Financial Analysis Walmart 2013

For this assignment, I select Wal-Mart Stores, Inc. Wal-Mart is an American public corporation that runs a chain of large discount department stores and a chain of warehouse stores. Wal-Mart operates more than 8,692 retail units across three business segments of retail stores worldwide that offer a wide array of general merchandise including groceries, apparel, electronics, and small appliances. In addition, the company is the world's largest retailer and grocery chain by sales and just over half of the company's sales comes from grocery items.

Over 54% of the company's stores are located in the United States, with the majority of international stores located in Central and South America and China. The company focuses on offering the lowest prices across its business segments, which together earned $446. 98 billion in revenue in 2012, a 6% increase from sales in 2011 according to Wal-Mart financial statement (2009~2013). Wal-Mart's largest business segment is its namesake Wal-Mart stores.

Because of its mammoth size and buying power, Wal-Mart can buy its products at rock-bottom prices, exchanging high purchase volumes for low cost while passing the savings onto its customers.Many suppliers give in to Wal-Mart's pressure because they depend on the discount retailer for a majority of their sales. Due to Wal-Mart's low prices, consumers gravitate to Wal-Mart stores during economic downturns. As a result, the company's comparable store sales increased by 3.

5% during the worst toughest year. Wal-Mart is a public company and its stocks are traded on stock exchange markets. It has 11,000m stock authorized and 3,780m outstanding. The owners of the company are changing time by time.

Nowadays the major direct holders are: Other shareholders are some institutions and mutual funds.Wal-Mart’s Organizational structure was constructed into a three product divisional structure. The successful world retailers’ business categories include Wal-Mart Stores (U. S.

), Sam's Club (U. S. ), and International stores. The International segment yields about 20% of the companies’ overall business income and is responsible for several different types of restaurants and stores including Wal-Mart and Sam's Club in 13 countries.

In the viewpoint of industry analysis, Retail is the second-largest industry in the United States both in number of establishments and number of employees.The U. S. retail industry generates $3. trillion in retail sales annually ($4.

2 trillion if food service sales are included), approximately $11,993 per capita. The retail sector is also one of the largest worldwide. Retail trade accounts for about 12. 4% of all business establishments in the United States. Single-store businesses account for over 95% of all U.

S. retailers, but generate less than 50% of all retail store sales. Gross margin typically runs between 31 and 33% of sales for the industry but varies widely by segment. Average industry revenue growth rate in 2010 was -0.

8%. Wal-Mart is very selective in their choices of suppliers.Wal-Mart forms partnerships with individual entrepreneurs. Suppliers are asked to keep up with demand and to provide a continuum of quality products. Wal-Mart has the standards for suppliers, if they do not satisfy the requirements any chance to become the supplier.

All suppliers must have competitive prices, financial stability, proven success in the marketplace, and offer excellent products in order to receive contracts with Wal-Mart. Being the largest retailer in the country, many local suppliers can only play by Wal-Mart's rules in order to get a piece of the pie. Wal-Mart imported over 15 billion dollars worth of goods.The suppliers to Wal-Mart and other discounters have almost no power.

Wal-Mart is notorious for pressuring suppliers to cut their margins lower and lower, and often receives criticism for this practice. Unfortunately, there is no way around this given the consumer demand for quality goods at low prices. And while a supplier might sell half of its volume through Wal-Mart, this brand probably makes up less than 5% of Wal-Mart’s sales. Also Wal-Mart can easily switch to new suppliers and it reduces bargaining power of suppliers. As we know Wal-Mart has millions of buyers, there are at least 200 million customers per week.Wal-Mart has great power over his consumers because each buyer has little portion of his sales.

Wal-Mart does not sell unique products, we can say that its goods are homogenous to all other retailers, but it maintains the customers by offering low prices. Wal-Mart always emphasizes on his low price level and this way increases loyalty of the buyers, they believe that nowhere can buy cheaper than in its stores. It's imperative that Wal-Mart does not only look at what its direct competitors are doing, but what other types of products people could buy instead. Evaluation of Vulnerability to current financial threatsLargest employer in the United States Second largest net sales in the world, Strong image Customer oriented company 2,100,000 employees, Aggressive growth strategy, 7437Stores all over the world Remarkable logistics system own distribution center for their online orders, and Sensitive to environmental issues are the strengths of Wal-Mart. At the same time, expanding stores and merchandising to attract more customers could generate more opportunity for Wal-Mart such as Increasing musical products (instruments, and these can be high profit items), diversifying their store types, and Improving health care and other benefits to employees.

Good chance for growth in developing countries, Asian markets Internet shopping growing, and elderly population growing could be possible strategy that Wal-Mart shall try in the near future. However, no formal mission statement, Old fashioned store policies, Few women and minorities in top management, Poverty-level wages and horrible health care benefits, Decreased employee morale, Small market share in Europe, Bad location of their stores. Poor presentation and marketing of products on the floor, and Problems with their flexibility are all exposed weakness.In addition, Small towns do not want entry of Wal-Mart, Accused to be bad for the country, International expansion, difficult to attain Weak brand-name recognition, The economy has a slight effect on Wal-Marts customers, Regulation of Wal-Mart pharmacies, Increased competition, These stores are able to open in smaller areas where there are not enough customers to support Wal-Mart. lack direct sales force could be threats for Wal-Mart.

The biggest competitor of Wal-Mart is Target Corporation. Target is a large format general merchandise and food discount stores operator in the US.The company operates through two store formats including Target and SuperTarget stores. The company offers everyday essentials and fashionable merchandise. The company offers general merchandise at a discount through 1,591 stores in US states.

The company's SuperTarget stores' product portfolio consists of bakery, deli, meat and produce sections along with general merchandise. Target as American company uses GAAP standards for preparing financial statement, it uses straight-line depreciation. Target uses lower cost of market as determined by the retail method of accounting.Inventories of international operations are primarily valued by the retail method of accounting using first in first out method.

Target has positive working capital compared to Wal-Mart. The reason of this change is that Wal-Mart current assets are 28% of total assets, when Targets’ total assets 40% is current assets. Interest coverage ratio of Wal-Mart (12. 74) is twice better then Targets (6.

4). As we know Target uses more debt for financing than Wal-Mart, so it has greater interest expense. However, Target is the most obvious competitor to Wal-Mart. Financial performanceOperating Expenses and Net sales In 2010, operating expenses increased by 2. 7% from 2009, while net sales increased by 1%.

Operating expense grew at faster rate because of higher health benefit costs, restructuring charges and higher advertising expenses. In 2009 operating expenses increased 9. 3% compared to 2008 and sales increased by 7. 3% only. Higher increase in operating expenses was caused by higher utility costs, legal matters, higher health benefit cost and increased corporate expenses. Net sales in 2010 increased due to increased customer traffic, continued global expansion activities, offset by a $9.

billion unfavorable currency exchange rate impact in international segment and price deflation in certain merchandise categories in Wal-Mart U. S. segment.Net sales in 2009 increased due to global store expansion activities, offset by a $2. 3 billion unfavorable exchange rate impact.

In 2010 operating income increased by 5. 1% from 2009, while net sales increased by 1%. In 2009 operating income increased by 3. 9%, while net sales increased by 7. 3% Year Operating Income Change 2010 $23,950 5.

1% 2009 22,798 3. % Higher change in operating income in 2010 relative to lower change in sales was due to improved operating results and inventory management. The reason of increase the sales may be several. 2010 year is post crisis period and people still try to save money. In fiscal 2010, Wal-Mart added more than 500 units, all from organic growth. Wal-Mart Canada continues to increase sales through its supercenter expansion program.

Free cash flow Wal-Mart generated positive free cash flow of $14. 1 billion, $11. 6 billion and $5. 7 billion for the year ended January 31 in 2010, 2009, and 2008, respectively.The increase in free cash flow is a result of improved operating results and inventory management.

Stock Price Analysis Wal-Mart Stores, Inc. (WMT) is one of the largest retailers in the world, and a shareholder friendly company. According to four years average revenue growth: 6%, four year average income growth: 8%, ? four year average EPS growth: 11%, four year average cash flow growth: 6%, dividend Yield: 2. 76%, and dividend Growth Rate: 17%, Although the company has seen some disappointing numbers, I find the current WMT stock valuation at approximately $53 per share to be reasonably attractive for decent risk-adjusted returns.

It’s important to invest in companies that have durable competitive advantages over their rivals, and WMT is that sort of company. Due to Wal-Mart’s immense size, they can purchase products in enormous quantities for very low prices, and then pass those low prices to their customers, thereby beating the prices of most rival retailers. This creates a catch-22, or a negative loop, for rival companies, because in order to grow in size they need customers, but Wal-Mart draws customers away from them with their lower prices, and these rivals can’t usually match those prices because they aren’t large enough.In order to compete with Wal-Mart, companies have to find new ways to offer low prices. Online retailers can cut costs by eliminating many expenses associated with a brick-and-mortar business.

Costco derives most of its income with its membership fees, and therefore sells its products at nearly the same price it purchased them in order to try to keep prices low. A company like Costco can put up with very low profit margins over a significant period of time in order to gradually grows and pierces the competitive shield of Wal-Mart. Still, Wal-Mart is indeed in a very strong and difficult-to-shake position among retailers.Although it’s difficult for such a large company to grow at a rate that is appealing for investors, WMT seems to offer a reliable and steady growth story combined with dividends and share repurchases to offer a pretty good value. At the current time, the stock has a P/E of only around 12. It seems as though Wal-Mart’s stock, along with everything they sell, is at a fairly low price.

In comparison, Costco is trading with a P/E of 24. Although I think Costco deserves a higher multiple, I think Wal-Mart represents the better value at the current time. Overall, WMT seems to be a healthy and growing large company with a low valuation.The stock may deserve placement as a fairly conservative pick in a dividend-growth portfolio. In my opinion, the stock represents a fairly good value while it remains in the low-to-mid $50s. The business is highly scalable, and if the company can defend its domestic businesses and continue to grow at a reasonable pace internationally, while all the while generating substantial free cash flows used to pay dividends and buy back inexpensive shares, shareholder returns should be healthy and consistent.

Due to the predictability of dividends and buybacks, WMT currently grows dividends and EPS like clockwork.