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Wal-Mart

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									Financial Evaluation of Wal-Mart



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       February 12, 2009




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       Examining Wal-Mart's annual financial reports gives an optimistic position

on Wal-Mart's financial wellbeing. After a systematic examination of the detailed

ratios and its association to other companies within the same sector, Wal-Mart is

expected to continue its domination. Even though Wal-Mart didn’t lead in all

figures, its management and sturdy presence of the market solidifies their

continuing accomplishments.



       The evaluation of the current ratio, quick ratio, inventory turnover ratio,

debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all point to a positive

prospectus for Wal-Mart. The current ratio (which is identified as current assets

divided by current liabilities) is a determination of how many liabilities a company

possesses when compared to its assets. In 2007, Wal-Mart had a current ratio of

.90, and in January of 2008, they had a current ratio of .81. The quick ratio

(which is identified as current assets less inventory; divided by current liabilities)

is a determination of a company's capability to disburse short-term commitments.

In 2007, Wal-Mart had a quick ratio of .25, and in January of 2008 they had a

ratio of .21. Both the quick ratio and the current ratio are a determination of

liquidity. Wal-Mart isn’t as liquid as its opponents who primarily consist of Family

Dollar Stores, Inc. and Costco. The rationale of why Wal-Mart is not overly liquid

is because they are deeply investing their profits for development and escalation.

Upper-management maintains that preserving their liquid reserves in other

currencies has assisted Wal-Mart in evading inflationary stress of the US dollar.
       Wal-Mart’s inventory ratio (which is identified as the cost of sales divided

by their average inventory) was 7.68 in 2007, and 7.96 in January of 2008. Wal-

Mart has a large amount of transactions, and as such, they are able to turn over

their inventory with ease. Their competitions possess comparable ratios although

they do not complete as much transactions as Wal-Mart does. Their capability to

sell at reduced prices for same value gives them a large advantage over their

competition. As of the 2007, Wal-Mart had a debt ratio of .58, and in January of

2008 they had a debt ratio of .59. The debt ratio is determined by dividing the

total debt by its total assets. Wal-Mart possesses much more assets than debt,

and as such, they are not overleveraged. Wal-Mart surpasses their opposition in

the evaluation of assets.



       Wal-Mart’s net profit margin ratio (which essentially measures the return of

sales) was at 4% in 2007 and 3% as of January, 2008. The industry average is

comparable, so the associations among the competitors stayed flat. Wal-Mart’s

ROI was at 8% in the 2007 and in January of 2008. Wal-Mart possessed one of

the top ROI’s in their sector; nevertheless, the most imperative correlation of this

figure is in its regularity. Wal-Mart figures in this area are more constant than

their opponents. Their return on net worth (return on stockholder’s equity)

provides a clear understanding of the performance of the company. In 2007 they

had a ROE of .19 and as of January 2008, they had a ROE of .19. Wal-Mart’s

steadfast gains make it a vast corporation. They were able to get nearly a 20%

return for their shareholders.
       Finally, the ratio that further establishes Wal-Mart’s remarkable

performance is the P/E ratio. The P/E is determined by dividing the market price

per share by the current earnings per share. Wal-Mart had a P/E ratio of 17.89 in

2007, and 16.28 P/E as of January, 2008. Commonly, an elevated P/E suggests

that investors are expecting advanced future earnings growth.



       Wal-Mart’s aptitude to turn their inventory into cash is extraordinary. They

have the shortest operating rotation in their sector. Through the addition of the

inventory conversion period and receivable conversion period, one would attain

the operating cycle. Wal-Mart had 49.36 days for its operating cycle as of

January 2008. A comparable calculation of Wal-Mart’s bottom line can be found

in their cash conversion cycle which is calculated by subtracting the period of

payable deferral from the operating cycle. The amount of days for Wal-Mart to

convert their resource inputs to cash is nearly 12.36 days. Their cash cycles are

much more efficient than their competition. They are able to move their inventory

extremely fast. Their system is incredibly proficient as a result of their fantastic

aptitude to require less working capital.



       Wal-Mart sells their common stocks with a current selling price of 58.62

per share. They had a 52-week average price amongst the high 40’s and low

50’s. Their average cost of capital in 2007 was 5.3% and 4.0% as of January,

2008. These figures are extremely remarkable. The prime basis why they have

the ability to do so is because they are considered a first-rate credit risk. Their
distinguished brand promotes their sales, and they have a history of paying off

their debts within s short period of time.



        Wal-Mart's large performance has established sanguinity for their

investors. The recent economic conditions call for consumers to spend less, and

as such, Wal-Mart is doing well. Their long-term intensification and position looks

encouraging. Many analysts have the same opinion that Wal-Mart will execute

fine in the future and continue surpassing their competition. With adequate

management in place, Wal-Mart has the potential to monopolize their sector.



       Wal-Mart’s numbers speak for themselves. The eight ratios that were

analyzed were mostly all high-quality and better than their competition. The

current ratio, however, was not the best in the industry. This is most-likely the

result of their current liabilities as a result of their high inventory requirements.

The quick ratio tells us that Wal-Mart has the potential to pay their creditors and

has better figures than their competition. The inventory ratio shows that Wal-Mart

is the leader in their sector because of their overall sales. Their inventory is

constantly being pushed because of their low prices and high demand. The debt

ratio of Wal-Mart has also surpassed most of their competition. Wal-Mart also

has a higher net worth and market cap than their competition.



       Wal-Mart’s net profit margin ratio is also efficient; nevertheless, it is not

performing as well as it could. This may also be the result of them setting their
prices low. They are able to do this, however, because of the high inventory they

sell. Their ROI on its assets in addition to their ROE is steady - unlike their

competition. As they gain additional market shares, they will continue to

dominate their competition. The P/E ratio suggests that they are ready for

additional growth, particularly as they expanded to other markets. Wal-Mart is a

great company with exceedingly diminutive flaws, and they are certainly a

company that is worth investing in.
                                     Works Cited



Birchall, J. (2006). A purchase on psephology. Financial Times.

Walmart (Ticker: WMT). Yahoo Finance. Retrieved on February 12, 2009.

								
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