Financial Statement Analysis of Walmart Inc.

Retail Industry
Worked on research:
 Pirmat Dastan
 Yeleshov Nurbergen
 Kadirbek Asylbek
 Shamzhanova Aray

Retail Industry - it sells retail goods in small quantities. As a rule, in such institutions as, shops,
supermarkets and boutiques people buy goods a small amount for themselves, or for
household Affairs. This means that the buyer is the end user and does not buy the goods for
resale. This type of industry can be considered the most common, as practiced since ancient
times.
Walmart Inc. – the largest American company engaged in trade and retail activities. The
company has more than 11,700 stores in 28 countries. These are mainly hypermarkets in the
United States and Mexico. Also in the UK under the Asda brand, in Canada, China and Japan.
Walmart holds the top spot in many world and American rankings, such as the Fortune 500
since 2003 and in the ranking of the consulting company Deloitte-world retail powers. As
statistics show, Walmart receives 10% of revenue from sales of goods in institutions such as
supermarket among all companies included in the list of top 250. For 2017, Walmart had a
market capitalization of $ 239 billion.
Analysis of the company's sustainable growth level is a dynamic analytical framework that
combines financial analysis with strategic management to explain the particularly important
relationships of strategic planning variables and financial variables, as well as to verify
compliance with corporate growth objectives and financial policy. Under the conditions of
market relations, those business entities that have a stable financial condition, do not allow
losses, and skillfully use financial reserves can survive.
The purpose of financial analysis is to assess the financial condition of the organization on the
basis of reliable information, determine the financial result, the financial stability of the
organization, the liquidity of its balance sheet, the solvency of the organization, and also
evaluate the efficiency of capital use. But not only time limits determine the alternative to the
goals of financial analysis. They also depend on the goals of the subjects of financial analysis,
i.e. specific users of financial information. In our case, we took four companies that belong to
the same industry. We calculated the average indicator, then compared with other indicators of
one company among them. Analyzed the financial condition of the company and identified
“problem areas” in the company's activities. To achieve the goal, as well as a full analysis of the
market and the company Walmart were selected three other companies engaged in retail sales.
We have taken companies like Amazon, Costco, Kroger and will further be analyzed to identify
indicators of the Retail Industry.
Ratio Analysis
Walmar
Amazon t CostCo Kroger Indusrty
Current ratio 1,10 0,76 1,02 0,78 0,91
Quick ratio 0,85 0,22 0,46 0,23 0,44
Days Sales
outstanding 25,78 4,08 4,34 4,80 9,75
Inventory Turnover 8,10 8,53 11,16 12,29 10,52
Fixed Asset turnover 2,66 3,42 6,74 4,70 4,38
Total Asset turnover 1,43 2,42 3,39 3,30 2,64
Debt ratio 0,73 0,57 0,68 0,81 0,70
Times interest earns 8,77 9,38 2,82 4,35 6,33
Equity multiplier 3,73 2,53 3,12 5,39 3,69
Net profit margin 0,04 0,02 0,02 0,02 0,03
Return on Asset 0,06 0,05 0,08 0,05 0,06
Return on equity 0,23 0,13 0,24 0,27 0,22
Operating profit
margin 0,05 0,04 0,03 0,02 0,04

Liquidity Asset Management Debt Management Profitability

1) Current Ratio
(Current assets)/(Current Liabilities) - an indicator of the company's solvency, if at one
time there will be a need to fulfill all short-term obligations, or in other words, if other
companies and banks will be obliged to repay all debts at the same time. In this case, all
short-term assets, such as cash, receivables and inventory, which will cover the
company's debts, are calculated. Generally, the higher the Current Ratio, the better. In
our case, this coefficient is 0.91. Although this figure is below 1, it does not mean that
the company may soon go bankrupt, as there are other ways to pay off the debts.

Year Walmart Industry

2018 59664/78521= 0.91
0.76

In this table we see that current ratio was 1.1 times in Walmart which is mean that
company can cover their current liability comparing with industry.

2) Quick Ratio
(Current assets – Inventories)/(Current Liabilities) - this ratio shows a situation in which a
company urgently needs to use its most liquid assets, such as cash and receivables, to
 pay off its short-term debts. As in the previous case, the higher the coefficient result,
the better. The retail industry's Quick Ratio is 0,44.

Year Walmart Industry

2018 0.22 0.44

In 2018, Walmart’s quick ratio was 0.22, which means that the company is not able to
cover its current liabilities. On the other hand, the industry also shows low results but
higher than Walmart.

3) Days Sales outstanding

(Account Recaivable)/(Daily Sales) - this indicator is needed to understand in what
period of time the company receives its payment for the goods sold or services
rendered. This indicator helps to determine how much the company owns or will receive
in the future, and you can calculate how you can use your funds for the needs of the
company and the repayment of accounts payable. It is desirable to minimize the Days
Sales outstanding as much as possible. Since the higher the ratio, the less stable the
company is, as the liquidity of working capital of the company falls. In our industry, this
figure is 9.75.

Year Walmart Industry

2018 5614/1377=4.08 9.75

We see that days sales outstanding is low which is means that it takes less days to
collect cash from clients and it is more effective comparing with industry.

4) Inventory Turnover
(COGS)/(Inventory) - shows in a specific period of time the efficiency of the company's
inventory. Under the reserves of the company means not only finished products, but
also raw materials reserves of the company. In other words, the ratio gives an indication
of how much of the inventory was sold or used in the analyzed period. This indicator
provides identification of obsolete and unused stocks. There is no recommended or
standard amount for this type of factor. Since, it can vary from company or industry. In
our case, the coefficient is 8,53.

Year Walmart Industry

2018 373396/43783= 10.52
8.53

The inventory turnover of the company is 0.01 which compared to the 4.9 days indicates
the company successfully decreasing the time to convert products and services into
cash.
5) Fixed Asset turnover
(Sales)/(Fixed Assets) - it shows how effectively the company's fixed assets are used. The
ratio shows the income from one unit of property, plant and equipment. Our industry
shows 4,38.

Year Walmart Industry

2018 495761/144858 = 4.38
3.42

Net sales of fixed assets for company were 3.42, which, compared with a baseline of
4.38, shows that the company does not use its fixed assets to effectively increase sales.

6) Total Asset turnover

(Sales)/(Total Assets) - the indicator of effective use of all available assets of the
company. The coefficient shows the intensity of the use of assets. The higher the asset
turnover, the better. Low turnover indicates poor performance of the company's assets.
Also, a good asset turnover may depend on a company's return on sales. The retail
industry shows an average of 2,64.

Year Walmart Industry

2018 495761/204522= 2.64
2.42

Fixed Asset turnover of Walmart is 2.42. It indicates lower results for the company in
this area, and management should consider taking measures to improve this indicator.

7) Debt ratio
(Total liability)/(Total Assets) - a ratio that shows the current status of a company on its
debt obligations. When a Bank issues a new debt, it looks at the debt ratio, its debt
repayment costs, and expects the company to be able to close the debt on time. Debt
ratio on Retail Industry equal to 0,70.

Year Walmart Industry

2018 117598/204522= 0.7
0.57

The ratio shows that Walmart finances 57% of its assets through loans from its lenders.
Industry, on the other hand, finances 70% of its assets through debt. Thus, Walmart
finances its assets much better.
8) Equity multiplier
(Total Asset)/(Total Equity) - used to manage debt capital. It is necessary to calculate the
financial leverage of the company and understand how much of the debt goes to
Finance current assets. 3.69 - multiplier equity of the retail industry.

Year Walmart Industry

2018 204522/80822= 3.69
2.53

The equity multiplier for Walmart is 2.53, which, compared with the baseline of 3.69,
indicates that most of the company's assets are owned than financed.

9) Times interest earns

(EBIT)/(Interest) - characterizes the fact that the company is able to manage and service
its debts to other companies and customers. This indicator can be considered a
significant factor in the stability of the financial position of the company. The coefficient
should be higher than 1.5. Otherwise, the company will be recognized as risky, as it is
unable to pay interest on its debt obligations. Therefore, in our case, Times interest
earns is equal to 6,33.

Year Walmart Industry

2018 20437/2178 = 6.33
9.38

As we can see, and Walmart has a better ratio than industry which means that company is
better at covering its interest charges.

10) Net profit margin

(Net Income)/(Sales) - it can be considered the main indicator of the company's
performance and the meaning of its existence. The company needs to generate enough
money for stable operation and not to end up bankrupt. Profitability is the same ratio
that shows how much money the company was able to earn during the calculation
period. And the end result should be positive for further development. High profitability
is an indicator of a promising company, and in the meantime, some companies can
generate stable and passive income, which makes the company less risky, since
everything is thought out and it is less dependent on market jumps. Retail Industry
shows a very good result with 0,03. The main feature of which is its stability and less
risky.

Year Walmart Industry

2018 10523/495761= 0.03
0.02
 The percentage of sales profit for Walmart is 0.02%, which, compared with a baseline of
0.03%, indicates that sales may not be profitable for the company.

11) Return on Asset

(Net Income)/(Total Asset) - indicator of quality use of all assets of the company. The
asset must first generate profits, so the company must control its assets to keep them
idle. Such assets must be changed or sold. In addition, this ratio does not take into
account the company's equity, thereby becoming more attractive data for potential
investors. Our rate taking into account the above characteristics is equal to 0,06.

Year Walmart Industry

2018 10523/204522= 0.06
0.05

This ratio shows that Walmart uses its assets better for profit than in Industry.

12) Return on equity

(Net Income)/(Total Equity) - characterizes how much was profitable investment of
investors and business owners in the company. In simple words, it shows the return on
equity of the company. This indicator is very important for people who have invested
their own funds, as the ratio does not take into account the assets of the company, and
shows the net profit from the invested funds. For this indicator, our industry is equal to
0.22.

Year Walmart Industry

2018 10523/80822= 0.22
0.13

This ratio shows that Walmart uses its assets better for profit than Industry.
13) Operating profit margin
(EBIT)/(Revenue) - shows how much the company earns from each unit of goods sold. As
a rule, when calculating this ratio, the sold goods are taken, and its cost and other
operating expenses from the sale of goods are removed from it. The final result is an
indicator of how well developed and optimized the production or delivery of goods. The
higher the ratio, the better for the company, as the company earns better from each
item sold. This coefficient in the Retail Industry is 0.04.

Year Walmart Industry

2018 20437/500343= 0.04
0.04

Both Company and Industry have same operating profit margins that indicate the earning
per dollar of sales. But it is very low which shows that its fixed costs are too high for the
production or sales volume.

DuPont Model

ROE
Net Income/ Total Equity
0,13 and 0,22
 EM Multiplied by ROA
Total Assets/Total Net Income/ Total
Equity Assets
2,53 and 3,69 0,05 and 0,06

Profit Margin on Sales Total Assets Turnover

Net Income/ Net Sales Net Sales/Total Assets
0,02 and 0,03 2,42 and 2,64

Multiplied by Multiplied by

Net Income Sales Total Assets

Walmart's profitability and overall asset turnover are low. As a result, the ROA is lower.
The DuPont chart shows the relationships between return on equity, return on assets, total
asset turnover, return on profit, and leverage. Although the DuPont diagram doesn't say
everything, it can give an initial idea.
Conclusions and proposals:
1) Walmart's Return on equity is poor despite the high equity multiplier. Because Return on
assets ratio is low.
2) Walmart's 5.15% profitability is well below the industry average of 6.05%, down 18%. This is
not so good, as it is better to have a higher return on assets. However, a low ROA may be the
result of a conscious decision to use a lot of debt, in which case high interest costs will result in
a relatively low net income. This is one of the reasons for Walmart's low return on investment
3) Walmart's margin of 4.08% is higher than the industry average of 3.68%, so 10% more and
that's the incomplete result was due to: Walmart's operating margin was above the industry
average due to the low operating costs of the firm.
4) Еhe company has a fairly low debt, which reduces the risk of suffering some difficulties. The
relatively low debt ratio or ratio compared to the average data in the selected industry, gives a
good advantage over other companies that investors will be interested in Walmart, not other
retail companies. After all, investors are looking for the least risky companies to invest their
funds. Who wants to lose their money? But this advantage has some nuances. Less risk, less
return. Accordingly, investors will receive a minimum income from the invested funds.
Review
Liquidity ratios, which calculated the company's ability to fulfill its short-term
obligations, showed low values compared to industries. The current liquidity ratio which shows
0.76 which does not reach the optimal value of 0.97. This fact reveals that short-term liabilities
should be financed from outside the company. In addition, the quick ratio shows that company
have a large volume of goods in warehouses that need to be used efficiently, since this
indicator is 4 times lower than Amazon which is main competitor in this industry.
The second part of the analysis of financial ratios was solvency ratios. The ratio of debt
to assets shows how much the company is dependent on debt obligations. Debt ratio as a
whole shows a very good result of 57% which is an order of magnitude smaller than that of
other companies. The times interest earns leads us to an even further advantage for Walmart.
This ratio shows how many times interest payments can be paid from EBIT (profit before
interest and taxes). The value is very good, compared with industries which can cover interest
only 5.31 times. Companies have great opportunities to invest with debt and increase assets for
a larger capital gain.
Profitability ratios are the most problematic for the company. We see that four of them
- return on equity, return on assets, net profit margin and equity multiplayer ended in relatively
lower repercussions than in industries. The reason for these results is common to these ratios -
the high cost of products or low prices on the shelves. The ratio of assets to equity may result in
companies having more capital to improve their financial acts.
The final set of financial ratios — activity ratios — measured how efficiently the
company used its assets. The inventory turnover ratio shows 8.53 days, which is a good
indicator. Inventory turnover shows that companies have possibly low sales figures and this
proves the value of profitability ratio. Another fixed assets turnover is noticeably lower and we
see that Walmart is not effectively using its assets and they must correct this figure in order to
get more profit from production.
In total we see that the company has a big drawback due to the large number of fixed
assets that make up the core of the company. First, the company should concentrate in order
to increase the profitability of its fixed assets. But in order to realize this company, you must
first lower the cost of their products or raise prices. When we look at fixed asset turnover, we
see that companies have the potential to increase their sales with liquid assets that companies
have more than in industries.

Conclusion
The main purpose of our work was to assess the financial condition of the trading company
Walmart. And if the manifestations of the financial deviation of the average data on the retail
business, explain the situation and make suggestions to correct the situation. For analysis, the
company took financial statements with open access on the U.S. securities and exchange
Commission website for 2018.
First of all, the financial statements for 2018 for 4 companies were taken for analysis. And more
specifically for companies like Amazon, Walmart, Costco and Kroger. Our team has carefully
reviewed the balance sheet and income statement. This was necessary to compile the
coefficients. Turning to the reports provided, we worked with current ratio, fast ratio, selling
days, inventory turnover, fixed asset turnover, total asset turnover, debt ratio, capital
multiplier, interest times, net income, return on assets, return on equity and operating profit.
This analysis was developed with all 4 companies and thus obtained an average for each ratio
we took in the role of the industry. Given that we chose Walmart as the company to analyze,
the final, that is, the average data for the industry, we compared with the selected company.
We looked at the data when comparing and found some inconsistencies or a major difference.
To understand the cause of the identified problems, we drew A DuPont model. Which should
have shown us what the deviation was. In addition, in such an analysis, we had to point out the
reason why such a deviation occurs. This analysis revealed some of the company's
shortcomings related to the company's poor asset recovery. Which greatly affects the
profitability of the company, in which investors and owners of the company are interested.
Another key factor in low profits is the company's low debt to others. In turn, this can be
considered a positive factor and an indicator of a company that positions itself as a stable or
passive company, from which you should not expect a strong breakthrough or bankruptcy. To
correct the situation, our team believes that reducing the price of the purchased goods or
raising the price of the sold goods, you can solve this problem.
In additional, we have chosen a very large industry that is developing rapidly and has great
prospects in the future. We came to this conclusion after analyzing the financial structure of 4
large companies in the retail sector and in particular a large American company Walmart. The
industry has a huge potential for development and profitability. Proof of this is the largest in
2019, Amazon, which overtook Apple and became the leader with a capitalization of $ 1 trillion.