, commodity, bills receivables, cash and bank.
Analysis of capital is important both in inner and outer way. Because it has direct relationship
with underway day to day dealings of the company. The goal of working capital is to pull off
each firm's CA and CL at acceptable level. Below is the working capital of both firm's Tesco and
Walmart:
TESCO WALMART
Working capital = CA – CL
= 15417000 – 19405000
= −3988000
Working Capital = CA – CL
= 57689000 – 66928000
= −9239000
(Source: Yahoo finance)
Interpretation: From the above calculation, it is clear that both companies working capital is
negative which indicates that both company needs extra funds to run its business. But in case of
Walmart, company needs funds more than Tesco, which mean company has large operations
than Tesco. Because current ratio of Walmart is greater than Tesco.
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Thus there are following importance of analysis of working capital for both the company
Tesco and Walmart in taking decisions:
 Company can know their financial status: Through analysis of working capital, Tesco
and Walmart can identify their financial status. As in the above calculations both the
companies had show negative working capital which indicates that both firms needs
external source of fund to run its operations. So management of the enterprises will take
decisions about which sources of funds should be considered either debt source or equity
source. And also management can take decisions to pay back its liabilities to improve
working capital.
 It gives the information regarding the efficiency of the business: Through working
capital analysis, company can take decisions whether to grow their business or not (Misra
and Puri, 2011). A positive working capital indicates the good efficiency of the company.
Hence in the above calculations both the companies have negative working capital which
means both are not in the position to take expansion decisions as they don't have much
cash to continue their day to day operations.
3. Evaluation of cash flow
Annual cash flows of both the companies are given below:
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(Source: Yahoo finance)
Hence, in the table cash flows of both the companies TESCO and Walmart is given.
Following are the critical analyses of both the companies income statements:
 Cash flow from operative action: An analysis of the operating section enables the
financial manager to determine the adequacy of income from operative activities to
satisfy companies requirements (Martin, McNally and Kay, 2013.). Walmart has recorded
more cash outflows from operating activities which indicates that its business size is
bigger than Tesco. But after analyses of previous operating cash inflows of both the
companies it was found that Walmart is showing positive increment in cash from
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operating activities compare to 2015. In the case of Tesco, companies showing negative
increment from 2015 to 2016 due to loss in 2016. Therefore choosing Walmart for
investment will be good.
 Investing Activities: This subdivision mostly indicate the payment which a company has
spent on cost and short-term investments like new equipment, land and buildings,
purchasing the shares of other companies (Lounsbury and Hirsch, 2010). Both the
companies is showing negative cash flows from investing activities, which indicates that
they are utilizing more cash in investment activities like for acquiring new assets or
machines. That also means that both the companies is re-investing their funds to grow
their businesses. To take decision in choosing best company, investors has to consider
their earning per share values.
 Financing Activities: This section tells about the events of cash, associated with outside
funding activities. Cash inflows into the business indicates that cash is elevated by
merchandising stock and bonds or through dealing from banks (Lohrke, Holloway and
Woolley, 2010). And negative cash flow is the indication of paying back of long- term
loans, dividend payments and repurchases of common stock. After comparing both the
companies investing activities, it was found that Tesco and Walmart is using cash in
paying dividends, loans and repurchases of their shares. But still it will be good decision
to select Walmart for investing funds because company is paying dividend to their
shareholders which is a positive sign for their stakeholders.
CONCLUSION
After evaluating cash flows, working capital and financial statements of Walmart and
Tesco, it was found that both firms are huge in size and are in same industries. So, it was prefect
comparison. Known investors are attracted towards those companies which produces plenty of
free cash flows. Because FCF signals that a institution is capable to fund its liability and
dividends. It can also facilitate the development of the business. After analysis of all the
comparison factors of Tesco and Walmart, it is concluded that Walmart is showing better growth
picture than Tesco. Because this company is significantly showing growth in its net income and
has also managed to control its current ratio's.
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