Equity Valuation of Walmart Inc. - Financial Modeling Report (FI 306)

This report presents a comprehensive financial modeling analysis of Walmart Inc., focusing on equity valuation. It includes a macro-economical and industry analysis, evaluating the current economic conditions in the US, the retail industry's life cycle and growth prospects, and a Porter's five forces analysis to assess the industry's attractiveness. The report also conducts a ratio analysis to measure Walmart Inc.'s performance, covering profitability, liquidity, leverage, and efficiency. The DuPont evaluation is used to assess the company's financial performance and liquidity. Based on the analysis, the report concludes with a recommendation to purchase Walmart Inc.'s stock, suggesting it is currently undervalued. Desklib provides access to this and many other solved assignments.

Running Head: Financial Modelling
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Contents
Introduction:.....................................................................................................................3
Part A: Macro economical and industry analysis:............................................................3
Current economic condition:............................................................................................3
Industry life cycle and industry growth:...........................................................................4
Porter’s five forces model:................................................................................................4
Ratio analysis:...................................................................................................................7
Recommendation:.............................................................................................................7
References.........................................................................................................................8

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Introduction:
The report has been prepared to measure the industry evaluation, economical
evaluation and company valuation of Walmart Inc. It takes the concern of all the related
factors of the Walmart Inc to measure the performance and the investment position of the
company.
Part A: Macro economical and industry analysis:
Macro economical and industry analysis of US market and retail industry of United
states in as follows:
Current economic condition:
The United State’s economy is among the largest developed mixed economy. The
industry is second largest economy in terms of purchasing power parity (PPE) and it is top
economy in terms of highly developed mixed economy. The economy performance o the
company is rapidly enhancing. However, it has been measured that the trade tension of US
with china could impact on the industry performance at a huge level.
The economical data of the company express that the overall performance of the
company has been improved from last year and it has positively impacted on the overall
performance of the company. The US economical impact has been measured on the US retail
industry to evaluate the impact of the economy on the industry. The report of US retail
industry explains that the retail industry has enjoyed a great range of increment in the retail
industry (NRF, 2018). The balance (2018) explains that the US retail industry has generated
around $ 11.4 trillion in past year which contributes around 5.9% in the total economy of the
company. It explains that the retail industry is among the top industry of the US economy and

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thus, the changes into the economical position directly make an impact on the retail industry
of the company.
Industry life cycle and industry growth:
The retail industry of US has been evaluated and the reports about the retail industry
explains that the currently industry is on maturity stage but the firms and the industry are
making huge efforts to manage the growth stage of the company and for that various
innovations have been done in the retail industry. These innovative changes would impact on
the company’s performance positively. It explains that the performance of the retail industry
would be improved more. The trading economics (2018) explains that the retail sales in US
market has been improved by 4.6%. The growth rate has been lowered but still the
performance of the industry is quite better.
Figure 1: US retail industry
Porter’s five forces model:
Porter’s 5 forces study has been conducted on the US retail industry to measure the
external performance of the industry and its impact on Walmart Inc. The porter’s 5 forces
model is as follows:

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Porter’s five forces model:
Competitive
Rivalry
The competitive rivalry is quite higher in the retail industry. The main
factors behind higher competition rivalry is:
 Large number of companies in the retail industry
 High variety of retail businesses
 Great aggressiveness in retail companies
Walmart has faced the great competition in the market. However, the
current performance of the company is quite better.
Bargaining
power of
buyers
The bargaining power of buyers is quite higher in the retail industry. Due to
the huge populations, they can manipulate the prices. Some of the threats of
the company are as follows:
 Large number of buyers
 High diversity in buyers
 Small size of purchase
Walmart has faced the great impact due to bargaining power of buyers in
the market. However, the current performance of the company is quite
better.
Bargaining
power of
suppliers
The bargaining power of suppliers is quite higher in the retail industry. Due
to the great number of firms, they can manipulate the raw material prices.
Some of the threats of the company are as follows:

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 Large number of suppliers (Shockley and Tobin 2015)
 Huge competition among the firms
 Less availability of supply
Walmart has faced the great impact due to bargaining power of suppliers in
the market. However, the current performance of the company is quite
better.
Threat of
substitution
The threat from substitution is also higher in the retail industry. Due to the
great number of firms and diverse products, the substitutions effect is
higher.
 Lower cost of substitute ‘
 High variety of substitute
 Considerable availability
Walmart has faced the great impact due to substitute products
(Brynjolfsson, Yu, and Mohammad, 2013).
Threat of
new
entrants
The threat from new entrant is also higher in the retail industry. Due to the:
 Lower cost of doing the business
 Moderate capital cost of the business
 Moderate brand development cost
Walmart has faced lower threat from the new entrants as it already leader in
the market.

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Ratio analysis:
The ratio analysis study has been conducted on the Walmart Inc to measure the
performance of the company. On the basis of the ratio analysis on Walmart Inc, the
profitability position, liquidity level, leverage and efficiency position of the company has
been evaluated on the basis of the competitors of the company. On the basis of the study, it
has been found that the profitability position of the company has been reduced from last 5
years. However, the profitability level of the company is higher than the competitor Amazon
plc (Morningstar, 2018).
In addition, the asset efficiency ratios of the company have been reduced from last 5
years and explain about better working capital management of the company. However, the
efficiency level of the company is still required to be enhanced than the competitor Amazon
plc.
Lastly, the liquidity and leverage ratio of the company has been measured to identify
the overall performance of the company and it has been measured that the few changes have
been done by the company in overall financial performance of the company and the
performance of the company is quite better in the industry.
The DuPont evaluation on the company explains that the liquidity position of the
company has improved the overall performance and the position of the company.
Recommendation:
On the basis of the above evaluation and study, it has been recognized that the stock
must be purchased by the investors of the company of Walmart Inc. The stock of the
company is undervalued now. If the investors would buy it now than huge return would be
got by the company.

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References:
Brynjolfsson, Erik, Yu Jeffrey Hu, and Mohammad S. Rahman. "Competing in the age of
omnichannel retailing." MIT Sloan Management Review 54.4 (2013): 23.
Focus Economics. “Retail industry”. (Online). Accessed on 3rd June 2018. 2018.
<https://www.focus-economics.com/countries/united-states>
Morningstar. “Amazon plc”. (Online). Accessed on 3rd June 2018. 2018.
<http://financials.morningstar.com/ratios/r.html?t=AMZN&region=usa&culture=en-US>
NRF. “Retail industry”. (Online). Accessed on 3rd June 2018. 2018.
<https://nrf.com/sites/default/files/Documents/The%20Economic%20Impact%20of%20the
%20US%20Retail%20Industry%20REV.pdf>
Shockley, Jeff, and Tobin Turner. "Linking inventory efficiency, productivity and
responsiveness to retail firm outperformance: empirical insights from US retailing
segments." Production Planning & Control 26.5 (2015): 393-406.
The balance. “Retail industry”. (Online). Accessed on 3rd June 2018. 2018.
<https://www.thebalance.com/what-is-retailing-why-it-s-important-to-the-economy-
3305718>