Wal-Mart Stores, Inc. operates retail stores in various formats around the world providing merchandise at lower prices and operating under the mission "Save money. Live better". Bigger than Europe's Carrefour, Tesco, and Metro AG combined, it is the world's number retailer, with more than 7,870 stores, including about 890 discount stores, 2,970 combination discount and grocery stores, and 600 warehouse stores (Yahoo Finance, 2010). Wal-Mart operations comprise three main business segments: Wal-Mart U.S., International and Sam's Club. The Wal-Mart U.S. represents the largest segment of the business, accounting for 63.7% of the company's net sales for the period 2009. The International segment operates in 14 countries and Puerto Rico. This segment generated 26.4% of the total year's net sales, and includes numerous formats of retail stores and restaurants, discount stores, supercenter and Sam's Clubs that operate outside the United States. The Sam's Club segment consists of membership warehouse clubs in the United States and the segment's online retail operations, samsclub.com. Sam's Club accounted for 11.7% of the fiscal year 2009 net sales (Wal-Mart 2009 Annual Financial Report).
The Wal-Mart U.S. conducted a segment expansion program, which consisted of opening new units and converting discount stores to supercenters (Wal-Mart Annual Report 2009). These actions resulted in more square footage, as well as an expansions of already existing stores. During the fiscal year 2009 Wal-Mart opened two discount stores, 23 Neighborhood Markets and 165 supercenters (including the conversion and relocation of 78 existing discount stores into supercenters) (Wal-Mart Annual Report 2009). Four discount stores and two Neighborhood Markets closed in the fiscal year 2009. During this year, the company' total expansion program added approximately 22.7 million or 4.0% of additional square footage, net of relocations and closings. During 2008, Wal-Mart opened seven discount stores, 20 Neighborhood Markets and 191 supercenters (including the conversion and/or relocation of 109 existing discount stores into supercenters). Two discount stores closed in the fiscal 2008. During the same year, 2008, Wal-Mart's total expansion program added approximately 26 million or 4.8% of additional square footage, net of relocations and closings. The expansion program helped Wal-Mart to created more than 63,000 jobs worldwide over the past year, including 33,000 in the United States; and they plan to create thousands more again this year.
Evaluating Liquidity
As we know the liquidity is company's ability to pay all the bills, when they are due, or meet unexpected needs for cash. Debts are part of the working capital; therefore all the liquidity ratios include working capital in some way. However Free cash flows should be considered in addition to, rather than as a substitute for, income from continuing operations as a measure of our performance or net cash provided by operating activities of continuing operations as a measure of our liquidity.
So the current and quick ratios measure the ability to pay debts of short terms.
Current ratio = current assets / current liabilities;
Current Ratio (2009) = 0.9 times
Current Ration (2008) = 0.8 times
Quick ratio = cash + short term investments + acc receivable / current liabilities
Quick ratio (2009) = (7,275+3,905) / 55307 = 0.20
Quick ratio (2008) = (5, 492+3, 642) / 58338 = 0.16
Receivable turnover = Net Revenue / Average accounts Receivable, measures the relative size of accounts receivable and the effectiveness of credit policies. Accounts receivable consist primarily from insurance companies, resulting from our pharmaceutical sales and receivables from suppliers for marketing or incentive programs such as: markdown, or margin protection.
Receivable turnover (2009) = 401244 / ((3905+3642) / 2) = 106, 33 times
Receivable turnover (2008) = 374307 / ((3654+2840) / 2) = 115, 28 times
Days' sales uncollected= 365 / Receivable turnover, measures the average days taken to collect receivables. The number of days is quite small, because the main Wall Marts revenue comes from sales.
Days' sales uncollected (2009) = 365 / 106, 33 = 3, 43 days
Days' sales uncollected (2008) = 365 / 115, 28 = 3, 17 days
Inventory turnover = Cost of sales / Average Inventory, measures the relative size of inventory.
Inventory turnover (2009) 306158 / ((34511+35159) / 2) = 8, 78 times
Inventory turnover (2008) 286350 / ((35159+33667) / 2) = 8, 32 times
Days Inventory on Hand = 365 / Inventory Turnover, measures the average days taken to sell inventory.
Days Inventory on Hand (2009) = 365/ 8, 78= 41, 57 days
Days Inventory on Hand (2008) = 365/ 8, 32 = 43, 87 days
Payable Turnover = Cost of sales  Changes in Inventory, measures the relative size of accounts payable.
Payable Turnover (2009) = (306158-648) / ((28849+30344) / 2 = 10.32 times
Payable Turnover (2008) = (286515 + 1749) / ((30370 + 28484)/2 = 9.8 times
Days Payable = 365 / Payable turnover, measure of average days taken to pay accounts payable.
Days Payable (2009) = 365/ 10.32 = 35.37 days
Days Payable (2008) = 365/ 9.8 = 37.2 days
Cash flows provided by operating activities of continuing operations supply us with a significant source of liquidity.
Evaluating Profitability
Investors and creditors, as well as owners, are mainly interested in evaluating the company's profitability, which is the ability to earn satisfactory income. The profit margin measures how much net income produces each dollar of sales. During the fiscal year 2009, the profit margin insignificantly decreased by 0.1% compared to the prior year. Thus, in 2009, each dollar of sales made 3.33 cents of net income.
Profit Margin = Net Income
Net Sales
Profit Margin (2008) = 12,731 = 3.4%
373,307
Profit Margin (2009) = 13,400 = 3.33%
401,244
The asset turnover ratio measures how efficiently the available assets are used to produce sales. Wal-Mart slightly increased its asset turnover by 0.1 times from the year 2008 to 2009. So every dollar of assets generated 2.37 and 2.45 dollars of net sales in 2008 and 2009.
Asset turnover = ____Net Sales______
Average Total Assets
Asset turnover (2008) = 374,307 = 2.37 times
(163,514 + 151,587)
2
Asset turnover (2009) = 401,244 = 2.45 times
(163,429 + 163,514)
2
An increase in the asset turnover is the result of an increase in the company's earning power - the return on assets. This is a measure of the overall company's profitability. Every dollar invested in the company generated 8.19 cents of net income in 2009.
Return on Assets = ___Net Income_____
Average Total Assets
Return on Assets (2008) = __12, 731___ = 8.08%
157,550.5
Return on Assets (2009) = _13, 400_ = 8.19%
163,471.5
In evaluating a company's profitability, the owners are interested in how much they earned on their investments in that particular business. The investors of Wal-Mart got 20.83 cents in 2009 for each dollar invested in the business. Wal-Mart has one of the highest ROE ration in the discount stores industry.
Return on Equity = ______Net Income_________
Average Stockholders' Equity
Return on Equity (2008) = _____12, 731___ = 20,17%
(64,608 + 61,573)_
2
Return on Equity (2009) = ____13,400____ = 20,63%
(65,285 + 64,608)
2
Evaluating Long Term Solvency
While considering whether to buy stock in or give a credit to the company, it is very important for stockholders and creditors to measure Wal-Mart's ability to survive for many years. To measure this ability they need to evaluate long-term solvency. Two important ratios, which are debt to equity and interest coverage, will help them in this situation.
Wal-Mart's debt to equity ratio, which measures capital structure and leverage by showing the amount of Wal-Mart's assets provided by its creditors in relationship to the amount provided by its stockholders, was at 1.531 times in 2008 and at 1.503 times in 2009. The interest coverage ratio, which measures the degree of protection creditors have from default on interest payments, was at 10.604 in 2008 and at 10.569 in 2009. It had a slight decrease.
Wal-Mart Stores, Inc. periodically communicates with its shareholders and other members of the investment community about the company's operations. As of March 27, 2009, there were 298,263 holders of record of Wal-Mart's common stock. Over the years, being the largest company in the history of the world, Wal-Mart has built credibility for its creditors and stockholders.
Cash flow analysis
For the last to years, the statement of cash flows exhibited substantial changes in its operating, investing and financing activities. There was also a net income increase from 2008 to 2009. The increase was from $12.731 mil to $13.400 mil. The statement of cash flows shows us that in 2008 there was a net decrease of $2198 mil. However, in 2009 there was a net increase of $1706 mil. So it generated a positive cash flow in 2009. Cash generated from operating have also increased in 2009 and is $23.147 mil. This was largely do to a decrease in inventories and accounts receivable outflows. A large part was also to increase in accrued liabilities. Investing activities point out there was a slight decrease in outflows of cash from 2008 to 2009. The outflows fell from $15.670 mil to $10.742 mil respectively. This could have happened due to a number of reasons. The statement of flows shows that this was due to an increase of proceeds from the disposal of property and equipment. Payments for equipment and property also fell. All with contributed to less money going in investing activities. We can assume that there some restructuring in 2009. Financing points out in increase in outflows. This is largely due to the repayment of commercial papers or short-term debt from Wal-Mart's side. In addition, it was do to a decrease in proceeds received from issuing long-term debt.
Cash flow Yield
2009 2008
times times
Cash flow yield shows cash generating ability of a company's operations. Reason for why this increased could have been an increase in accrued liabilities and lower outflows of money in accounts receivable and in inventories.
Cash flow from sales
2008
=5.7%
Cash flow from sales shot the cash generating ability of a company's sales. An increase in operating activities and sales both contributed to a slightly larger percentage.
Cash flows to assets
2008
=0.13=13%
Cash flow is often times overlooked when people analyze a company. A company can be profitable but if money doesn't move around then the company is in trouble. Wallmart has a ration of 0.14 for 2009, which a good indicator as long as it does not fall below 0.1, which will be of some concern for the company.
Free Cash Flow
2008
$11648 mil $5705 mil
Free cash is one the most important ratios for the company. It shows the company's performance and its ability to cover its commitments and remain profitable. Wal-Mart has a positive free cash flow that increased since 2008 substantially.
Evaluating the Market Strength
The Market Price of a company's stock shows how the investors consider the potential risk and return associated with owning the stock.
2009 2008
Market Price per Share $ 53.075 $ 46.90
Basic Earnings per Share $ 3.36 $ 3.16
Diluted Earnings per Share $ 3.35 $ 3.16
Dividends per Share $ 0.95 $0.88
Price/Earning (P/E) Ratio = = = 15.796 times = 14.84 times
Price/Earning (P/E) Ratio = = = 15.843 times = 14.84 times
Dividends Yield = = = 1.79% = 1.88%
2009
2008
High
Low
High
Low
1st Quarter
$59.04
$47.84
$50.42
$45.06
2nd Quarter
59.95
55.05
51.44
45.73
3rd Quarter
63.85
47.4
48.42
42.09
4th Quarter
59.23
46.92
51.30
42.50
Market Price per Share = $ 53.075 (for 2009)
Market Price per Share = = $ 46.90 (for 2008)
Price/Earning (P/E) Ratio
The total shareholders' equity was $65.285 and $64.608 for 2009 and 2008 respectively. According to the company data (on March, 2009) there were 298263 shareholders. The return to the shareholders was almost $7.3 billion: earnings from continuing operations have grown for 6 percent to $3.35 per each share. The return on investments is a significant measure, which shows to investors how effective the Wal-Mart uses the actives. For the fiscal 2009 year the return on investments was 19.3%: it has slight decrease since the previous fiscal year (19.6%) due to the investments in Chile. Even Price/Earning (P/E) Ratio is not a perfect measure; it is most often reported and used for evaluation by investors. Since the Market Price per Share has increased from $ 46.90 (for 2008) to $ 53.075 (for 2009) and Basic Earnings per Share have increased as well (from $ 3.16 to $ 3.36) we may conclude that computing the Price/Earning (P/E) Ratio is appropriate at the current period of time: it has increased. Hence the investors should expect a bigger growth in the future.
Common Stock Dividends
The Wal-Mart is pretty successful working in this direction throughout many years, beginning from March 1974. The company has constant increase in paying dividends: 8% in fiscal 2009 over the previous year (from $0.88 to $0.95 per share). The previous annual report showed the increase in paid dividends to their shareholders as 31.3% over 2007. The next increase is planned for 2010 year as 15% over fiscal 2009: $1.09 per share. Since the company offers dividends for its stockholders, means that the company has grown and this is a stable business. Hence, the stockholders have an ability to gain some more income. Many investors are looking for higher dividend yield; even such stocks originally have slow growth, since they are oriented on income stocks. Hence, the Wal-Mart Corporate has quite high income even dividend yield has slightly felt down (from 1.88 % to 1.79%).
Conclusion
According to the financial performance analysis, Wal-Mart Inc. ranks high on all five indicators of the company's performance and success. Although the overall profitability of the company did not increase much, Wal-Mart may be proud of a pretty good liquidity ratio, which will help them meet unexpected cash needs, as well as of a positive cash flow. Moreover, the company had managed over many years to build trust and credibility, and is not likely to dissolve, but perpetuate its activity and expand, grow, and keep its owners happy.
