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Introduce the Section
This section includes a discussion of the liquidity position of Wal Mart Incorporation and its comparison with competitors, i.e. Target Corporation and industry averages. Liquidity ratios are determined to evaluate the liquidity position of a business, which in turn allows the determination of a businesss strength with respect to the payment of its current liabilities(Gibson, 2012).
Discuss results of ratios and trends
The days sales in receivables for Wal Mart have shown consistent but small increments in the past three years. However, the value for the ratio is still indicative of a favorable position for the company and shows that Wal Marts cash flows are managed in an efficient manner as the company can collect amounts receivable more swiftly than its competitor. It is because of this efficiency that the accounts receivable turnover and accounts receivable turnover in days of Wal Mart is higher.
On the other hand, although days sale in inventory for Wal Mart is on a rising trend, the lower values for ratio imply that the company can convert its inventory into sales more swiftly and it is due to this reason that the inventory turnover and inventory turnover in days are also presenting a favorable position for the company.
In addition, the operating cycle for Wal Mart has also been determined, which indicates the number of days it takes for the inventory to be sold and cash received from debtors. The operating cycle of the company has increased since there have been unfavorable changes in the inventory and accounts receivable turnover during the past three years. Apart from this, the current ratio, cash ratio, and acid ratio show that the liquidity position of the company has remained more or less on the same pattern in the past three years.
Comparison with a competitor
While comparing the liquidity position of Wal Mart with Target Corporation, it can be observed that Wal Mart is in a much better position. The overall comparison of the two companies reveals that Target Corporation is preferring risk aversion.
Comparison with Industry Average
The comparison of Wal Marts liquidity position with that of industry averages indicates that the company is slightly behind the industry averages for the current ratio and acid ratio(Bloomberg Businessweek, 2013).
Summarize the Section
There are no significant changes noted in the liquidity position of Wal Mart during the past three years. However, the liquidity position of Target Corporation has been better as compared to Wal Mart during the past three years. Apart from this, Wal Mart has been more efficient than its competitor and it is therefore that the company has been able to maintain ample cash resources for dealing with its day to day needs.
Exhibit
Long-Term Debt Paying Ability
Introduction the Section
This section includes an analysis of the leverage position of the company in comparison with its competitor and industry averages. The long term debt paying ability helps in evaluating the extent to which a company relies on debt and equity financing to fulfill its working capital and long term financing needs. Moreover, these ratios are also helpful in evaluating the solvency position of the company(Gibson, 2012).
Discuss results of ratios and trends
The times interest earned ratio and fixed charge coverage for Wal Mart fell in 2012 as compared to 2011 but has increased in 2013. The primary reason behind the decrease in 2012 was an increase in financing expenses, which have declined in 2013 to enable the company to report a higher ability to pay off its financial expenses through its profits. Apart from this, the debt ratio for the company increased in 2012 from 2011 and then slightly declined in 2013.
This variation has been noted due to an increase in the long-term debt of the company and then a considerable decline in 2013. Due to the same reason, the debt to equity ratio and debt to the tangible net worth of Wal Mart has also shown similar trends in the past three years. Lastly, the cash flow to debt ratio declined in 2012 but increased in 2013. A declining trend has been noted in 2012 because debt increased and cash flows decreased, which resulted in a low cash flow to debt ratio.
Comparison with a competitor
The comparison of Wal Marts long term debt paying ability with Target Corporation shows that the company has performed considerably better in comparison with its competitor, and also Wal Mart has maintained a lower debt and debt to equity ratio than Target. Moreover, as far as a cash flow to debt ratio is concerned, Wal Mart is in a better position than its competitor, as it can cover more proportion of its debt by cash flows than Target.
Comparison with Industry Average
Wal Marts long term liabilities ratios are highest as compared to the industry average(Bloomberg Businessweek, 2013). For instance, the total debt to total equity and total liabilities to total assets comparison of industry and Wal Mart shows that Wal Mart is ahead of the industry in relation to both these ratios(Bloomberg Businessweek, 2013).
Summarize the Section
In this section, it has been found that Wal Mart is placed in a much better position as compared to its competitor in terms of long term debt paying ability.
Exhibit
Profitability
Introduction the Section
This section entails the profitability analysis of Wal Mart by considering the financial information of the company pertaining to the past three financial years. Profitability ratios are used to evaluate the returns earned by a company in relation to its total assets, investments, equity, operating assets, fixed assets, etc. (Gibson, 2012).
Discuss results of ratios and trends
Wal Marts revenues have not shown significant increments over the past three years and as a result of this and the operating income for the company has grown at a constant rate of 6 percent during 2011, 2012, and 2013. It is due to this reason that the profitability ratios have also shown steady increases year on year. However, it has to be noted that there has been a decline noted in different profitability ratios from 2011 to 2012; as for instance net profit margin, total asset turnover, return on assets, operating income margin, return on operating assets, and return on investment have all declined in 2012 owing to lower profits earned by the company in 2012.
One main reason behind the decrease in profitability ratios is that the company has focused on leading the market through low prices. However, apart from low growth in profits earned by the company and the fact that there has been increasing in assets, investments, and equity, there has been a slight improvement in most of the ratios, which is commendable.
Comparison with a competitor
The comparison of Wal Marts profitability ratios with Target Corporation shows that the company has underperformed in comparison with its competitor in terms of net profit margin, operating income margin, and gross profit margin, whereas in relation to other ratios, Wal Mart has a significant lead over its competitor. As mentioned earlier, Wal Marts management has been striving to become a market leader in low-priced goods, which has ultimately affected the revenues and in turn profitability of the company.
Apart from this, a comparison of net income and total assets, investments, and equity of the two companies show that there is a considerable difference between the two. However, it is still relevant to state here that Target has been more efficient and profitable about some ratios than Wal Mart.
Comparison with Industry Average
Reviewing the profitability at the industry level and comparing the same with Wal Marts ratios, it has been noted that Wal Mart is ahead of its industry averages. This implies that Wal Mart is leading the industry in terms of profit ratios, particularly, return on assets, return on equity, return on capital(Bloomberg Businessweek, 2013).
Summarize the Section
The profitability ratios for Wal Mart are presenting a better picture in comparison with Target Corporation and industry averages.
Exhibit
Investor Analysis
Introduction the Section
Investor ratios help assist investors to evaluate their respective investments in line with the trends and patterns shown by the financial performance indicators of the company in which they have invested. This section includes the calculation of investment ratios for Wal Mart and their comparison with competitor and industry averages.
Discuss results of ratios and trends
The degree of financial leverage for Wal Mart has been more or less on a similar track in the past three financial years. On the other hand, the earnings per share of the company have increased steadily over the past three years due to an increase in its net income earned progressively during the period under consideration. Moreover, due to a consistent increase in operating cash flows, the operating cash flow per share has increased. Besides, due to an increase in cash dividends, the operating cash flow per cash dividend has been on a declining trend.
Comparison with a competitor
The comparison of Wal Marts investment ratios with that of Target Corporations ratios shows that there is no significant difference between the two companies in this regard. For instance, there is only a marginal difference between the degree of financial leverage, earnings per share, price/earnings ratio, percentage of earnings retained, dividend payout, dividend yield, and book value per share. However, there are some areas where the difference between the two companies is considerable; for instance, there is a significantly higher materiality of options for Target as compared to Wal Mart. Besides, operating cash flow per share, operating cash flow per cash dividend and year end market prices also show a significant difference between the two companies.
Comparison with Industry Average
The comparison of investment ratios with industry averages reveals that Wal Marts earnings per share growth are better than the industry average (Bloomberg Businessweek, 2013). This shows that the company has a better earning potential on its stocks than industry averages.
Summarize the Section
This section has revealed that Wal Marts investment ratios are more or less posing similar situation as Target Corporation. Also, the company has earned a better place about earnings per share growth in comparison with industry averages.
Exhibit
Conclusion
The financial analysis of Wal Mart and its comparison with competitor and industry averages has been presented in this report. The conclusion reached in this analysis is that Wal Mart has a satisfactory liquidity position and profitability trends, as has been noted in the past three years. In addition to this, the long term debt paying ability and investors ratios of the company is also projecting a satisfactory scenario for investors and investment in the company.
Reference List
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Gibson, C. H. (2012). Financial Reporting and Analysis. Mason: South-Western Cengage Learning.
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Tennet, J. (2008). Guide to Financial Management. London: Profile Books Ltd.
WAL MART. (2013b). 8 K REPORT. Bentonville: WAL MART.
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WAL MART. (2013a). ANNUAL REPORT 2013. Bentonville: WALMART STORES.
Yahoo Finance. (2013). Wal-Mart Stores Inc. (WMT) Industry; Departmental stores. Web.
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