Walmart stores and TNG CORPORATION
Walmart is the largest retailer around the globe with over $400 billion of the total revenues from its stores as at 2009 (Corporate.Walmart.com, 2016). This revenue is ahead of its competitors such as Costco, Best Buy, and Target. Similarly, both retail and consumer manufacturers of the products have realized the importance of selling through the retail channel of Walmart Stores. Consequently, this has given Walmart a good leverage that has influenced the suppliers to make their sales at lower prices. The stores have strong power over its suppliers and good credit quality thus it is efficient in managing its working capital The Street, 2016). However, the components of working capital for Walmart are as follows:
Rotating Inventory
The inventory of Walmart is close to $ 35 billion at the beginning of 2009 and over $30 billion at the end of 2009. The stores had annual revenue of about $ 500 in 2009, and the company continue to rotate about all its inventories nearly every month. The company decided to keep lower inventories to reduce the overhead costs that are related to the management of inventories. Similarly, it also covers for the obsolescence risk of inventories that leads to the markdowns.
Investment cash is freed
The accounts payables in Walmart is currently maintained at around $ 35 billion and over $ 3 billion of the accounts receivables. The company has been able to balance the wide difference that exists between its payables and receivables since it has a strong influence on its suppliers and the brand image that it has built for many years. The proper balancing of higher payables has enabled Walmart to hold more cash for future investment in its enterprise and to earn interest. For instance, Walmart is capable of earning more than $ 3 billion every day and this normally based on the modest earning of about 3% of the annual total returns of $ 30 billion of cash that is yet to be paid to its suppliers.
Power over Suppliers
The accounts payable of Walmart increased from around $ 30 billion in 2008 to $31 billion in 2009. During 2009, the balance between the company’s inventories reduced from about $34 billion to $33 billion. However, this trend was maintained by the company since it expected its account payables to increase faster than its inventories. Consequently, this reduced the working capital for Walmart, but it freed some additional cash for investment purposes.
TGT Corp.
Target Inc. is the major competitor of Walmart Stores. Therefore, the account receivable, payables, and inventories are the key components of its working capital. Due to seasonal nature of the TNG business, the needs for its working capital is more per month, and this has led to periods of peak sales. This led to the increase in working capital that was typically funded by the cash flow from the activities of short-term borrowings. The working capital of TNG Corporation was around $ 1.35 billion representing 395% higher than its service departments. However, the working capital for all inventories was 59% more than the company. The company experienced a negative change of ($20) million in its working capital. This implies that the working capital reduced by $20 million in 2014. However, in 2015, the working capital of TNG Corporation increased by over $130 million.
Difference of the working capital structures
Walmart has been experiencing an increase in inventory turnover every year even during the recession periods in U.S. this was reliable regarding the strategy of Walmart especially during the recession where the low costs were considered to be of significant to its customers. Additionally, this was consistent with Walmart in improving the expenditure of its market to strengthen their strategy of saving additional cash for their customers for a better living. However, the inventory turnover is more than the company's target.
On the other hand, the inventory turnover for TNG did not fall off in times of recession, but it experienced a decline in the trend of its Gross Margin. Consequently, this effect supports the conclusion that TNG offered aggressive competition, particularly on the pricing in times of recession. Similarly, there was a less price concerning the experience of the shoppers. As TNG put more attention towards the groceries especially to its initiative of PFresh, it will get good cross shopping results. Once the above initiative is successful, the working capital of TNG will improve in relation to the inventory turnover ratios.
Companies with more working capital than the rest is capable of growing at a faster rate (Johnson, 2016). Therefore, Walmart is capable of attracting more clients to put in their investments since it has higher working capital than TNG. Therefore, it can expand and improve on its business activities by using the existing capitals. Walmart Stores can meet its short-term obligations because it has higher working capital. Therefore, financial institutions such as banks will lend Walmart since the company is more liquid to meet its short-term obligations and other operational expenses.
References
Corporate.walmart.com, (2016). Our History. Retrieved 8 February 2016, from http://corporate.walmart.com/our-story/our-history
Johnson, R. (2016). The Disadvantages of Lack of Working Capital. Small Business - Chron.com. Retrieved 8 February 2016, from http://smallbusiness.chron.com/disadvantages-lack-working-capital-36193.html
The Street. (2016). How Wal-Mart Creates Working Capital. Retrieved 8 February 2016, from http://www.thestreet.com/story/10802888/1/how-wal-mart-creates-working-capital.html
