Wal-Mart Stores, Inc. Case Study

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Balance Sheet

Wal-Mart continuously receives an AA credit rating, which is the highest rating in the retail industry. This leads me to believe they have a healthy balance sheet. As of January 31, 2015, the company has 203 million dollars’ worth of total assets. This was actually a decrease compared to the 204 million dollars reported at the 2014 year end. The total liabilities decreased from 123 million to 117 million in 2014 to 2015. Although the assets and liabilities decreased, the total assets are still higher than the total liabilities further backing my belief of a strong balance sheet. However, the current assets and current liabilities data shows that current liabilities are about 2 million dollars more than the current liabilities. This means that the company has problems paying off its short term debt. (add more)

Property and equipment was the most significant asset recorded. The net total after taking out depreciation was 114 million which makes up 56% of the total assets. The liabilities section of the balance sheet had two areas that stuck out. The first is long-term debt, making up 20% of total liabilities. The long-term debt is classified as debt due within one year. According to the company’s website, Wal-Mart has a “strong long-term debt rating that has enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets.”(Walmart) The next noticeable liability is accounts payable. This is a much more common significant liability.

Comprehensive Income Statement Analysis

Wal-Mart’s main source of revenue for all three years was net sales. As stated on the sec.gov filings, revenue increased by 2% in 2015 and by 1.6% in 2014. This total revenue increase was due largely to the 1.9% and 1.6% increase in net sales. The main expense of the company can be contributed to cost of sales. The cost of sales includes product cost, stores and clubs from suppliers, transportation cost from distribution facilities, and warehousing cost from the Sam’s Club segment. The cost of sales has steadily increased over the past three years. The company uses the multistep method. This method is used when revenues and expenses are reported in categories which included separating the operating and non-operating revenues and expenses. This makes it easy for investors to see gross profit, operating profit, and net profit. This allows investors to determine where the business is weak or profitable. Considering the size of Walmart, the multi-step method is the most appropriate for the company to use.

Comparative Analysis

Target

Property, plant, & equipment

Property, plant, & equipment are stated at cost for Walmart. Normal repairs and maintenance is recorded as expenses but major improvements are capitalized. The straight line method is used to calculate depreciation and amortization of the equipment, long-lived assets. The company’s annual report shows the useful life of buildings and improvements, fixtures and equipment, and transportation equipment. Buildings and fixtures have similar useful lives ranging from two to thirty years. Transportation has a smaller useful life at three to fifteen years. Land and construction in progress are two categories that are listed as property and equipment without a useful life. As stated on the company’s 2015 annual report, Impairment charges of long-lived assets for fiscal 2015, 2014, and 2013 were not significant. (annual report)

Inventory

Inventory is evaluated two different ways throughout the Walmart Corporation. The Walmart U.S. segment uses the LIFO method, last-in and first-out. This method is used when the company assumes that the products purchased last are the first ones sold. The Sam’s Club segment is valued based on weighted average cost but using the LIFO method as well. The Walmart International segment uses the FIFO method, first-in and first-out. This method suggests that the products purchased first are also the first ones sold.

Investments in other entities

Walmart owns ASDA- british supermarket retailer. Is this acceptable to use here? It is technically part of walmart but under a different name.

Intangible assets

Goodwill is when a company acquires or purchases an existing business. Goodwill has made up roughly nine percent of Walmart’s total assets in the past two years.

Statements of Stockholders Equity

The total stockholder’s equity in 2013 and 2014 remained relatively the same at around 76 million dollars. However, in 2015, it increased by about 5 million dollars for a total of 86 million dollars. Distributing a portion of the company’s earnings to its shareholders is referred to as a dividend. Walmart pays their stockholders by cash dividends and share repurchases. According to the 2015 annual report, dividends were increased to $1.96 per share. This increase marks the forty second consecutive year of dividend increases.

Statements of Cash Flows

The statement of cash flows breaks the cash down into operating, investing, and financing activities. When looking at the sec.gov filings, the operating activities have increased over the last two years by about six million dollars. The timing of payments for accounts receivable and accrued liabilities combined with the timing of income tax payments and lower capital expenditures are responsible for the increase in operating activities. The net cash used for investing activities in 2015 was about one million dollars less than the previous year. This decrease is because of the lower capital expenditure. The investing activities consisted of payments to add stores, remodel existing stores, expand in digital retail, and investing in other technologies. The cash flows used in financing activites are typically transcations related to the company’s short term and long term debt along with dividends paid and repurchases of company stock. The company’s short term borrowings decreased by a little over six million dollars in the year 2015. However, long term debt remained flat at a total of forty one million dollars.

Investment Analysis

Yes, I would invest in WalMart. https://www.forbes.com/sites/laurengensler/2016/06/06/jefferies-analyst-why-wal-mart-stock-will-soar/#69567fb6b8ce

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