Question

Performance measures. Table 28.8 gives abbreviated balance sheets and income statements for Walmart. At the end of fiscal 2017, Walmart had 2,960 million shares outstanding with a share price of $106. The company’s weighted-average cost of capital was about 5%. Assume the marginal corporate tax rate was 35%. Calculate:

1. Market value added.

2. Market-to-book ratio.

3. Economic value added.

4. Return on start-of-the-year capital.

	Fiscal 2017	Fiscal 2016
Income Statement
Net Sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest & tax Interest expense Taxable income Tax Net Income	$500,343   373,396     95,981     10,529 $ 20,437       2,178 $ 18,259       4,600 $ 13,659	$485,873   361,256     91,773     10,080 $ 22,764       2,267 $ 20.497       6,204 $ 14,293

	Fiscal 2017	Fiscal 2016
Balance Sheet
Assets Current assets:       Cash and marketable securities      Accounts receivable      Inventories      Other current assets      Total current assets	$6,756   5,614 43,783   3,511 $59,664	$6,867   5,835 43,046   1,941 $57,689
Fixed assets:      Net fixed assets      Other long-term assets           Total assets	$114,818    30,040 $204,522	$114,178    26,825 $198,825
Liabilities & Shareholders’ Equity Current liabilities:      Accounts payable      Other current liabilities           Total current liabilities Long-term debt Other long-term liability           Total liabilities           Total shareholders’ equity           Total liabilities and shareholders’ equity	$46,092   32,429 $78,521   36,825   11,307 $126,653 77,869 $204,522	$41,433   25,495 $66,928   42,018   12,081 $121,027 77,798 $198,825

1. Market Value Added (MVA) = Market Value of Equity (MVE) - Book Value of Equity (BVE)

MVE = Outstanding shares * Share price = 2,960 shares * $106.00 = $313,760.00

BVE = $313,760.00 - $77,869.00 = $235,891.00

2. Market-to-book ratio = Market value of equity / Book value of equity

Market-to-book ratio = 313,760 / 77,869 = 4.03

Answer 1

1. Market Value Added (MVA) = Market Value of Equity (MVE) - Book Value of Equity (BVE)

MVE = Outstanding shares * Share price = 2,960 million shares * $106.00 = $313760 million

BVE = Total Assets - Total Liabilities

BVE = $204522-$126653 = $77869

BVE = $313760.00 - $77,869.00 = $235,891.00

2. Market-to-book ratio = Market value of equity / Book value of equity

Market-to-book ratio = 313760 / 77869 = 4.03

3. Economic Value Added = NOPAT – (WACC * Capital invested)

NOPAT = Net Income + Net Interest X (1 – Tax rate)

WACC = Weighted Average Cost of Capital = 5%

Capital invested = Total Assets - Current Liabilities

NOPAT = 13659 + 2178(1-0.35) = $15074.7

Capital invested = 204522-78521 =$126001

Economic Value Added = 15074.7 – (0.05*126001) = $8774.65

4. Return on start-of-the-year capital(ROIC)

​ROIC=NOPAT / Invested Capital ​

ROIC = 15074.7/126001 = 11.96%