Bus 530 - Walmart Inc

...

indicators presented in Table 1 and Table 2, along with stock analyst reports, it is the author’s opinion that an investment in Wal-Mart would be favorable for the investor seeking long-term earnings and dividend growth, combined with low-risk volatility. The positive return on equity represents management effectiveness and income to shareholders per dollar that they have invested. The earnings per share and return on investment that outpace the industry benchmark further support an attractive investment in Wal-Mart. Also, as illustrated with the inventory and receivable turnover, the company appears to be efficient by not tying up more capital than is needed, while also issuing credit and collecting funds in a timely manner. Most notably, Wal-Mart holds a strong free cash flow position and margin to indicate what percent of revenue is left for shareholders in the form of free and discretionary cash flow. As noted by Brealey et al. (2016), “free cash flow is available to be paid out to investors as interest or dividends or to repay debt or buy back stock” (p. 67). Finally, Wal-Mart’s market value added, the difference between the market value of firm’s share (share price times number of shares outstanding) and the amount of the money that shareholders have invested in the firm (book value equity) is $235,551 (M) - $80,546 (M) = $155,005 (M) (Standard & Poor’s NetAdvantage, 2016). In other words, Wal-Mart shareholders have contributed nearly $80.5 billion and ended up with shares worth $235 billion, or accumulated $155 billion in market value added. Consequently, the market-to-book ratio can be calculated to determine how much value has been added for each dollar that shareholders have invested. For Wal-Mart, this would equal $235,551 (M) divided by $80,546 (M), or 2.92. In other words, Wal-Mart has multiplied the value of its shareholders investment almost 3 times.

Table 2

Financial Ratios

Walmart Stores, Inc.

Financial Strength/Liquidity

Quick Ratio

.22

Current Ratio

.93

Debt to Equity Ratio

55%

Efficiency/Activity

Inventory Turnover Ratio

8.06

Asset Turnover Ratio

2.39

Receivables Turnover Ratio

77.75

Profitability

Gross Margin

25.13%

Net Margin

3.05%

Free Cash Flow

$17.65B

Free Cash Flow Margin

1.08

Management Effectiveness

Return on Equity

18.15%

Return on Assets

7.29%

Return on Investment

11.12%

Source: Morningstar Report (January 2016)

References

Agnese, J. (2016). Industry surveys: Food and staples retailing industry. Retrieved fromhttp://www.netadvantage.standardandpoors.com.ezproxy.liberty.edu:2048/NASApp/

NetAdvantage/cp/companyIndustrySurvey.do?task=showPDFIndustrySurveyBySppwId

Brealey, R., Myers, S., & Marcus, A. (2015). Fundamentals of corporate finance, (8th ed.). New York, NY: McGraw-Hill.

Fidelity Investments (July 5, 2016). Food & staples retailing industry: Industry fundamentals. Retrieved from https://eresearch.fidelity.com/eresearch/goto/markets_sectors/sectors/

industries.jhtml?tab=learn&industry=301010

Standard & Poor’s NetAdvantage. (July 6, 2016). S&P indices: Wal-Mart stores, inc. Retrieved from http://www.netadvantage.standardandpoors.com.ezproxy.liberty.edu:2048/NASApp

/NetAdvantage/cp/companyOverView.do?SPPW_ID=9959&pc=NET&auth=250153005130088237128116208032145253096003246093&tracking=NET

Standard & Poor’s NetAdvantage. (July 2, 2016). Stock report: Wal-Mart stores, inc. Retrieved from http://www.netadvantage.standardandpoors.com.ezproxy.liberty.edu:2048/

NASApp/NetAdvantage/cp/showStockReport.do

Wal-Mart Stores, Inc. (March 31, 2016). Form 10-K. Retrieved from http://stock.walmart.com/investors/financial-information/sec-filings/sec-filings-details/default.aspx?FilingId=11291034

Wal-Mart Stores, Inc. (2016). Morningstar report. Retrieved from http://financials.morningstar.com/ratios/r.html?t=WMT®ion=usa&culture=en-US

Wal-Mart Stores, Inc. (2016). Wal-Mart stores, inc. SWOT analysis, 1-9. Retrieved from http://search.ebscohost.com.ezproxy.liberty.edu:2048

...