Assess Wal-Mart, Stores Inc. concerning liquidity, solvency, profitability, and
ID: 2421335 • Letter: A
Question
Assess Wal-Mart, Stores Inc. concerning liquidity, solvency, profitability, and stock performance as of January 31, 2015. For each area, you should calculate the ratios we discussed in class and provide an analysis of the ratios calculated. I include historical stock price information and outstanding common share information below.
Fiscal Year Ended
1/31/2015
1/31/2014
1/31/2013
1/31/2012
Adjusted Closing Price
$83.94
$71.97
$65.79
$56.32
Common Shares Outstanding (millions)
3,228
3,233
3,314
3,418
WAL MART STORES INC
Assess Wal-Mart, Stores Inc. concerning liquidity, solvency, profitability, and stock performance as of January 31, 2015. For each area, you should calculate the ratios we discussed in class and provide an analysis of the ratios calculated. I include historical stock price information and outstanding common share information below.
Fiscal Year Ended
1/31/2015
1/31/2014
1/31/2013
1/31/2012
Adjusted Closing Price
$83.94
$71.97
$65.79
$56.32
Common Shares Outstanding (millions)
3,228
3,233
3,314
3,418
WAL MART STORES INC
10-K Statement of Cash Flows (Amounts in millions) Fiscal Year Ended January 31, 2015 2014 2013 2012 Cash flows from operating activities: Consolidated net income $17,099 $16,695 $17,756 $16,387 (Income) Loss from discontinued operations, net of tax (285) (144) (52) 21 Income from continuing operations 16,814 16,551 17,704 16,408 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization 9,173 8,870 8,478 8,106 Deferred income taxes (503) (279) (133) 1,050 Other operating activities 785 938 602 468 Changes in certain assets and liabilities, net of effects of acquisitions: Increase in accounts receivable (569) (566) (614) (796) Increase in inventories (1,229) (1,667) (2,759) (3,727) Increase in accounts payable 2,678 531 1,061 2,687 Increase in accrued liabilities 1,249 103 271 30 (Decrease) Increase in accrued income taxes 166 (1,224) 981 29 Net cash provided by operating activities 28,564 23,257 25,591 24,255 Cash flows from investing activities: Payments for property and equipment (12,174) (13,115) (12,898) (13,510) Proceeds from disposal of property and equipment 570 727 532 580 Proceeds from disposal of certain operations 671 0 0 0 Other investing activities (192) (138) (271) (3,679) Net cash used in investing activities (11,125) (12,526) (12,637) (16,609) Cash flows from financing activities: Net change in short-term borrowings (6,288) 911 2,754 3,019 Proceeds from issuance of long-term debt 5,174 7,072 211 5,050 Payment of long-term debt (3,904) (4,968) (1,478) (4,584) Dividends paid (6,185) (6,139) (5,361) (5,048) Purchase of Company stock (1,015) (6,683) (7,600) (6,298) Dividends paid to noncontrolling interest (600) (426) (282) (526) Purchase of noncontrolling interest (1,844) (296) (132) 0 Other financing activities (409) (260) (58) (71) Net cash used in financing activities (15,071) (10,789) (11,946) (8,458) Effect of exchange rates on cash (514) (442) 223 (33) Net (decrease) increase in cash and cash equivalents 1,854 (500) 1,231 (845) Cash and cash equivalents at beginning of year 7,281 7,781 6,550 7,395 Cash and cash equivalents at end of year $9,135 $7,281 $7,781 $6,550 Supplemental disclosure of cash flow information Income tax paid 8,169 8,641 7,304 5,889 Interest paid 2,433 2,362 2,262 2,346Explanation / Answer
WAL MART STORES INC
Ratio Analysis
FORMULA
2015
1. Liquidity Ratios
Current Ratio
Current Assets/Current liabilities
0.97
Working capital
Current Assets-Current Liabilities
-1994.00
Acid-test ratio
Quick Assets/Current liabilities
0.24
Inventory Turnover
Cost of Goods Sold/Average Inventory
8.11
Days sales in inventory
(Ending Inventory/Cost of Goods Sold)*365
45.13
Accounts receivable turnover
Net Credit Sales/Average Accounts Receivable
71.68
Days sales in receivables
(Accounts Receivable/Net Credit Sales)*365
5.13
Free cash flow
As per Annual Report
16400.00
Average inventory
(Beginning Inventory+Ending Inventory)/2
44999.50
Average A/R
(Beginning Accounts Receivables+
Ending Accounts Receivables)/2
6727.50
2.Solvency Ratio
Debt Equity Ratio
Total Liabilities/Total Equity
1.45
Interest Coverage
Income before Interest and Taxes/Interest Expenses
0.33
Long Term Liabilities
As per Balance Sheet
43692.00
3. Profitability Ratios
Asset Turnover
Total Revenue/Total assets
2.38
Return on sales
Operating Income/Net Sales
5.63%
Gross margin %
Gross Margin/Sales
24.83%
Return on assets
Net Income/Average Total Assets
8.37%
Return on equity
Net Income/ Shareholders equity
21.01%
Average interest rate
As per Annual Report
3.80%
Average total assets
Beginning Assets+Ending Assets)/2
204228.50
Income tax rate
As per Annual Report
32.20%
Net of tax interest expense
As per Balance Sheet
2348.00
Adjusted net income
As per Income Statement
16363.00
Average equity
(Beginning Equity+Ending Equity)/2
78824.50
Average total liabilities
(Beginning Total Liabilities+Ending Total Liabilities)/2
120590.50
4. Stock Performance Analysis
Book value per common share
Total Common Shareholder's Equity/
No. Of Common Shares
25.21
Earnings per share (basic)
A per Income Statement
$5.07
Earnings per share (diluted)
A per Income Statement
$5.05
P/E Ratio
Market Price per Share of Common Stock/
EPS
16.56
Dividend yield
Cash Dividend per Share/
Market Value per Share
0.02
Dividend payout
Dividend per Share/Earningss per Share
37.87%
Book value of equity
Total Euqity of Common shareholders/
Number of Common Shares
25.20
Common shares outstanding
As per Annual Report
3230.00
Adjusted closing price
As per Information Provided
83.94
Dividends per share
As per Income Statement
1.92
5. DuPont Analysis
DuPont analysis
Profit Margin*Total Assets Turnover*
Financial Leverage
21.01%
Ratio Analysis of Wal-Mart Stores Inc.
Liquidity Ratios
Current ratio
The current ratio of the company is 0.97. Current ratio indicates the ability of the company to pay its short term obligations. Ideal current ratio is current ratio of 2. The current ratio is low and shows that company will find it difficult to pay its short term liabilities.
Working Capital
Working capital measures the overall health of the company. It is calculated by deducting current liabilities from current assets. The working capital of the company is negative at -$1,994 million. It indicates that the financial health of the company is not good.
Acid-Test Ratio
Acid test ratio of the company stood at 0.24. The ratio is low and shows that that the company will not be to meet its short term commitments from its quick assets.
Inventory Turnover
This ratio tells how effectively the company has managed its inventory. Inventory turnover ratio of the company is 8.11. The ratio for the company is good.
Days Sales in Inventory
Days sales in inventory measures the number of days the inventories are kept before being sold. The ratio is 5.13 and indicates that company sells its inventory quickly.
Accounts Receivable Turnover
It calculates the number of times the company has converted its accounts receivables in cash. The ratio of the company is 71.68 which show efficiency of the company in managing its accounts receivable.
Days Sales in Receivables
This ratio calculates number of days credit sales is outstanding. The ratio for the company stood at 5.13 in which is good.
Free Cash Flow
These are the funds that are available with the company for investment in their expansion and growth plans. The free cash flow for the company is $16,400 which is quiet high.
Solvency Ratios
Debt-to-Equity Ratio
This ratio measures the percentage of capital the company is having financed from creditors and investors in comparison to its common shareholder’s equity. The ratio for the company is 1.45 which indicates that the company has taken low debts.
Interest Coverage
The ratio of the company is 0.33 for the year 2015. The low ratio shows that the company is making less payment of interests. This ratio calculates the percentage amount of income that the company will use to pay its interest expenses.
Profitability Ratios
Assets Turnover
This ratio measures how efficiently the company has used its assets in generating sales. The ratio for the company is 2.38. The ratio of the company is low and indicates an inefficient utilization of its assets in generating sales.
Return on Sales
This ratio calculates the percentage of operating income of the company in relation to its sales. The ratio for the company is 5.63% and it is low.
Gross Margin
It calculates the percentage of gross profit the company has earned over its sales. The ratio of the company is 24.83%. The gross margin of the company is good.
Return on Assets
This ratio for the company tells how efficiently the company has used its assets in generating profit. It is a profitability ratio that measures the net income produced by the assets during the year. The ratio of the company is 8.37%, which shows that the company is not managing its assets efficiently in generation of net income.
Return on Equity
This ratio for the company is 21.07% this ratio tells how much profit the company has earned from each dollar of shareholder’s equity. The return on equity of the company is less.
Book Value per Share
It calculates the value of shares of the company in relation to the common shareholder’s equty. The ratio of the company is 21.25 which cannot be considered as good.bad on its equity available to common shareholders. The book value per share stood at 25.21.
Earnings per Share
The earnings per share for 2015 is $5.07 per share. This ratio calculates the income earned per share of common stock. The ratio of the company is good..
Price Earnings
The ratio for the year is 16.56. This ratio calculates the market price per share in relation to the earnings per share.
Dividend Yield
Dividend yield measures the dividend distributed to shareholders with relation to the market value of the share. The dividend yield of the company is too low at .02.
Dividend Payout
It measures the percentage of net income that the company has distributed in form of dividend to its shareholders. The ratio of the company stood at 37.87 which is high.
WAL MART STORES INC
Vertical Analysis of Income Statement
(Amounts in millions except per share data)
Fiscal Year Ended January 31,
2015
Percent
Revenues:
Net sales
$4,82,229
99.30%
Membership and other income
3,422
0.70%
4,85,651
100.00%
Costs and expenses:
Cost of sales
3,65,086
75.17%
Operating, selling, general and administrative expenses
93,418
19.24%
Operating income
27,147
5.59%
Interest:
Debt
2,161
0.44%
Capital leases
300
0.06%
Interest expense
2,461
0.51%
Interest income
-113
-0.02%
Interest, net
2,348
0.48%
Income from continuing operations before income taxes
24,799
5.11%
Provision for income taxes:
Current
8,504
1.75%
Deferred
-519
-0.11%
Total provision for income taxes
7,985
1.64%
Income from continuing operations
16,814
3.46%
Income (Loss) from discontinued operations, net of tax
285
0.06%
Consolidated net income
17,099
3.52%
Consolidated net income attributable to non controlling interest
-736
-0.15%
Consolidated net income attributable to Walmart
$16,363
3.37%
WAL MART STORES INC
Horizontal Analysis of Income Statement
Fiscal Year Ended January 31,
2015
2014
Change
Percent
Revenues:
Net sales
$4,82,229
$4,73,076
$9,153
1.93%
Membership and other income
3,422
3,218
$204
6.34%
4,85,651
4,76,294
$9,357
1.96%
Costs and expenses:
Cost of sales
3,65,086
3,58,069
$7,017
1.96%
Operating, selling, general and administrative expenses
93,418
91,353
$2,065
2.26%
Operating income
27,147
26,872
$275
1.02%
Interest:
Debt
2,161
2,072
$89
4.30%
Capital leases
300
263
$37
14.07%
Interest expense
2,461
2,335
$126
5.40%
Interest income
-113
-119
$6
-5.04%
Interest, net
2,348
2,216
$132
5.96%
Income from continuing operations before income taxes
24,799
24,656
$143
0.58%
Provision for income taxes:
Current
8,504
8,619
-$115
-1.33%
Deferred
-519
-514
-$5
0.97%
Total provision for income taxes
7,985
8,105
-$120
-1.48%
Income from continuing operations
16,814
16,551
$263
1.59%
Income (Loss) from discontinued operations, net of tax
285
144
$141
97.92%
Consolidated net income
17,099
16,695
$404
2.42%
Consolidated net income attributable to non controlling interest
-736
-673
-$63
9.36%
Consolidated net income attributable to Walmart
$16,363
$16,022
$341
2.13%
WAL MART STORES INC
Vertical Analysis of Balance Sheet
(Amounts in millions except per share data)
January 31,
2015
Percent
ASSETS
Current assets:
Cash and cash equivalents
$9,135
4.48%
Receivables
6,778
3.33%
Inventories
45,141
22.16%
Prepaid expenses and other
2,224
1.09%
Current assets of discontinued operations
0
0.00%
Total current assets
$63,278
31.06%
Property and equipment, at cost
1,77,395
87.08%
Less accumulated depreciation
-63,115
-30.98%
Property and equipment, net
1,14,280
56.10%
Property under capital lease
5,239
2.57%
Less accumulated amortization
-2,864
-1.41%
Property under capital lease, net
2,375
1.17%
Goodwill
18,102
8.89%
Other assets and deferred charges
5,671
2.78%
Total assets
$2,03,706
100.00%
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Short-term borrowings
$1,592
0.78%
Accounts payable
38,410
18.86%
Accrued liabilities
19,152
9.40%
Accrued income taxes
1,021
0.50%
Long-term debt due within one year
4,810
2.36%
Obligations under capital leases due within one year
287
0.14%
Current liabilities of discontinued operations
0
0.00%
Total current liabilities
65,272
32.04%
Long-term debt
41,086
20.17%
Long-term obligations under capital leases
2,606
1.28%
Deferred income taxes and other
8,805
4.32%
Redeemable non-controlling interest
0
0.00%
Commitments and contingencies
0
0.00%
Shareholder’s equity:
Common stock
323
0.16%
Capital in excess of par value
2,462
1.21%
Retained earnings
85,777
42.11%
Accumulated other comprehensive income (loss)
-7,168
-3.52%
Total Walmart shareholders' equity
81,394
39.96%
Non controlling interest
4,543
2.23%
Total equity
85,937
42.19%
Total liabilities and shareholder’s equity
$2,03,706
100.00%
WAL MART STORES INC
Horizontal Analysis of Balance Sheet
(Amounts in millions except per share data)
January 31,
2015
2014
Change
Percent
ASSETS
Current assets:
Cash and cash equivalents
$9,135
$7,281
$1,854
25.46%
Receivables
6,778
6,677
$101
1.51%
Inventories
45,141
44,858
$283
0.63%
Prepaid expenses and other
2,224
1,909
$315
16.50%
Current assets of discontinued operations
0
460
-$460
-100.00%
Total current assets
$63,278
$61,185
$2,093
3.42%
Property and equipment, at cost
1,77,395
1,73,089
$4,306
2.49%
Less accumulated depreciation
-63,115
-57,725
-$5,390
9.34%
Property and equipment, net
1,14,280
1,15,364
-$1,084
-0.94%
Property under capital lease
5,239
5,589
-$350
-6.26%
Less accumulated amortization
-2,864
-3,046
$182
-5.98%
Property under capital lease, net
2,375
2,543
-$168
-6.61%
Goodwill
18,102
19,510
-$1,408
-7.22%
Other assets and deferred charges
5,671
6,149
-$478
-7.77%
Total assets
$2,03,706
$2,04,751
-$1,045
-0.51%
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Short-term borrowings
$1,592
$7,670
-$6,078
-79.24%
Accounts payable
38,410
37,415
$995
2.66%
Accrued liabilities
19,152
18,793
$359
1.91%
Accrued income taxes
1,021
966
$55
5.69%
Long-term debt due within one year
4,810
4,103
$707
17.23%
Obligations under capital leases due within one year
287
309
-$22
-7.12%
Current liabilities of discontinued operations
0
89
-$89
-100.00%
Total current liabilities
65,272
69,345
-$4,073
-5.87%
Long-term debt
41,086
41,771
-$685
-1.64%
Long-term obligations under capital leases
2,606
2,788
-$182
-6.53%
Deferred income taxes and other
8,805
8,017
$788
9.83%
Redeemable non-controlling interest
0
1,491
-$1,491
-100.00%
Commitments and contingencies
0
0
$0
Shareholder’s equity:
Common stock
323
323
$0
0.00%
Capital in excess of par value
2,462
2,362
$100
4.23%
Retained earnings
85,777
76,566
$9,211
12.03%
Accumulated other comprehensive income (loss)
-7,168
-2,996
-$4,172
139.25%
Total Walmart shareholders' equity
81,394
76,255
$5,139
6.74%
Non controlling interest
4,543
5,084
-$541
-10.64%
Total equity
85,937
81,339
$4,598
5.65%
Total liabilities and shareholder’s equity
$2,03,706
$2,04,751
-$1,045
-0.51%
Vertical and Horizontal Analysis of Income Statement and Balance Sheet
Income Statement
The overall revenue of the company has increased by 9153 million or 1.96% during the year 2015. The net income of the company has increased by $404 million in the year 2015 which shows an increase of 2.42%. Net income for the company is $17,099 million for the year 2015 as compared to $16,695 million for the year 2014. It shows a positive growth in the income as well as revenue of the company. The company has seen an increase in the interest income during year 2015 up to the extent of 5.96%. The interest increased by $132 million during year 2015. The income tax expense for the company has declined by 1.48% irrespective of high income of the company.
Balance Sheet
Analysis of balance sheet reveals that the company’s cash and cash equivalents have increased by $1,854 million during year 2015 which is an of 25.46% duo which the current assets of the company have increased. The company has also reduced its current liabilities. The company has made a great reduction in its short-term borrowings in the year 2015. It has paid major part of its short term borrowings. They have come down by $6,078 million or 79.24% The company has also paid off its long term liabilities, The long term liabilities of the company have decreased by $685 million. Despite of payment for short-term liabilities and long-term liabilities the company has been able to increase its cash; it indicates a big inflow of cash from issuing shares. During the year 2015 the company’s common shareholders’ equity has increased by 6.74%. It means the company has made a change in its capital structure by increasing its owners equity and by paying off short term and long term liabilities.
WAL MART STORES INC
Ratio Analysis
FORMULA
2015
1. Liquidity Ratios
Current Ratio
Current Assets/Current liabilities
0.97
Working capital
Current Assets-Current Liabilities
-1994.00
Acid-test ratio
Quick Assets/Current liabilities
0.24
Inventory Turnover
Cost of Goods Sold/Average Inventory
8.11
Days sales in inventory
(Ending Inventory/Cost of Goods Sold)*365
45.13
Accounts receivable turnover
Net Credit Sales/Average Accounts Receivable
71.68
Days sales in receivables
(Accounts Receivable/Net Credit Sales)*365
5.13
Free cash flow
As per Annual Report
16400.00
Average inventory
(Beginning Inventory+Ending Inventory)/2
44999.50
Average A/R
(Beginning Accounts Receivables+
Ending Accounts Receivables)/2
6727.50
2.Solvency Ratio
Debt Equity Ratio
Total Liabilities/Total Equity
1.45
Interest Coverage
Income before Interest and Taxes/Interest Expenses
0.33
Long Term Liabilities
As per Balance Sheet
43692.00
3. Profitability Ratios
Asset Turnover
Total Revenue/Total assets
2.38
Return on sales
Operating Income/Net Sales
5.63%
Gross margin %
Gross Margin/Sales
24.83%
Return on assets
Net Income/Average Total Assets
8.37%
Return on equity
Net Income/ Shareholders equity
21.01%
Average interest rate
As per Annual Report
3.80%
Average total assets
Beginning Assets+Ending Assets)/2
204228.50
Income tax rate
As per Annual Report
32.20%
Net of tax interest expense
As per Balance Sheet
2348.00
Adjusted net income
As per Income Statement
16363.00
Average equity
(Beginning Equity+Ending Equity)/2
78824.50
Average total liabilities
(Beginning Total Liabilities+Ending Total Liabilities)/2
120590.50
4. Stock Performance Analysis
Book value per common share
Total Common Shareholder's Equity/
No. Of Common Shares
25.21
Earnings per share (basic)
A per Income Statement
$5.07
Earnings per share (diluted)
A per Income Statement
$5.05
P/E Ratio
Market Price per Share of Common Stock/
EPS
16.56
Dividend yield
Cash Dividend per Share/
Market Value per Share
0.02
Dividend payout
Dividend per Share/Earningss per Share
37.87%
Book value of equity
Total Euqity of Common shareholders/
Number of Common Shares
25.20
Common shares outstanding
As per Annual Report
3230.00
Adjusted closing price
As per Information Provided
83.94
Dividends per share
As per Income Statement
1.92
5. DuPont Analysis
DuPont analysis
Profit Margin*Total Assets Turnover*
Financial Leverage
21.01%