Wal-Mart Financial Health Evaluation
Wal-Mart Financial Health Evaluation
David Carlson
ACC 230
February 27, 2011
Anne Klemme
Wal-Mart Financial Health Evaluation
When analyzing the annual financial reports for Wal-Mart it is easy to see a positive outlook in Wal-Mart 's future of financial health. Looking at and comparing the ratios with other companies in the same industry, Wal-Mart seems to be the easy frontrunner. A review of the current, debt/equity, inventory turnover, net profit margin, Return on Total Assets (ROA), Return on Equity (ROE), and quick ratios all indicate that the trend of leading the retail industry will continue. The current ratio (which is the current assets divided by current liabilities) is a measure of how much in liabilities a company has compared to its assets. Wal-Mart in 2010 had a current ratio of 0.9 and the industry had a 1.1. The quick ratio (which is current assets minus inventory divided by current liabilities) is a measure of a company 's ability meet short-term obligations. In 2010 Wal-Mart had a quick ratio of 0.3 compared to the industry of 0.4. The next ratio is the inventory turnover ratio which, according to Fraser, L. M., & Ormiston (2007), is defined as the cost of goods sold divided by the remaining inventory at the end of the accounting cycle. In 2010, Wal-Mart’s inventory turnover ratio was 9.1 times compared to a 9.2 times in 2009. Even though this inventory turnover ratio is a little lower than 2009 it is still about the same as industry average, which is 8.5. This indicates that Wal-Mart is trending about the same as similar companies. Now looking at the debt/equity ratio for 2010 was 0.73 compared to the industry of 0.67. This indicates that Wal-Mart is trending in debt ratio also with their competitors. The return on assets was 9.1 in 2010 compared to 8.5 for the industry. This indicates that Wal-Mart is making more money on their investments than their competitors. Wal-Mart is also staying consistent because in 2009 they also
David Carlson
ACC 230
February 27, 2011
Anne Klemme
Wal-Mart Financial Health Evaluation
When analyzing the annual financial reports for Wal-Mart it is easy to see a positive outlook in Wal-Mart 's future of financial health. Looking at and comparing the ratios with other companies in the same industry, Wal-Mart seems to be the easy frontrunner. A review of the current, debt/equity, inventory turnover, net profit margin, Return on Total Assets (ROA), Return on Equity (ROE), and quick ratios all indicate that the trend of leading the retail industry will continue. The current ratio (which is the current assets divided by current liabilities) is a measure of how much in liabilities a company has compared to its assets. Wal-Mart in 2010 had a current ratio of 0.9 and the industry had a 1.1. The quick ratio (which is current assets minus inventory divided by current liabilities) is a measure of a company 's ability meet short-term obligations. In 2010 Wal-Mart had a quick ratio of 0.3 compared to the industry of 0.4. The next ratio is the inventory turnover ratio which, according to Fraser, L. M., & Ormiston (2007), is defined as the cost of goods sold divided by the remaining inventory at the end of the accounting cycle. In 2010, Wal-Mart’s inventory turnover ratio was 9.1 times compared to a 9.2 times in 2009. Even though this inventory turnover ratio is a little lower than 2009 it is still about the same as industry average, which is 8.5. This indicates that Wal-Mart is trending about the same as similar companies. Now looking at the debt/equity ratio for 2010 was 0.73 compared to the industry of 0.67. This indicates that Wal-Mart is trending in debt ratio also with their competitors. The return on assets was 9.1 in 2010 compared to 8.5 for the industry. This indicates that Wal-Mart is making more money on their investments than their competitors. Wal-Mart is also staying consistent because in 2009 they also
References: Fraser, L. M., & Ormiston, A. (2007). Understanding financial statements (8th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. MSN Money Central (2011). Wal-Mart Stores Inc: Financial Statement. Retrieved on February 22, 2011, from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=WMT Wal-Mart stores.com (2011). Wal-Mart 2010 Annual Report. Retrieved on February 22, 2011, from http://walmartstores.com/sites/annualreport/2010/financials.aspx Yahoo! Finance. (2011) Wal-Mart Stores Inc. (WMT). Retrieved on February 22, 2011, from http://finance.yahoo.com/q?s=WMT