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Financial ratio analysis

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  • 1. Page |1 Financial Ratio Analysis Basic Accounting (FNBE0145) Assignment 1 Sharon Chow Ci Yung (0313387) Lee Pui Sun (0314584) Report content FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 2. Page |2 Brief history of Walmart 3–6 Profitability Analysis of Wal-Mart 7–8 (Year 2012 – 2013) P/E Ratio 9 Investment Recommendation 10 Appendix 11-15 References 16-17 Brief History of Walmart Founder of Walmart Sam Walton was the founder of Walmart. He was born in 1918 in Kingfisher, Oklahoma. He made the products low in prices to save the living cost of his customers. FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 3. Page |3 He had become famous in the market. He died in 1992, after receiving the Medal of Freedom. Origin of Walmart It was in Roger, Arkansas. The store was called the Wal-Mart Discount City store and located at 719 West Walnut Street. 1960’s The first Walmart store had been opened by Sam Walton in Roger, Ark. The Walton family owned 24 stores, and made $12.7 million in his Walmart sales. Then, the company has formally comprised as Wal-Mart Stores, Inc. 1970’s Walmart had become a widely traded company. The company had sold their first stock at $16.50 per share. Walmart also opened the first distribution center and Home Office in Bentonville, Ark. Walmart had been included on the New York Stock Exchange, and they owned 51 stores that had already recorded sales of $78 millions. FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 4. Page |4 Sam Walton introduced the Walmart career to a Korean manufacturing facility due to their inspiration from them. Then, Walmart Foundation has been set up. 1980’s Walmart had become the fastest company that reached $1 billion in annual sales (276 stores, 21000 employees). Sam’s Club was opened in Midwest City, Okla. To fulfil the promise to associates after the company had got a pre-tax profit of 8% for the previous fiscal year, Sam Walton did a hula on Wall Street. Walmart installed the largest private satellite communication system in the U.S., linking the company's operations through voice, data and video communication. The first Walmart Supercenter opened in Washington, and David Glass had promoted as CEO. 1990’s Walmart went global, opening a Sam’s Club in Mexico City through a joint venture with Cifra (Mexican Retail Company). They received the Medal of Freedom, and Sam Walton declaimed the company’s mission of saving people money. Walmart expanded into Canada with the purchase of 122 Woolco stores. They had also opened one in China. FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 5. Page |5 2000’s Walmart made a shopping online in U.S. They made a major commitment to environmental sustainability, announcing goals to create zero waste use only renewable energy and sell products that sustain people and the environment. The first store of Walmart had been opened in India. They had also started a global commitment to sustainable agriculture. Walmart surpassed 10,000 retail units around the world. Walmart had the first Walmart Express stores in Arkansas. Walmart celebrated 50 years of helping people save money. Walmart’s Logo Timeline 1962 – 1968 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 6. Page |6 1968 – 1981 1981 – 1992 1992 – 2008 2008 – Present Profitability Analysis of Walmart (Year 2012-2013) Profitability Ratio 2012 2013 Interpretation Return on Equity (24398/73504)x100% (25737/76749.5)x100% (ROE) =33.19% =33.53% During the 2012-2013 period, the ROE increased from 33.19% to 33.53%. This means the business is making a higher return on its investment. Net Profit Margin (24398/443854)x100% (25737/466114)x100% FNBE JAN INTAKE 2013 During the 2012-2013 period, NPM increased from 5.5% to Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 7. Page |7 (NPM) =5.5% =5.52% 5.52%. This means the business is getting better in controlling its overall expenses. Gross Profit Margin (26558/443854)x100% (27801/466114)x100% (GPM) =5.98% =5.96% During the 2012-2013 period, GPM decreased from 5.98% to 5.96%. This means the business is getting worse in managing its cost of goods sold (COGS). Selling Expense Ratio (SER) (28422/443854)x100% (29625/466114)x100% =6.40% =6.36% General Expense Ratio (GER) (28422/443854)x100% (29625/466114)x100% =6.40% =6.36% Financial Expense Ratio (FER) (28422/443854)x100% (29625/466114)x100% =6.40% =6.36% Working Capital (59940/71818): 1 (54975/62300):1 =0.83:1 =0.88:1 (121367/203105)x100% (117645/193406)x100% =59.76% =60.83% Total Debt FNBE JAN INTAKE 2013 During the 2012-2013 period, the SER decreased from 6.40% to 6.36%. This means the business is getting better in controlling its selling expense. During the 2012-2013 period, the SER decreased from 6.40% to 6.36%. This means the business is getting better in controlling its general expense. During the 2012-2013 period, the SER decreased from 6.40% to 6.36%. This means the business is getting better in controlling its financial expense. During the 2012-2013 period, the working capital of the business increased from 0.83:1 to 0.88:1. This means the business’ ability to pay off current liabilities with current assets is getting better. However, it does not satisfy the minimum 2:1 ratio. During the 2012-2013 period, the total debt of the business increased from 59.76% to 60.83%. This means the total debt of the business has increased. In addition, its debt level is higher than the 50% limit. Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 8. Page |8 Stock Turnover =42.13 day 365/(466114/6352.5) 366/(443854/5513) =4.97days =4.55 days 2064+25737 2160+24398 2064 Interest Coverage 366/(335127/38575.5) =43.76 days Debtor Turnover 365/(322488/42258.5) 2160 =13.47 times =12.30 times During the 2012-2013 period, the stock turnover decreased from 43.76 days to 42.13 days. This means it takes less time to sell its stock. During the 2012-2013 period, the debtor turnover decreased from 4.97 days to 4.55 days. This means it takes less time to collect debt from its debtors. During the 2012-2013 period, the interest coverage decreased from 13.47 times to 12.30 times. This means the business’ ability to pay back the interest is getting worse. However, it did satisfy the minimum ratio of 5 times. P/E Ratio = = =15.72 times Walmart’s current share price is $79.25 per share. It’s earning per share for the year 2013 is $5.04. This means Walmart’s price/earning ratio is 15.72 ($79.25/$5.04). FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 9. Page |9 Therefore, if an investor invested on Walmart by buying its shares, the investor will need to wait for 15.72 years to recoup his investment. Investment Recommendation During the 2012-2013 period, Walmart’s Gross Profit Margin decreased from 5.98% to 5.96% which means it is getting worse in managing its cost of goods sold. Although during the 2012-2013 period Walmart’s Working Capital increased from 0.83:1 to 0.88:1 but it still does not satisfy the minimum 2:1 ratio. Moreover, Walmart’s total debt increased from 59.76% to 60.83% which means its total debt has increased and exceeded the 50% limit. FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 10. P a g e | 10 On the other hand, Walmart’s price/earning ratio is 15.72 ($79.25/$5.04). A conservative investor will normally pay no more than price/earning of 15 for a share that he or she likes and Walmart’s is higher than 15. To conclude, although Walmart does demonstrate good financial profitability but it is not financially stable and its shares are not available at a cheap price. Therefore, it would not be wise to invest on Walmart. Appendix FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 11. P a g e | 11 Figure 1.0 Walmart’s P&L Statement for the year 2012 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 12. P a g e | 12 Figure 1.1 Walmart’s Balance Sheet for the year 2012 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 13. P a g e | 13 Figure 1.2 Walmart P&L Statement for the year 2013 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 14. P a g e | 14 Figure 1.3 Walmart’s Balance Sheet for the year 2013 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 15. P a g e | 15 Figure 1.4 Walmart‘s net income per common share for the year 2013 FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 16. P a g e | 16 References Arlan, J., (2010, July 6). $100,000 Walmart Grand Opportunity. Retrieved on 19th, November, 2013 from http://www.regionalfoodbank.org/Food-Bank-Blog/tag/oklahoma/ Frank, T.A., (2006, April 1). A Brief History Of Wal-Mart. Retrieved on 24th, October, 2013, from http://www.corpwatch.org/article.php?id=13796 Hayes, T. C., (1992, April 6). Sam Walton Is Dead At 74; the Founder Of Wal-Mart Stores. Retrieved on 19th, November, 2013 from http://www.nytimes.com/1992/04/06/us/sam-walton-is-dead-at-74-the-founder-of-walmart-stores.html?pagewanted=all&src=pm Shiling, C. G., (2011, October 7). Social Media and the NLRB (Part 3): Discipline and Discharge – The Breadth of Concerted Activity. Retrieved on 2nd, November, 2013, from http://blog.mclane.com/?p=768 Unknown. Wal-Mart; Sam Walton. Retrieved on 31st, October, 2013, from http://corporate.walmart.com/our-story/heritage/sam-walton Unknown, Wal-Mart; Annual Reports. Retrieved on 1st, November, 2013, from http://stock.walmart.com/annual-reports Unknown, 50 years of helping customers save money and live better. Retrieved on 1st, November, 2013, from http://www.walmartstores.com/sites/annualreport/2012/WalMart_AR.pdf FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun
  • 17. P a g e | 17 Unknown, Wal-Mart Stores Inc. (WMT). Retrieved on 20th, November, 2013, from http://finance.yahoo.com/q?s=WMT FNBE JAN INTAKE 2013 Names of group members: Sharon Chow Ci Yung, Lee Pui Sun