Walmart Financial Analysis

Financial analysis is the process of reviewing and analyzing a company’s financial statements to help managers make better economic decisions. A financial analysis can help a company to improve its financial position. One of the most common ways to analyze the financial data in the company’s financial statements. Return on assets (ROA) is a standard ration that is used to determine how efficient a company is at using and as a measure of profitability. (Tuovila)

Company Overview

Walmart is a popular retail and wholesale company.

Sam Walton founded it in 1945. It offers a variety of merchandise and services at low prices. Its business operates through business segments such as Walmart U.S., Walmart International, and Sam’s Club. Walmart International manages supercenters, supermarkets, hypermarkets, warehouse clubs, and cash and carries stores.

Financial Ratio Analysis

The current ratio is defined as a liquidity ratio that measures a company’s ability to pay its short-term obligations. Walmart’s current ratio, as of January 31, 2020, is 0.

80. The debt to equity ratio is a measure of a company’s financial leverage. It is calculated by dividing the company’s long-term debt by the shareholder’s equity. Walmart’s debt to equity ratio is 0.79. Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. Walmart’s ROA is 5.99% The table (table 2) shows Walmart’s debt to equity ratio for the last ten years.

Financial Performance

Walmart U.S.

Walmart U.S. is the largest segment, and it operates in all 50 states.

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It is the mass merchandiser of consumer products. Walmart U.S. has net sales of $331.7 billion. Walmart U.S. has the highest gross profit. As of January 31, 2019, it has over 2,100 grocery pickup locations and 800 grocery delivery locations. Walmart U.S. e-commerce websites walmart.com, jet.com, and others.

Walmart International

It is the second-largest segment which operates in 26 countries. Walmart International had net sales of $120.8 billion. The gross profit is lower than that of Walmart U.S. because of its merchandise mix.

Sam’s Club

Sam’s Club is the three segments of the Walmart franchise. Sam’s Club operates in 44 states in the United States and Puerto Rico. It is a membership-only warehouse that has net sales of $57.8 billion for the fiscal year of 2019. It also has a net sale of $59.2 billion and 57.4 billion for the fiscal year of 2018 and 2017. Membership income is a significant component of the segment’s operating income. Sam’s Club has a lower gross profit rate and lower operating expenses than both Walmart U.S. and Walmart International.

SWOT Analysis

Strengths

Walmart is a brand that is recognized around the world. It is the largest retailer with over a million loyal customers. It has expanded to many different countries such as Canada, Mexico, and Puerto Rico. It is also known for its low prices.

Weakness

Walmart uses a cost leadership generic strategy to achieve competitive advantage based on low prices of goods. Thin profits are a cause when using this strategy. The minimizing of selling prices also minimize profit margins and rely on sales volume. This also allows the strategy to be easily copied.

Competitors

Walmart has many competitors in the retail market industry, such as Amazon, Kroger, Costco, and others. These companies have used many strategies to beat out their competition. Walmart has taken many measures, such as incorporating its online business to stay competitive in the market.

Walmart’s biggest competitor in the e-commerce business is Amazon. Amazon is the largest e-commerce retailer in the world. It is considered as the tech giant and is the top competitor of Walmart in the United States, China, and India. Amazon leads the U.S. e-commerce market. Its key competitive advantage is its change and adaptability. Amazon has $232.887 billion in revenue and a net income of $10.073 billion. Amazon is a constant threat to Walmart’s e-commerce business.

Walmart’s biggest competitor in retail/wholesale is Costco. It is a multinational membership-only warehouse club. Costco has a total number of 770 warehouses in the United States, Canada, Mexico, the United Kingdom, Puerto Rico, Japan, South Korea, and Taiwan. Costco mainly targets large families and businesses by offering bulk quality products at low prices. It has earned $141.6 billion in revenue and $3.13 billion in net income.

Financial Issues

Walmart has had many issues with labor costs. Labor costs are Walmart’s most significant expenses. In 2015, Walmart made a profit of $16 billion. The company spent $500 million on their hourly associate bonuses and $900 million in retirement benefits.

References

1. Farooq, U. (2019, July 19). Top Walmart Competitors: Competitors Analysis of Walmart. Retrieved from https://www.marketingtutor.net/walmart-competitors/

2. Page, V. (2020, March 26). Walmart’s Biggest Liability: Labor Costs (WMT). Retrieved from https://www.investopedia.com/articles/investing/020916/walmarts-biggest-liability-labor-costs-wmt.asp

3. Tuovila, A. (2020, February 5). Financial Analysis Definition. Retrieved from https://www.investopedia.com/terms/f/financial-analysis.asp

4. Walmart Annual Report. (n.d.). Retrieved from https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-2019-AR-Final.pdf

5. Walmart Current Ratio 2006-2020: WMT. (n.d.). Retrieved from https://www.macrotrends.net/stocks/charts/WMT/walmart/current-ratio