Wal-Mart
Financial Health of Wal-Mart
Abstract
The purpose is to evaluate the financial health of Wal-Mart. Two techniques of comparative analysis and industrial comparison have been used for the purpose. The financial statements for the year 2013 and 2012 have been analyzed.
Introduction
The financial health of a company can be analyzed by using various techniques including comparative analysis and industrial comparison. The comparative analysis shows the trend which describes where the company is going. The trend may be upwards, downwards, zigzag or constant. The industrial comparison helps in knowing where the company stands as compared to other competitors. It can help in finding the lacking in company operations, thus further improvements can be made after analysis.
Company Overview
Wal-Mart was listed on New York Stock Exchange in 1972. Its symbol is WMT and it is traded at around $78 per share on April 19. 2013. It belongs to retail industry and it is the largest among all retailers. The company has three segments and they are US, International and Sam Club. Total sales for the year 2013 are around $469 billion and 60% of total revenues come from US segment. The company is customer oriented; therefore it works on very low profit margin, thus set a low price of each product.
Financial Health
Wal-MartComparative Analysis of
Income Statement
All in billions of dollars / 2013 / 2012 / Difference / % Change
Revenues / 469.2 / 447 / 22.2 / 4.97%
less cost of sales / 352.5 / 335.1 / 17.4 / 5.19%
Gross Profit / 116.7 / 111.9 / 4.8 / 4.29%
less operating expenses / 88.9 / 85.3 / 3.6 / 4.22%
Operating Income / 27.8 / 26.6 / 1.2 / 4.51%
add Other Income / 0.19 / 0.1 / 0.09 / 90.00%
Earnings before Interest and Taxes / 28.0 / 26.7 / 1.29 / 4.83%
less Interest / 2.3 / 2.3 / 0 / 0.00%
Earnings before taxes / 25.7 / 24.4 / 1.29 / 5.29%
Less taxes / 8 / 8 / 0 / 0.00%
Earnings after taxes / 17.7 / 16.4 / 1.29 / 7.87%
The above analysis shows that the trend in net income is increasing as it is showing higher net income by around 8% in 2013 as compared to 2012. The increase in sales was by around 5% in 2013 and the same trend is shown in almost all items of income statement except for interest which shows no change, due to which the company could earn increase of around 8% in net income in 2013.
Wal-MartComparative Analysis of
Balance Sheet
All in billions of dollars / 2013 / 2012 / Difference / % Change
Assets
Current Assets
Cash & Cash Equivalents / 7.8 / 6.5 / 1.3 / 20.00%
Net Receivables / 6.8 / 6 / 0.8 / 13.33%
Inventory / 43.8 / 40.7 / 3.1 / 7.62%
Other Current Assets / 1.6 / 1.8 / -0.2 / -11.11%
Total Current Assets / 60 / 55 / 5 / 9.09%
Long term Investment / 116.7 / 112.3 / 4.4 / 3.92%
Goodwill / 20.5 / 20.7 / -0.2 / -0.97%
Other Assets / 6 / 5.5 / 0.5 / 9.09%
Total Fixed Assets / 143.2 / 138.5 / 4.7 / 3.39%
Total Assets / 203.2 / 193.5 / 9.7 / 5.01%
Liabilities and SHE
Account payable / 59.1 / 56 / 3.1 / 5.54%
Current Long term debt / 12.7 / 6.4 / 6.3 / 98.44%
Total current liabilities / 72 / 62.4 / 9.6 / 15.38%
Long term debt / 41.4 / 47.1 / -5.7 / -12.10%
Deferred Long term liability / 7.6 / 7.9 / -0.3 / -3.80%
Minority Interest / 5.4 / 4.4 / 1 / 22.73%
Total Liabilities / 126.4 / 121.8 / 4.6 / 3.78%
Shareholders’ Equity
Misc Stock Options / 0.5 / 0.4 / 0.1 / 25.00%
Common Stock / 0.3 / 0.3 / 0 / 0.00%
Retained Earnings / 73 / 68.7 / 4.3 / 6.26%
Capital Surplus / 3.6 / 3.7 / -0.1 / -2.70%
Other Shareholders Equity / -0.6 / -1.4 / 0.8 / -57.14%
Total SHE / 76.8 / 71.7 / 5.1 / 7.11%
Total Liabilities and SHE / 203.2 / 193.5 / 9.7 / 5.01%
It is also very important to note that the change in total assets is also around 5%, which is matching with the change in sales and other items of income statement. The change in current assets was around 9%, while the change in fixed assets was around 3%. The change in current assets was mainly due to increase in cash, account receivable and inventory. This change was needed to meet the increase in sales for the year 2013. The change in total liabilities was around 4%, which was due to change in current liabilities by around 15%. The major change in current liabilities was due to change in current portion of long term debt which was around 98% higher in 2013 as compared to 2012. The change in shareholders’ equity was around 7%, which was mainly due to increase in retained earnings by around 6% in 2013. The change in retained earnings is due to net income in 2013.
Comparison with Competitors
WMT / COST / TGT / IndustryMarket Capitalization / 254.04B / 45.21B / 43.80B / 3.34B
Employees / 2,200,000 / 96,000 / 361,000 / 116.00K
Qtrly Rev Growth / 4% / 8% / 7% / 9%
Revenue / 469.16B / 103.13B / 73.30B / 9.95B
Gross Margin / 25% / 12% / 29% / 37%
EBITDA / 36.30B / 3.87B / 7.51B / 170.91M
Operating Margin / 6% / 3% / 7% / 8%
Net Income / 17.00B / 1.96B / 3.00B / N/A
EPS / $ 5.02 / $ 4.46 / $ 4.52 / $ 0.30
P/E / 15.37 / 23.22 / 15.11 / 17.93
The above analysis shows that the Wal-Mart is quite a giant company as compared to other two competitors and the average of industry. The two sales of two competitors are around $176 billion, while the Wal-Mart sale sis around 2.7times higher than the two competitors. The low growth rate of 4% in quarterly revenue is due to big amount of sales, while in dollar terms, it is still higher than other two competitors. The company is showing a low operating margin as compared to industrial average. The PE ratio of around 15 is also on lower side as compared to industrial average of around 18.
Recommendation
Overall performance of the company is comfortable, and the company is doing well. It is following very tight financial discipline, which is evident from the fact that the increase in sales is properly supported by increase in current assets and accounts payable. At present the company is trading at around $78 at NYSE, which seems to be below than its fair value, according to industrial PE ratio, the fair price should be around (18*5) =$90. Therefore it can be good buy for future.
References