Financial ratio analysis

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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

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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.



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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.


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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.


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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



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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%


NPM increased from 5.5% to


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(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%

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


the SER decreased from
6.40% to 6.36%. This means
the business is getting better in
controlling its selling expense.
controlling its general expense.
controlling its financial
expense.
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.
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.


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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

the stock turnover decreased
from 43.76 days to 42.13 days.
This means it takes less time to
sell its stock.
the debtor turnover decreased
from 4.97 days to 4.55 days.
This means it takes less time to
collect debt from its debtors.
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).



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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.



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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



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Figure 1.0 Walmart’s P&L Statement for the year 2012



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Figure 1.1 Walmart’s Balance Sheet for the year 2012



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Figure 1.2 Walmart P&L Statement for the year 2013



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Figure 1.3 Walmart’s Balance Sheet for the year 2013



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Figure 1.4 Walmart‘s net income per common share for the year 2013



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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



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Unknown, Wal-Mart Stores Inc. (WMT). Retrieved on 20th, November, 2013, from
http://finance.yahoo.com/q?s=WMT



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