Wal-Mart Evaluation Report

Topics: Financial ratios, Balance sheet, Inventory Pages: 5 (1877 words) Published: September 22, 2010
Wal-Mart Evaluation Report

Axia College of University of Phoenix

Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely will continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success of the company. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores, Inc. The reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies has helped Wal-Mart hedge against inflationary pressures of the United States dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Because Wal-Mart has a lot of sales, it does not have too much of a problem with holding too much inventory. The competitors of Wal-Mart have similar ratios, but they do not have as many sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for the same quality gives them the edge against the competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt, so Wal-Mart is not overleveraged. Wal-Mart far exceeds their competition in comparison of assets. Wal-Mart is the 800-pound gorilla in this industry and looks to remain that way. The next ratio to look at is the net profit margin ratio, which basically measures the return of sales. Wal-Mart had a 4% net profit margin ratio in the year 2007, and had a net profit margin ratio of 3% as of January 2008. The industry average is similar, so the comparisons between the competitors remained flat. The ROI or also known as return on assets compute the efficiency of an investment. Wal-Mart had an 8% in the year of 2007 and as well as of January 2008. Wal-Mart had one of the highest ROI’s in the industry; however the most important of the number is its consistency. Wal-Mart is more consistent than its competitors when comparing ROI, or return on assets. The return on net worth is also known as the return on stockholder’s equity which gives a clear picture of the performance of Wal-Mart, and in the year 2007, it had a ROE of .19 and as of January 2008, it had a ROE of .19. Wal-Mart’s dependable profits make it a great company. It was able to get close to a 20% return for its shareholders. The final ratio that solidifies Wal-Mart’s impressive performance is the P/E ratio. It is calculated by dividing the market price per share and the current earnings per share. Wal-Mart had a P/E ratio of 17.89 in 2007, and as of January 2008 it had a 16.28 P/E ratio. In general, a high P/E suggests that investors are expecting higher earnings growth in the future...
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