Ratio Analysis: Comparing Financial Health of Wal-Mart & IKEA

This report provides a comparative financial analysis of Wal-Mart and IKEA Group for the year 2018, utilizing ratio analysis to assess their financial performance. Key ratios such as sales growth, net profit ratio, operating margin, gearing ratio, liquidity ratio, and return on equity are calculated and compared. The analysis reveals insights into the profitability, financial risk, and liquidity positions of both companies. IKEA Group demonstrates a higher sales growth rate, net profit ratio, and operating ratio compared to Wal-Mart, indicating better cost control and pricing strategies. Wal-Mart exhibits lower financial risk due to a lower gearing ratio, but its liquidity ratio raises concerns about meeting short-term obligations. IKEA Group's higher return on equity suggests better income generation. The report also highlights differences in financial statement presentation, such as the inclusion of gross profit as a separate heading in IKEA's statement and the presence of earnings per share information in Wal-Mart's statement. Ultimately, the report suggests that IKEA Group's overall financial performance is superior, recommending that Wal-Mart focus on increasing sales prices and improving its capital structure.

Business Administration 5110 D1

Table of Contents
Introduction......................................................................................................................................3
Main body........................................................................................................................................3
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

INTRODUCTION
The present study is related with the comparison of the financial statement of the two companies
named as Wal-Mart and IKEA Group, operated in the retail sector. Wal-Mart Company is the
international retail organization that operates a chain of grocery stores, departmental store and
hypermarket across the whole world. Company is situated in
Bentonville, Arkansas, U.S.. On the other hand, the IKEA group is the Swedish-founded
international group that engages in the selling of kitchen appliances, accessories of the home,
ready to assemble furniture and sometime home services. Headquarter of company is in
Leiden, Netherlands. In the given study the comparison of the financial statement is based on the
ratio analysis of both companies. Ratio analysis is the quantitative analysis of the information
stated in the financial statement of the company (Edwards, Schwab & Shevlin, 2015). Along
with this the similarity and differences in the presentation of the financial statement is also
described in the present study.
MAIN BODY
The ratio analysis of the Wal-Mart and IKEA group is given below –
Particulars Formula
Wal-Mart
(2018)
IKEA
(2018)
(Million $)
(Million
EUR)
Sales growth ratio (sales of Y2- Sales of Y1)/Sales of Y1
Sales of 2018 495761 23651
Sales of 2017 481317 20778
increase in sales 14444 2873
Ratio 0.03 0.12
Net profit Ratio net profit/sales*100
net profit 9862 1449
net profit ratio 1.99 6.13
Operating Profit
Margin Ratio Operating Profit/sales*100

Operating Profit 20437 1962
Operating Profit ratio 0.041 8.29
Gearing ratio
Total Debt/Total Debt + Shareholders
fund*100
Total Debt (short term debt and non-
current liabilities) 123700 14184
Shareholders Fund 80822 7298
Total 204522 21482
Gearing Ratio 0.60 0.66
Liquidity ratio Current Asset/Current liabilities
Current Assets 59664 8908
Current Liabilities 78521 6538
Liquidity Ratio 0.76 1.36
Return on equity ratio Net profit/shareholders fund*100
Net profit 9862 1449
Shareholders fund 80822 7298
return on equity ratio 12.20 19.85
By comparing the financial statement of both the companies on the basis of the ratio analysis, it
has been seen that sales of both the companies improvised their performance in the year 2018 as
compared with the previous year, however, the growth rate is the sales of the IKEA group is .12,
which is more than the Wal-Mart company. Net Profit ratio suggests that the IKEA group is
earning more profit in comparison with the Wal-Mart company. In other words, it can be said
that the IKEA group effectively controls its cost and offer its goods and services at a price
significantly higher as compared with its cost. Along with the net profit ratio, the operating ratio
of the IKEA group is also more than as compared with the Wal-Mart company.
The higher gearing ratio reflects the higher financial risk of the company (Fracassi, 2016). By
considering the above ratio analysis, it has been seen that the financial risk in the Wal-Mart is
less as compared with the IKEA group because of the low gearing ratio. The liquidity ratio of the
IKEA group is more than Wal-Mart Company; however, it does not mean that it is good for the
company because the too high liquidity ratio means that company is not utilizing its current
assets in an effective and appropriate manner (Adrian & Boyarchenko, 2018). On the other hand,

if this ratio is less than one, it means that company may have the problem meeting with its short
term liabilities (Chandra, 2017). In the present study, the liquidity ratio of the Wal-Mart is less
than one; therefore it may lead to the problem in future. Return on equity ratio shows that the
management of the IKEA is much better for generating the income as compared with the Wal-
Mart company.
Apart from financial performance, the IKEA and Wal-Mart also has some differences and
similarity in the presentation of the financial statement. Both the companies had prepared their
financial statement in the vertical form according to the generally accepted accounting principles
in their countries. However, the gross profit in the Wal-Mart company is not present as a separate
heading; in case of the IKEA the company shows the gross profit in the separate heading. Further
the earning per share, dividend per share, income attributable to the non-controlling interest are
all present in the statement of income and expenditure of the Wal-Mart company but the same is
not presented in the IKEA group.
CONCLUSION
By considering the relevant aspect of study, it has been concluded that the overall financial
performance of the IKEA group is better as compared with the Wal-Mart company. It is
recommended that the Wal-Mart company should sell its product at a higher price or make the
strategies and plan by which the sales can be increased. Along with this, the company should
also maintain the proper capital structure, by which the problem related to the meeting the
obligation will not arise in the future.

REFERENCES
Books and journals
Adrian, T., & Boyarchenko, N. (2018). Liquidity policies and systemic risk. Journal of
Financial Intermediation, 35, 45-60.
Chandra, P. (2017). Investment analysis and portfolio management. McGraw-Hill Education.
Edwards, A., Schwab, C., & Shevlin, T. (2015). Financial constraints and cash tax savings. The
Accounting Review, 91(3), 859-881.
Fracassi, C. (2016). Corporate finance policies and social networks. Management Science, 63(8),
2420-2438.
Online
Inter IKEA Group Financial summary FY 18. (2018). Retrieved from
<https://preview.thenewsmarket.com/Previews/IKEA/DocumentAssets/525318.pdf>
Wal-Mart 2018 annual report. (2018). Retrieved from
<http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_WMT_2018.pd
f>