Walmart is a multinational corporation with a massive presence in various parts of the globe. The company's capital structure is made up of both debt and equity funds. In a bid to achieve maximum financial and operational efficiencies, the entity has designed its capital structure to more equity and less debt financing. (Soni)
Equity capital is the primary type of capital used by the business to operate. Equity can be defined as the funding availed to the firm through the sale of share stocks and issuing the earnings attributable to the company's shareholders. The total shareholder equity held by Walmart as at January 2016 was $ 83.6 B. The composition of the shareholder equity included common shares valued at $ 317, 000, 000 $ 3, 100, 000,000 in non- redeemable non- controlling interest, $ 90,000,000, 000 in retained earnings $ 1,800,000,000 in excess capital. ("Wal-Mart Stores Inc. (WMT) | Debt And Solvency")
The amount of equity capital held by the company has however been staggering over the years. It rose from $ 81.3 billion in 2014 to $ 85.9 billion in 2015 and dropped to $ 83.6 billion in 2016. These fluctuations have however been attributed to the fluctuating amounts of retained earnings and comprehensive losses generated by the business. The company launched a share repurchase program in 2015 for $ 4.1 billion which also contributed significantly to the decline in the value of shareholder capital. (Soni)
Debt capital, on the other hand, is generated by borrowing funds through the use of things like loans, treasury bonds, and notes. These instruments are used by financiers to pump funds into the business and lay a future claim on the company profits in the form of interest. (Soni) Walmart has a significant level of debt financing reported as $ 38,200,000,000 in long-term debt as at January 2016 while the short-term debt at the same time amounted to $ 2,700,000,000 and current maturities of $ 2,700,000,000. The total debt for the company in January 2016 was $ 43.6 billion. The long-term debt held by the business was comprised of unsecured notes with interest rates ranging between 1.6% and 5.3%. The level of debt held by the corporation has been on the decline over the last three years since 2014 when it was at $ 53.6 billion, 2015 it was $ 47.3 billion and now in 2016 January it stood at $ 43.6 billion. The company has committed itself to the reduction of the debt load and adopts more equity funding in a bid to streamline its operational and financial performances. The financial leverage for the business indicates the level of financial leverage has also declined gradually as shown by the debt-t-equity ratio that also dropped from 0.4 in 2014 to 0.36 in 2015 and 0.34 in 2016. This ratio indicates the proportion of business funding from debt sources. ("Walmart Investor Relations - Investors - Financial Information - Annual Reports & Proxies") As displayed by the structural trend of the capital formation at Walmart, the capital structure has constantly been changing. For example over the last three years, the amount of debt financing has been on the decline and the proportion of equity financing has been relatively unstable. The overall effect of these fluctuations in the various components of the company’s capital is the increasing skewness of the capital to equity financing. Appropriateness of minimal debt and increasing equity capital is founded on the premise that long-term debt financing is costly to the business, and therefore it has a negative impact on the net profits earned. (Soni)
The declining debt capital coupled with an increasing equity capital is a clear indicator of a good enterprise health. This is further boosted by the high market capitalization of $ 214,000,000,000 in April 2016 and an enterprise value of $ 253, 000,000,000 at the same time.
Works Cited
Soni, Phalguni. "Walmart's Capital Structure – A Mix Of Debt And Equity - Market Realist".
Marketrealist.com. N.p., 2016. Web. 30 June 2016.
"Wal-Mart Stores Inc. (WMT) | Debt And Solvency". Stock Analysis on Net. N.p., 2016. Web.
"Walmart Investor Relations - Investors - Financial Information - Annual Reports & Proxies".
Stock.walmart.com. N.p., 2016. Web. 30 June 2016.
