MBA 501 – Foundations
Spring 2014 Term
Company Analysis: Wal-Mart
Companies strive every day to make their business publicly concentrated, financially, and profitable for shareholders. Shareholders as well as the company's management use several tools to determine a company's health and financial future. These tools are better known as financial statements, and specifically, ratio analysis. Ratios are among the more widely used tools of financial analysis because they provide clues to symptoms of underlying issues (Miolla, 2013d). Ratios help measure a company's liquidity, activity, profitability, leverage and coverage. These five measured segments help financial analysis in decision-making such as: the company’s current financial situation, financial performance, as well as the strengths and weaknesses of the company. I have chosen four ratios I believe to be some of the most important parts of financial analyzing; debt to equity, net profit margin, return on equity, and the gross profit margin. In order to understand how the ratios help a business it is important to know how they are set up, and what the information they provide revieles about a company. To measure a company's financial leverage, one must divide its total liabilities by stockholders' equity. The information given indicates what proportion of equity and debt the company is using to finance its assets (Bruns, 2004). A high debt to equity ratio generally means that a company has been aggressive in financing its growth with debt. Yet, this can result in unpredictable earnings as a result of the additional interest expense. If a lot of debt is used to finance more operations (high debt to equity), the company could potentially generate more earnings than it would have without the outside financing (Burns, 1992). Wal-Mart stores debt-to-equity ratio deteriorated from 2011 to 2012, but then...
References: Bruns, W. (2004). The Accounting Framework, Financial Statements, and Some
Accounting Concepts. Boston: Harvard Business School Publishing.
Bruns, (1992). Introduction to Financial Ratios and Financial Ration Analysis. Boston:
Harvard Business School Publishing.
Label, W. A. (2013). Accounting for non-accountants: The fast and easy way to learn
the basics. Naperville, Ill: Sourcebooks.
Miolla, R. (2013d). Introduction To Financial Analysis: Ratios. AKLearning. Retrieved
Shwartz, J. & Shwartz, M. (2012) Dorel Industries Consolidated Income Statements.
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