8. Your friend is currently excited about Walmart's stock, believing that given current conditions, Walmart will...

8. Your friend is currently excited about Walmart's stock, believing that given current conditions, Walmart will continue to outperform. Your friend has looked at the P/E ratio, the change in Walmart's market capitalization over the last two years, and has calculated the debt to equity ratio. With the results of these three calculations, your friend is confident that Walmart stock is a strong buy. Is this simple ratio analysis adequate to support this decision? Should your friend consider anything else?

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Expert Solution

No, this simple ratio analysis is not adequate to support this decision because ratio analysis are providing with quantitative analysis and only three ratios are just providing him with view of the solvency of the company along with the valuation of the company in the market but there are a whole lot of factors to consider before investment into the stock and they will be including the profitability of the company as well as the Asset Management effectiveness of the company along with with profitability and repayment ability of the company and it is just not limited to quantitative analysis but it should also include qualitative analysis when one is trying to value a stock because it is not about just micro analysis involved with stocks but it is also related to Macro analysis involved with the entire economy because stocks are always exposed to market risk and will be affected by the market cycle and economic cycle so one has to be highly wide in his approach in order to value A company before investment at it is not about certain ratios but it is about prevalent market conditions and inclusion of economic conditions along with proper analysis of books of accounts and set of ratios hence my friend has not done an adequate analysis.

jeff jeffy answered 1 year ago

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