Question

Examine a BALANCE SHEET from Wal Mart found on Yahoo Finance and/or INCOME STATEMENT then CALCULATE and EXPLAIN: ROI, Acid Ratio (Current Ratio), and Debt to Equity Ratio. [Please show your work to get partial credit]

Answer 1

After Examination of Balance sheet and Income Statement for 31/2018
ROI = Return on Assets = Net Income/ Total Assets = 9,862,000 /204,522,000 = 0.0482 or 4.82%
ROA is less but Walmart focuseson high asset turnover ratio and high inventory turnover ratio to get higher ROE. Keeping ROA less gives them competetitive advantahe to increase their turnover ratios.
Acid Ratio = (Total Current Assets - Inventories)/ Current Liabilities = (59,664,000 - 43,783,000)/78,521,000 = 0.2022 or 20.22%
Current Ratio = Current asset/ Current Liabilities = 0.7598 or 75.98%
This shows that inventories form a huge part of Current assets and liquid assets like cash and cash equivalent and account receivable form a smaller part of current assets. This ratio shows that it is cash rich company too. As it Current liabilities fund its current asset and its long term assets
Current Ratio = Current asset/ Current Liabilities = 0.7598 or 75.98%
Debt to Equity Ratio = (Long Term Debt + Short Term Debt)/ Equity = (36,825,000 + 9,662,000) /77,869,000 = 0.5969 or 59.69%
The company is funded by equity more than debt . Hence it is not very highly leveraged and can absorb economic downturns too. This capital structure shows the creditworthiness and also it is agood value to equity holders too.


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