Accounting Assignment 1 Financial Ratio Analysis FNBE 0814

1. SCHOOL OF ARCHITECTURE, BUILDING & DESIGN
Foundation of Natural & Built Environments (FNBE)
BASIC ACCOUNTING
Lecturer : Mr. Chang Jau Ho
Assignment: Financial Ratio Analysis
Company: Walmart
Group Members: Lim Zi Shan
Chow Kah Yien
Audrey Ting
TABLE OF CONTENT:
No. Contents Page
1 Company Background 2, 3

2. 1
2 Recent Development 3
3 Ratio Analysis & P/E Ratio 4, 5
4 Investment Recommendation 6
5 Appendix 7, 8
6 References 9
CompanyBackground
Walmart was founded by Sam Walton 52 years ago on July
2nd,1962 and he opened his first Walmart store in Rogers,Arkansas.
Walmart is a family owned business and the companyis controlled by
the Walton family. Sam Walton’s heirs own more than 50 percent of
Walmart through their holding company and their individual holdings.
Walmart has been dedicated to making a difference in the lives of all its
customers.Walmart sell its product at a low price compared with other
supermart which leads Walmart to get a higher-volume sales with low
margin. What has beenachieved by Walmart today is the result of Sam

3. 2
Walton's visionary leadership, along with generations of associates
focused onhelping customers and communities save money and live
better.
In the 1970s,Walmart went national with the widespread of Sam
Walton’s goals for great value and great customerservice. After going
national, Walmart continued to spread its business by establishing
Sam’s Club which its purpose is to serve small business and individuals.
The first Walmart Supercenter,a supermarket with general merchandise
was also opened afterwards. By 1990,Walmart became the nation’s top
one retailer by revenue.
Moving on to the 2000s,Walmart has beenconstantly upgrading
itself to provide better services to their customers.It made use of the
latest technologywhich offerconvenience to their customers to shop
either online, in a store or mobile devices.AfterSam Walton had passed
away, Walmart continues to inherit his ideologyof lowering the cost of
living for everyone. Till today, Walmart remains leader in the retail
industry. They had employed 2.2 million associates worldwide and
serves more than 200 million customers each week at more than 11,000
stores in 27 countries.
In North America,Walmart’s primary competitors include
department stores like Kmart, Publix, Target and Meijer. Walmart also
had to face fierce competitionin some foreignmarkets.
RecentDevelopment
In Jan 2013,Walmart boostsourcing of U.S. products by $50 billion over
the next 10 years. Walmart announced bold commitmentto increase
domestic sourcing of the products it sells and help veterans find jobs
when they come off active duty. Speaking at the National Retail
Federation’s annual BIG SHOW,Walmart U.S. Presidentand CEO Bill
Simon also announced the company is helping part-time associates who
want to be full time, make that transition.

4. 3
In April 2013,Walmart U.S. Executive VIce Presidentand COO Gisel
Ruiz accepts the El Premio Orgullo award during the 2013 Hispanic
FederationAnnual Gala.
January 16th, 2014 - Walmart joins Coalition of Immokalee Workers Fair
Food Program. Walmart and the Coalition of Immokalee Workers signed
an historic agreement for the world’s largest retailer to join the Coalition
lmmokalee Workers Fair Food Program,the widely-acclaimed social
responsibilityprogram that is bringing real, measurable change to the
men and women who harvest tomatoes for Florida’s $650 million tomato
industry.
On 1st December2014,Walmart breaks its online records on Cyber
Monday 2014.Walmart announced that Cyber Monday 2014 (Dec.1)
was the biggestonline day in its history for orders.Customer viewed
more than 1.5 billion pages on Walmart.com betweenThanksgiving and
Cyber Monday.
Ratio Analysis of the business based on 2013 & 2014
(Amounts in millions)
Profitability Ratios 2013 2014 Interpretation
Return on Equity
(ROE)
17756
78750
× 100%
= 22.5%
16695
81539
×100%
=20.5%
During 2013 to 2014, ROE has
decreased from 22.5% to
20.5%. The owner is getting
less return from his/her capital
compared to last year.
Net Profit Margin
(NPM)
17756
465604
× 100%
= 3.8%
16695
473076
× 100%
=3.5%
Over the period, NPM has
decreased from 3.8% to 3.5%.
The business is getting worse at
controlling its overall expenses
compared to last year.

5. 4
Gross Profit Margin
(GPM)
116354
465604
× 100%
= 25%
118265
473076
× 100%
=25%
Over the period, GPM has
remained the same which is at
25%.
Selling Exp. Ratio
(SER)
44315
465604
× 100%
=9.5%
45677
473076
×100%
=9.7%
Over the period, the SER has
increased from 9.5% to 9.7%.
The business’s ability to control
its selling expense is getting
worse.
General Exp. Ratio
(GER)
44315
465604
× 100%
=9.5%
45677
473076
×100%
=9.7%
Over the period, the GER has
increased from 9.5% to 9.7%.
The business’s ability to control
its general expense is getting
worse.
Financial Exp. Ratio
(FER)
2064
466114
× 100%
= 0.4%
2216
473076
×100%
=0.5%
Over the period, FER has
increased from 0.4% to
0.5%.The business is getting
worse at controlling its financial
expense.
(Amounts in millions)
Stability Ratios 2013 2014 Interpretation
Working Capital 59940
71818
= 0.83 : 1
61185
69345
= 0.88 : 1
From 2013 to 2014, working capital
has increased from 0.83 : 1 to 0.88
: 1. The business is getting better
at paying off its liability. In addition,
it does not satisfy the minimum 2:1
ratio.
Total Debt 121367
203105
× 100%
123412
204751
× 100%
From 2013 to 2014, total debt has
increased from 59.8% to 60.3% .
However, it does not satisfy the
maximum 50% limit.

6. 5
= 59.8% =60.3%
Stock Turnover 365
÷
352488
44330.5
= 46 days
365 ÷
358069
44330.5
= 45 days
From 2013 to 2014, stock turnover
has decreased from 46 days to 45
days. The business is selling its
goods slower.
Debtor Turnover
365 ÷
234325.5
6772.5
= 10.5 days
365÷
238147
6772.5
= 10.4 days
From 2013 to 2014, debtor
turnover has decreased from 10.5
days to 10.4 days. The business is
collecting their debts faster.
Interest Coverage 2262 + 17756
2262
= 9 times
2362 + 16695
2362
= 8 times
From 2013 to 2014, interest
coverage has decreased from 9
times to 8 times. The business is
getting better at paying back their
interest. Plus, it satisfies the
minimum requirement of 5 times.
P/E Ratio
P/E Ratio
=
74.27
4.98
= 14.91
Investors have to wait around 15 years to get back their investment.
Investment Recommendation
From the profitability ratio, there is a decrease in return on equity
in the year 2014 compared to 2013.This means that the owner is getting
less return from his capital. For the net profit margin, it has decreasedin
the year 2014.This means that the company ability to control their
overall expenses is getting worse. However, the gross profitmargin of
the company remains unchanged. The operational expenses ratio of the
business has decreased in2014 compared to 2013.
Besides,the working capital ratio of the company in the year 2014
has increased when compared to 2013.The business is getting better at

7. 6
paying off its liability but it still does not satisfy the minimum requirement
of 2:1. Moreover, the total debt ratio has increased. This means that the
company’s debt has increased and it does not satisfy the maximum 50%
limit. Furthermore, the inventory turnover ratio, Debtorturnover ratio and
interest coverage ratio has been decreasing throughout the year.
Based on the analysis above, Walmart’s overall financial ratios are
actually decreasing over the year. If this situation goes on, somedaythey
will not be able to cover their expenses and pay off their debts at the
same time which would lead to loss in their business.Inconclusion,it
would be not wise to invest in Walmart because when you look at their
P/E ratio, even though it is only slightly below 15 but it takes about 15
years for the investors to recoup their investment and not to mention that
Walmart currently has a slight drop rate in their profitability and financial
stability and it is likely that it will continue to drop in the future unless
they make effortto control their expenses and debts.
Appendix

8. 7

9. 8
References

10. 9
1. Corporate.walmart.com,. (2015). Walmart Corporate: Our Story. Retrieved 31
May 2015, from http://corporate.walmart.com/our-story/
2. Goldman, L. (2011). The Incredible Story Of Walmart's Expansion From Five
& Dime To Global Megacorp. Business Insider. Retrieved 31 May 2015, from
http://www.businessinsider.com/the-incredible-story-of-walmarts-expansion-
from-five-and-dime-to-global-megacorp-2011-7?IR=T&
3. Walmart 2013 Annual Report. (2013) (1st ed., pp. 32, 33, 54). Atlanta.
Retrieved from
http://stock.walmart.com/files/doc_financials/2013/Annual/2013-annual-report-
for-walmart-stores-inc_130221024708579502.pdf
4. Walmart 2014 Annual Report. (2014) (1st ed., pp. 36, 37, 58). Atlanta.
Retrieved from
http://stock.walmart.com/files/doc_financials/2014/Annual/2014-annual-
report.pdf
5. BREAKING NEWS: Walmart joins CIW’s Fair Food Program! (n.d.).
Retrieved May 31, 2015, from
http://ciw-online.org/blog/2014/01/walmart/
6. Walmart to Boost Sourcing of U.S. Products by $50 Billion Over the Next 10
Years. (n.d.). Retrieved May 31, 2015, from http://news.walmart.com/news-
archive/2013/01/15/walmart-to-boost-sourcing-of-us-products-by-50-billion-over-the-
next-10-years