Walmart case - individual case analysis PDF

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Vertical Analysis of Income Statement Vertical Analysis of Income Statement (Amounts in millions except per share data) Fiscal Year Ended January 31, 2015 2014 Revenues: Net sales 99.30% 99.32% Membership and other income 0.70% 0.68% 100.00 100.00 % % Costs and expenses: Cost of sales 75.17% 75.18% Operating, selling, general and administrative expenses 19.24% 19.18% Operating income 5.59% 5.64% Interest: Debt 0.44% 0.44% Capital leases 0.06% 0.06% Interest expense 0.51% 0.49% Interest income -0.02% -0.02% Interest, net 0.48% 0.47% Income from continuing operations before income taxes 5.11% 5.18% Provision for income taxes: Current 1.75% 1.81% Deferred -0.11% -0.11% Total provision for income taxes 1.64% 1.70% Income from continuing operations 3.46% 3.47% Income (Loss) from discontinued operations, net of tax 0.06% 0.03% Consolidated net income 3.52% 3.51% Consolidated net income attributable to noncontrolling interest -0.15% -0.14% Consolidated net income attributable to Walmart 3.37% 3.36%

2013

2012

99.35% 0.65% 100.00 %

99.31% 0.69% 100.00 %

75.17%

75.02%

18.91% 5.92%

19.04% 5.93%

0.42% 0.06% 0.48% -0.04% 0.44%

0.46% 0.06% 0.52% -0.04% 0.48%

5.48%

5.45%

1.70% 0.00% 1.70% 3.78%

1.51% 0.27% 1.77% 3.67%

0.01% 3.79%

0.00% 3.67%

-0.16% 3.63%

-0.15% 3.52%

Wal-Mart’s revenue consists of net sales and membership and other income; total revenue did not have any substantial change from 2014 to 2015. Net sales decreased by 0.02% from 2014 and by 0.05% in 2013, where membership and other income increased to 0.70% from 0.65%.

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Cost of sales stayed almost the same at 75.17% of total revenue throughout 2012-2015 period. Operating, selling, general and administrative expenses increased to 19.24% from 18.91% in 2013; operating income has a trend of decreasing from 5.93% in 2012 to 5.59% in 2015. Net Interest started increasing in 2013 and reached 0.48% in 2015. Total provision for income taxes decreased from 1.77% in 2012 to 1.64% in 2015; consolidated net income has declined from 3.79% in 2013 to 3.52 % it 2015 yet had a small increase of 0.01% from 2014 of 3.51%. Consolidating net income attributable to Wal-Mart has decreased to 3.37% in 2015 from 3.63% in 2013.

Vertical Analysis of Balance Sheet Vertical Analysis of Balance Sheet (Amounts in millions except per share data) January 31, 2015 2014 2013 2012 ASSETS Current assets: Cash and cash equivalents 4.48% 3.56% 3.83% 3.39% Receivables 3.33% 3.26% 3.33% 3.07% Inventories 22.16% 21.91% 21.57% 21.05% Prepaid expenses and other 1.09% 0.93% 0.76% 0.87% Current assets of discontinued operations 0.00% 0.22% 0.02% 0.05% Total current assets 31.06% 29.88% 29.51% 28.42% Property and equipment, at cost 87.08% 84.54% 81.64% 80.14% Less accumulated depreciation -30.98% -28.19% -25.55% -23.47% Property and equipment, net 56.10% 56.34% 56.09% 56.67% Property under capital lease 2.57% 2.73% 2.90% 3.07% Less accumulated amortization -1.41% -1.49% -1.55% -1.66% Property under capital lease, net 1.17% 1.24% 1.35% 1.41% Goodwill 8.89% 9.53% 10.09% 10.68% Other assets and deferred charges 2.78% 3.00% 2.95% 2.82% 100.00 % 100.00% 100.00% 100.00% Total assets

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LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year Current liabilities of discontinued operations Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes and other Redeemable non-controlling interest Commitments and contingencies Total Liabilities Shareholders equity: Common stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total Walmart shareholders' equity Noncontrolling interest Total equity Total liabilities and shareholders equity

100.00%

0.78% 18.86% 9.40% 0.50% 2.36%

3.75% 18.27% 9.18% 0.47% 2.00%

3.35% 18.75% 9.26% 1.09% 2.75%

2.09% 18.93% 9.39% 0.60% 1.02%

0.14% 0.00% 32.04% 20.17% 1.28% 4.32% 0.00% 0.00% 57.81%

0.15% 0.04% 33.87% 20.40% 1.36% 3.92% 0.73% 0.00% 60.27%

0.16% 0.00% 35.36% 18.90% 1.49% 3.75% 0.26% 0.00% 59.76%

0.17% 0.01% 32.21% 22.79% 1.56% 4.07% 0.21% 0.00% 60.83%

0.16% 1.21% 42.11% -3.52% 39.96% 2.23% 42.19%

0.16% 1.15% 37.39% -1.46% 37.24% 2.48% 39.73% 100.00 %

0.16% 1.78% 35.93% -0.29% 37.59% 2.66% 40.24%

0.18% 1.91% 35.52% -0.73% 36.87% 2.30% 39.17% 100.00 %

100.00%

Cash and cash equivalents has increased from 3.83% of total assets in 2013 to 4.48% in 2015; account receivables had a slight increase in 2015 to 3.33% from 3.26% in 2014 yet is equal to 2013. Property and equipment has been steadily increasing since 2012 from 80.14% to 87.08% in 2015.Property under capital lease declined from 3.07% in 2012 to 2.57%; goodwill shows a constant decline from 10.68% in 2012 to 8.90% in 2015. Same overall declining trend is reflected in other assets and deferred charges from 2.82% in 2012 to 2.78% in 2015, although in 2013 and 2014 it showed a slight increase to 2.95% and 3.00% respectively.

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Total current liabilities decreased from 35.36% in 2013 to 32.04% in 2015 which means that the company reduced its’ short-term borrowings during this year; yet long-term debt increased from 18.90% in 2013 to 20.17% in 2015, showing a slight decrease from 20.40% in 2014 and paying off some long-term liabilities. Total liabilities declined in 2013 from 60.83% to 59.76% and had the same wave of declining to 57.81% in 2015 after a slight increase to 60.27% in 2014. Common stock remained the same for the company for the last 3 years holding 0.16%; retained earning has been constantly increasing reaching 42.11% in 2015 from 35.52% in 2012. Total shareholder’s equity went up to 39.96% in 2015 sharing the same trend with total equity which reached 42.19%.

Horizontal Analysis of Income Statement Horizontal Analysis of Income Statement (Amounts in millions except per share data) Fiscal Year Ended January 31, 2015 Revenues: Net sales 1.93% Membership and other income 6.34% 1.96% Costs and expenses: Cost of sales 1.96% Operating, selling, general and administrative expenses 2.26% Operating income 1.02% Interest: Debt 4.30% 14.07 Capital leases % Interest expense 5.40% Interest income Interest, net

-5.04% 5.96%

2014

2013

1.60% 5.61% 1.63%

5.00% -1.49% 4.96%

1.64% 3.07% -3.08%

5.17% 4.24% 4.66%

4.81%

-2.80%

-3.31% 3.82% 36.02% 7.42%

-4.90% -3.06% 15.53% -4.45%

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Income from continuing operations before income taxes

Provision for income taxes: Current Deferred Total provision for income taxes Income from continuing operations Income (Loss) from discontinued operations, net of tax Consolidated net income Consolidated net income attributable to noncontrolling interest Consolidated net income attributable to Walmart

0.58%

-3.92%

5.47%

-1.33% 0.97% -1.48% 1.59% 97.92% 2.42%

8.06% 2755.56% 1.85% -6.51% 176.92% -5.98%

18.66% -101.50% 0.43% 7.90% -347.62% 8.35%

9.36% 2.13%

-11.10% -5.75%

10.03% 8.28%

Horizontal analysis of Income statement of the company reflects the down trend from 2013 5.00% to 1.93% in 2015; opposite to net sales, membership and other income has increased and reached 1.96% in 2015 versus -1.49% in 2013. Cost of sales for the company shows that in 2015 the increase was only 1.96% compare to 5.17% which shows a good result in controlling it. Operating income from 2014 and 2015 grew by 4.10% to 1.02% but if looking at the whole trend from 2013, number has dramatically reduced from 4.66%. Net interest dropped to -4.45% in 2013 but shows an increase in 2015 to 5.96%. Total provision for income taxes shows a drastic increase in 2014 by 1.85% but then a big drop by -1.48% in 2015. Consolidated net income attributed to Wal-Mart grew by 8.28% in 2013, declined by -5.75 in 2014 and increased by 2.13% in 2015.

Horizontal Analysis of Balance Sheet Horizontal Analysis of Balance Sheet (Amounts in millions except per share data)

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January 31, ASSETS Current assets: Cash and cash equivalents Receivables Inventories Prepaid expenses and other Current assets of discontinued operations Total current assets Property and equipment, at cost Less accumulated depreciation Property and equipment, net Property under capital lease Less accumulated amortization Property under capital lease, net Goodwill Other assets and deferred charges Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year Current liabilities of discontinued operations Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes and other Redeemable non-controlling interest Commitments and contingencies Total Liabilities Shareholders equity:

2015

2014

25.46% 1.51% 0.63% 16.50%

-6.43% -1.34% 2.41% 23.08%

-100.00% 3.42% 2.49% 9.34% -0.94% -6.26% -5.98% -6.61% -7.22% -7.77% -0.51%

2013

18.79% 14.00% 7.59% -7.95% 1143.24% 58.43% 2.08% 9.03% 4.38% 6.98% 11.23% 14.31% 1.26% 3.95% -5.26% -0.62% -3.21% -2.12% -7.59% 1.14% -4.82% -0.75% 2.71% 9.73% 0.81% 5.01%

-79.24% 2.66% 1.91% 5.69% 17.23%

12.71% -1.75% -0.08% -56.31% -26.56%

68.15% 4.02% 3.60% 89.95% 182.89%

-7.12% 100.00% -5.87% -1.64% -6.53% 9.83% 100.00% 0.00% -4.57%

-5.50% 0.00% -3.44% 8.80% -7.77% 5.31%

0.31% 100.00% 15.28% -12.88% 0.47% -3.17%

187.28% 0.00% 1.68%

28.47% 0.00% 3.16%

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Common stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total Walmart shareholders' equity Noncontrolling interest Total equity Total liabilities and shareholders equity

0.00% 4.23% 12.03% 139.25% 6.74% -10.64% 5.65% -0.51%

-2.71% -34.75% 4.92% 410.39% -0.12% -5.76% -0.49% 0.81%

-2.92% -1.95% 6.24% -58.37% 7.05% 21.35% 7.89% 5.01%

The cash and cash receivables show the highest increase out of all 3 years- by 25.46% of total assets in 2015, compare to a big drop by -6.43% in 2014 and increase of cash and cash receivables by 18.79% in 2013. Account receivables reflects the highest increase in 2013 by 14.00%, decline by -1.34 in 2014 and a slight increase in 2015by 1.51% in 2015. Total current assets increase significantly in 2013 by 9.03%, where in 2014 and 2015 it inclined by 2.08% and 3.42% respectively. Net property and equipment shows an increase in 2013 by 3.95% and reflects a negative trend in 2015 with a decrease by -0.94%. Goodwill and other assets and deferred charges has been drastically declining from 2013 to 2015 showing a final year with a decrease by -7.22^% and -7.77% respectively. Total assets followed the same trend and declined from 5.01% in 2013 to -0.51% in 2015. Wal-Mart has paid off lots of short -term liabilities which reflected in numbers: shortterm borrowings declined by -79.24% in 2015 compare to 68.15% in 2013, where current assets have increased- showing an overall positive trend for short-term obligations and assets. Accounts payable increased by 2.66% in 2015 showing a decline from 2013 4.02% but an increase from -1.75% in 2014.

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Long term debt due within one year inclined significantly in 2013 by 182.89%, following a large reduction of this debt in 2014 by -26.56% and increase by 17.23% in 2015. Company was able to reduce long term debt in 2015 by -1.64% compare to increase by 8.80% in 2014. Common stock has 0.00% change in 2015 yet has declined in 2014 by -2.71% and -2.92% in 2013.The overall picture of the company based on horizonal analysis of balance sheet shows that Wal-Mart changed its capital structure: increased owner’s equity and paid off its short term and long-term liabilities. Part 2 Liquidity ratios

2015

2014

2013

Current Ratio

Total Current Assets/Total Current Liabilities

0.97

0.88

0.83

Working Capital

Total Current Assets- Total Current Liabilities (Cash+ Accounts Receivables)/Total Current Liabilities

-1994.00

-8160.00

-11878.00

0.24

0.20

0.20

8.11

8.08

8.34

365/ Inventory Turnover

45.13

45.73

45.38

Total Net Sales/Average Accounts Receivable

71.68

70.37

73.29

5.09

5.19

4.98

Acid-test ratio Inventory Turnover Days sales in inventory Accounts receivable turnover Days sales in receivables

Cost of Sales/ Average Inventory

365/Accounts Receivable turnover

Free cash flow

Operating Cash Flow+ Capital Expenditures

16814.00

16551.00

17704.00

Average inventory

(Inventory2015+ inventory 2014)/2 (Accounts Receivables 2015 + Accounts receivables 2014)/2

44999.50

44330.50

42258.50

6727.50

6722.50

6352.50

Average A/R

Current ratio, measurement of relationship between current assets and short-term liabilities, for Wal-Mart in 2015 is 0.97. Ideal number for currents assets is 2, so all 3 years for

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the company 0.97, 0.88, 0.83 considered to be very low and shows the difficulty of the company to pay its short-term liabilities. The working capital measures the financial health of the company and in Wal-Mart case all 3 years of negative numbers ( -1994.00, -8160.00, -11878.00) shows a weak financial health. Acid test ratio with ideal number of 1 reflects the company’s ability to pay off a short-term debt from its quick assets. Wal-Mart’s acid ration of 0.24, 0.20 and 0.20 in 2015, 2014 and 2013 shows that the company is in a weak condition to pay off its current liabilities by utilizing their quick assets and will not be able to meet its short-term commitments. Inventory turnover measures how effectively the company is managing its inventory. In WalMart case those numbers in 2013, 2014 and 2015 are 8.34, 8.08, 8.11 which is a good ratio with a slight increase in the last year. Days sales in inventory is the number of days inventory is kept before it is being sold, which shows a positive trend for Wal-Mart and decreased from 45.73 in 2014 to 45.13 in 2015. Accounts receivable turnover in this case shows that the company is managing account receivable efficiently and improved the number in 2015 to 71.68 from 70.37 in 2014. Days sales in receivables measure the number of days the credit sales are being outstanding and in 2015 Wal-Mart has improved this number in compare to 2014. Free cash flow has a high number of $16,814 which grew from 2014 and reflects that the company has funds to expend and make future growth plans.

Solvency Ratios

2015

2014

2013

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Debt Equity Ratio

Total Liabilities/Total Stockholder's Equity

Interest Coverage Long-term Liabilities

Operating Income/Interest Expense Total Liabilities-Total Current Liabiltities

1.45

1.62

1.59

11.03

11.51

12.33

52497.00

54067.00

49549.00

Debt equity ratio is the ratio that measures its total liabilities compare to its total stockholder’s equity. For Wal-Mart debt to equity ratio shows an increase from 1.59 in 2013 to 1.62 in 2013 but in 2015 the number improved to 1.45, which reflects that the company decreased its debt and in a better position. Interest coverage ratio shows if the company is able to pay its interest obligations. Out of 3 years, the best number of 12.33 Wal-Mart had in 2013 and then the number declined yearover-year to 11.03 in 2015, meaning that the company is paying less payments on interest. Profitability Ratios

Asset Turnover

Total Sales/ Average Total Assets

Return on Sales

Operating Income/ Net Sales

Gross Margin

Gross Profit/Sales

Return on Assets Return on Equity

Net Income/Average Total Assets Net Income/Average Shareholder's Equity

Net Margin

Net Income/Net Sales

2015

2014

2013

2.38

2.34

2.36

5.63%

5.68%

5.95%

24.83%

24.82%

24.83%

8.37%

8.19%

8.96%

21.69%

21.88%

24.05%

3.37%

3.36%

3.63%

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Assets turnover number shows how efficiently the company is utilizing its assets to earn revenue. This ratio for Wal-Mart in 2013 was 2.36 and increased to 2.38 in 2015 which means that the company started utilizing their assets slightly better than in 2013 and 2014 (2.34). Return on Sales ratio compares percentage of operating income of the company in relation to its sales. In Wal-Mart’s case return on sales was constantly declining from 5..95% in 2013 to 5.68% in 2014 and 5.63% in 2015. Gross margin for Wal-Mart stayed well at 24.83%, almost without any changes throughout all 3 years. Gross profit indicates how profitable the company sells its inventory, and in this case 24.83% is a good number for the company. Return on Assets shows how efficiently the company is using its assets to generate profit. In 2014 this number has decreased from 8.96% in 2013 to 8.19% showing that during that year the company was not managing the assets efficiently to generate more income. In 2015 though the company made some changes and improved the number to 8.37%. Return on Equity measures the profit that company is making from each dollar of shareholder’s equity; in 2015 it is 21.69% showing an overall decline from 24.05% in 2013. Net Margin is calculated by dividing net income by net sales and measure net profit left for the company. In 2014 net margin declined to 3.36% from 3.63% in 2013 and had a small increase to 3.37% in 2015.

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Stock Performance Ratios

2015

2014

2013

Earnings per share

Net Income/Weighted Average Common Shares Outstanding

$5.07

$4.96

$5.13

P/E Ratio

Market Price per Share of Common Stock/EPS

16.56

14.52

12.83

Dividend Yield Dividend Payout

Cash Dividend per share/ Market Value per Share

2.29%

2.61%

2.42%

37.88%

37.94%

31.00%

Dividend per Share/Earnings per Share

Earnings per share is $5.07 in 2015 and shows a nice increase from 2014, which means that income earned per share of common stock improved. Price to earnings ratio measures the market value of price per share in relation to the earnings per share. P/E ratio for Wal-Mart has an increasing pattern since 2013 of 12....