Analysis of Walmart financial performance
Analysis of Walmart financial performance
The net income has increased in the year 2013 by 8.35% as compared to the year 2012. The net operating cash flows are also increasing on the regular basis. In year 2012 the net cash flows from the operating activities was $24.25 billion and in the year 2013 it is $25.59 billion. There is a clear increase of 1.34 billion in the cash inflows of 2013.
The net cash outflow from the investing activities in the year 2012 was $16.61 billion and in the year 2013 it is reduced to $12.61 billion. The investments in fixed assets are lower than the year 2012.
The cash outflows from the financing activities are also increasing as compared to 2012’s $8.46 billion. The increase of $3 billion is due to the payments for long term debts and increased dividends. The increment in the dividend is another favorable signal for the investors because the company is making good profits and declaring higher dividends.
Ratio Analysis: 2013 2012
Gross Profit Ratio:
(Gross profit / Net Sales) x 100 24.8% 25%
The gross profit ratio has decreased as compared to the GP ratio of 2012 which is 25%. The reason of this decrease in profits is the increase in the amounts of cost of sales. This means that Walmart is spending more money to increase their sales, which is a good sign for the future cash inflows.
Merchandise Inventory Turnover:
(Cost of Goods Sold / Average Inventory in Stock) x 365 days 3044 Days 3170 Days
The Walmart is a merchandise store and it displays the goods from different manufacturers. The inventory turnover days are over 3000 days in last two years. However, according to the nature of business, the inventory turnover days are not relevant in making any decision regarding the performance of the Walmart.
Accounts Receivables turnover:
(Net credit sales / Average Trade Debtors) x 365 days Nil Nil
The nature of Walmart business is a retail store and Walmart sell the products on cash payments or credit card payments. There is no facility for the customers to take goods on credit basis. Therefore, the accounts receivable days are zero.
Return on Investment:
(Annual return / annual investment) times 2.03times 1.46 times
As compared to the year 2012, the return on investment has increased from 1.46 times to 2.03 times.
Liquidity ratios:
(Liquid Assets / Current Liabilities) x 100 83.4% 88.24%
Liquidity ratio in year 2013 is 83.4% as compared to 88.24% of last year. However, the current year’s liquidity ratio is also in the favor of the Walmart. The possible reason behind this decrease is the increment in the expenses of ‘cost of sales’ to increase the sales and revenue.
Activity ratios:
Account receivables / Average daily sales Nil Nil
Walmart perform their business on no credit basis to their customers. Therefore, there are no account receivable days at Walmart. However, the average sales per day in 2013 were $ 1.28 million and average sales per day in 2012 were $1.22 million. There is an increase of $0.2 millions in per day sales.
Debt ratios:
(Debt / Assets) x 100 62.1% 62.9%
As compared to the debts of the Walmart, in year 2013 and in year 2012, the debt ratio is decreasing which is a positive sign. The decrease of 0.8% is a signal that the company is reducing their debts. Moreover, the current assets of the company can cover current debt of the company up to 62%.
Profitability ratios:
Net profit / (Cost of Sales + other expenses) x 100 6.2% 6.3%
The net profit of Walmart is decreasing as compared to the year 2012. The decrease of 0.1% shows that there is an increase in the expenses of Walmart. From income statements, it is clear that the company is spending more funds at the ‘cost of sales’ stage as compare to the year 2012 to increase the total number of sales. However, the minor decrease in profitability ratio is not an alarming signal for the management and the investors.
Market ratios:
(Book Value of company / Market value of the company) x 100 16.34% 17%
The market value of the company has deceases because the company is buying their own shares from the current shareholders. From the analysis of cash flow statement, it is clear that the Walmart is interested in buying back their shares. This is a bad signal for the investors because Walmart may not have investment projects in the future.
The accounting cycle or accounting policies of the Walmart are according to the GAAP standards. However, it is important to state that Walmart produces their financial statements according to the other accounting standards such as IAS which is widely used in the countries like UK and other European countries. The Walmart financial position is stable and the market value of the company is also increasing. The most important signal for the investor is the increase in the payments of dividends and payments made to settle the long term liabilities which are disclosed in the cash flow statement of the company.
Ratio analysis is Walmart shows that there is not much variation if we compare the ratios of 2012 and 2013. There are minor increase and decrease in the most of the ratios which shows that the company is performing effectively in the market. Moreover, the Walmart has no receivables as compare to other companies in the market. No or low receivables are another sign of safety of funds for the investors.
References
Income statement. Retrieved from
http://finance.yahoo.com/q/is?s=wmt+Income+Statement&annual
Balance sheet. Retrieved from
http://finance.yahoo.com/q/bs?s=WMT+Balance+Sheet&annual
Annual financials for wal-mart stores inc.. Retrieved from
http://www.marketwatch.com/investing/stock/wmt/financials/balance-sheet
