Question

Using Walmarts most recent 10-k report can you please add comparative information in reguards to its previous year as well as add more information to each section so I make the minimum word requirement (of 300 a section).

Part 1: In 1000 words total compute and analyze the following group of ratios for Walmart and explain how they affect the investors’ or creditors’ decisions regarding the company. Please include an introduction sentence referencing the sources of data for ratios. Provide a comparative analysis for each ratio. Make sure your analysis includes a comparison to the company’s prior year ratios OR the competitor’s ratios.

• Liquidity Ratios:

A. Current ratio = Current Assets / Current Liabilities

= 61897/77477

=0.80

The current ratio of the company is 0.80, this means that the current assets of the company are not enough to settle the current liabilities. A current ratio above 1 is optimal.

B. Accounts receivable turnover =Net Sale/Average AR

Average AR=	5614+6283
2
Average AR=	5948.50

Accounts receivable turnover=510329/5948.50

=85.79

The Accounts receivable turnover ratio shows the capability of the company to collect the credit sales made. The company (Walmart) has 85.7 as its accounts receivable ratio, which when compared to other companies in the industry (Normally 80 and below) has higher-quality customers that pay their debts quickly.

C. Inventory turnover =Cost of Goods Sold/Average Inventories

Average Inventory=	43783+44269
2
Average Inventory=	44026

Inventory turnover=385301/44026

=8.75

The inventory turnover ratio shows how many times the company has replaced the inventory as a reason for sales. Walmart has an inventory turnover ratio of 8.75, which means that it has replenished the inventory almost 9 times during the year due to its sales.

Answer 1

Below is the data given in question :-

Current Assets                               61897.00

Current Liabilities                        77477.00

Sales                                              510329.00

Average Accounts Receivable        5948.50

Average Inventory                       88052.00

Cost of Goods Sold                      38530100

From the above, we can analyse the following ratios that affect the Investors or creditors decisions regarding the company.

1. Current Ratio

2. Accounts Receivable Turnover

3. Inventory Turnover

4. Gross Profit Margin

1. Current Ratio :

The current ratio is main ratio in the financial statements which measures the liquidity of the company. The current ratio is also known as the working capital ratio. The Current ratio shows the company’s ability to meet current liabilities. Creditors use this ratio in determining whether or not to sell the goods and to check the ability of the company weather they had enough sources for making their payments.

The higher the ratio means the company has more liquidity. Acceptable current ratio is 2:1. Current ratio varies from industry to industry. On Average for most industrial companies, 1.5 may be an acceptable current ratio.

Formula for calculating the current ratio is as under :-

Current ratio is calculated by dividing current assets by current liabilities:

Current Ratio = Current Assets / Current Liabilities

As per data available below is the current ratio of walmart.

                                    Current Ratio = Current Assets / Current Liabilities

                                                       = 61897 / 77477

                                                                 = 0.80        

The current ratio of the company is 0.80, this means that the current assets of the company are not enough to settle the current liabilities.

Low values for the current ratio indicate that a company may have difficulty in meeting its current liabilities. However, an investor should also check company's operating cash flow in order to get a better position of its liquidity. Sometime a low current ratio can be supported by a strong operating cash flow.

2. Accounts Receivable Turnover

The accounts receivable turnover indicates the average length of time the company must wait after making credit sales before it collects amounts. It shows the average number of days accounts receivables remain outstanding.

This is an important ratio used to check the credit policy of the firm in relation to the industry norms. A higher accounts receivable turnover indicates a liberal policy in that the firm gives more times to debtors for making payments. A lower accounts receivable turnover indicates a strict policy in that the company gives less time for debtors.

Formula for calculating this ratio is as under:-

Accounts receivable turnover ratio is calculated by dividing Receivables by average sales:

Accounts receivable turnover ratio = Receivables / Average Sales

As per data available below is the ratio of walmart.

Accounts receivable turnover ratio = Receivables / Average Sales

Accounts receivable turnover ratio = 510329 / 5948.50

= 85.79

This shows that company can recover its sales in 86 days approximately and almost 6 days delayed from an industry average as per data given in question.

3. Inventory Turnover Ratio

The inventory turnover indicates whether inventory levels are reasonable in relation to cost of goods sold. Lower inventory turnover ratio relative to the industry standard may indicate excessive, obsolete, or slow moving inventory, while higher turnover may indicate inadequate inventory and perhaps possibility of inventory shortages.

Formula for calculating Inventory Turnover ratio is as follows:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories        

As per data available below is the ratio of walmart.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories

Inventory Turnover Ratio = 385301 / 44026

= 8.75

This shows that company can replenished its inventories in 9 days approximately.

4. Gross Profit Margin Ratio (GPM)

The gross profit margin (GPM) shows the company’s profit margin after deducting costs of goods sold but before deducting operating expenses, interest expenses, and taxes. This ratio is also known as gross profit ratio.

This is the first level of profitability. The GPM depends primarily on the company’s sales and cost control. The price of the product impacts sales. Production cost such as material cost, labour cost, and overhead or the cost of purchases affect the cost of goods sold. A company with a better ability to price products in line with inflation of cost of production and the ability to control production costs or suppliers will be able to maintain or increase gross margins.

Formula for calculating Gross Profit Margin Ratio is as follows:

Gross Profit Margin Ratio = (Sales - Cost of Goods Sold) / Sales*100

As per data available, below is the ratio of walmart.

Gross Profit Margin Ratio = (Sales - Cost of Goods Sold) / Sales *100

Gross Profit Margin Ratio = (510329-385301) / 510329 *100

= 24.49%

This shows that company is earning 24.49% on its sales.

Below is the comparitive analysis with industry average and remarks :-

Particulars	Walmart Ratios	Industry Average Ratio	Remarks
Current Ratio	0.80	1.50	This means that the walmart company’s current assets are not enough to settle the current liabilities as per average.
Accounts Receivable Turnover	86 Days	80-90 Days	This shows walmart company is able to mature its sales timely.
Inventory Turnover Ratio	8.75 Times	13 Times	This indicates that stock of company is moving fastly and there are no obsolete stocks.
Gross Profit Margin Ratio	24.49%	-	This shows that company has good enough margin on its sales.