Wal-Mart Financial Analysis - Fin515

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Wal-Mart Financial Analysis
Danny J. Saldana
FIN515
August 27, 2012
Professor David Felsberg

I have chosen Wal-Mart as my company to do a financial analysis on. In my financial analysis I will look will be reviewing Wal-Marts financial ratios for years 2010 and 2005. I will also be looking at Target’s financial ratios for the same years to determine how Wal-Mart is doing within its industry.

(All numbers are in thousands)
Liquidity ratios

Current ratio - Measures whether or not a firm has enough resources to pay its debts over in the short-term. Current ratio = Current assets / Current liabilities

2010:
Wal-Mart - $51,893,000 / $58,484,000 = .89
Target - $17,213,000 / $10,070,000 = 1.71
Surprisingly, at least to me, it seems as though Target is better equipped to handle it’s short-term obligations.

2005:
Current ratio = Current assets / Current liabilities
Wal-Mart - $43,824,000 / $48,826,000 = .90
Target - $14,405,000 / $9,588,000 = 1.50

Quick ratio – The Quick ratio helps gauge your immediate ability to pay your financial obligations. This is the amount the company could pay if payment was demanded immediately. Quick ratio = (Current assets – Inventory) / Current liabilities

2010:
Wal-Mart – ($51,893,000 - $36,318,000) / $58,484,000 = .27 Target – ($17,213,000 - $7,596,000) / $10,070,000 = .96
Target has much less of its assets tied up in inventory (%). It is much more liquid.

2005:
Quick ratio = (Current assets – Inventory) / Current liabilities Wal-Mart – ($43,824,000 - $32,191,000) / $48,826,000 = .24 Target – ($14,405,000 - $5,838,000) / $9,588,000 = .89

Activity ratios

Inventory turnover - This ratio measures the number of times your inventory is turned over during the year. The higher the number is, the better your use of inventory. Inventory turnover = Sales / Inventory

2010:
Wal-Mart - $421,849,000 / $34,739,000 = 12.14
Target - $68,466,000 / $7,596,000 = 9.01
Wal-Mart does a slightly better job of cycling through their inventory.

2005:
Wal-Mart - $312,427,000 / $32,191,000 = 9.71
Target - $57,878,000 / $5,838,000 = 9.91

Receivables turnover - This ratio measures the number of times your receivables 'turned over'. The higher the number, the more efficient you are at collecting your accounts receivable. Receivables turnover = Annual sales / Accounts receivables

2010:
Wal-Mart - $421,849,000 / $5,089,000 = 82.89
Target - $68,466,000 / $6,153,000 = 11.13
Wal-Mart has a much better turn-over rate on its accounts receivables than Target does.

2005:
Wal-Mart - $312,427,000 / $2,662,000 = 117.37
Target - $57,878,000 / $5,666,000 = 10.21

Fixed asset turnover – This ratio indicates the amount of sales generated by each dollar spent on fixed assets. Fixed asset turnover = Sales / Fixed Assets

2010:
Wal-Mart = $421,849,000 / 154,489,000 = 2.73
Target = $68,466,000 / 37,048,000 = 1.85
For each dollar spent on fixed assets, Wal-Mart generates over $0.90 more.

2005:
Wal-Mart = $312,427,000 / 91,724,000 = 3.41
Target = $57,878,000 / 25,214,000 = 2.30

Total asset turnover – The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. Total asset turnover = Sales / Total assets

2010:
Wal-Mart = $421,849,000 / 180,663,000 = 2.34
Target = $68,466,000 / 43,705,000 = 1.57

2005:
Wal-Mart = $312,427,000 / 138,187,000 = 2.26
Target = $57,878,000 / 34,995,000 = 1.65

Profitability ratios

Operating profit margin - This ratio measures your profitability based on your earnings before interest and tax. This measure is used to gauge the efficiency of the business before taking any financing means into account (such as debt financing and tax considerations). Operating profit margin = Earnings before interest and taxes / sales

2010:
Wal-Mart = $25,743,000 / $421,849,000 = 6.10%
Target = $5,325,000 / $68,466,000 = 7.78%
Before interest and taxes, Target has a higher profit margin....
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