Question

Please provide an extensive detailed financial analysis between each company and explain in extensive detail each field as well as compare each one with the industrial average.

Ticker	WMT				Ticker	COST
Name	Walmart Inc				Name	Costco
Ratios	FY 2016	FY 2017	FY 2018		Ratios	FY 2016	FY 2017	FY 2018
	1/31/2016	1/31/2017	1/31/2018			1/31/2016	1/31/2017	1/31/2018
Profitability					Profitability
Return on Assets	7.3%	6.8%	4.9%		Return on Assets	7.2%	7.1%	7.7%
Return on Capital	12.9%	12.6%	9.9%		Return on Capital	14.4%	14.3%	15.9%
Return on Equity	18.1%	17.2%	12.7%		Return on Equity	20.7%	20.7%	23.4%
Margin Analysis					Margin Analysis
Gross Margin	25.1%	25.6%	25.4%		Gross Margin	13.0%	13.3%	13.3%
SG&A Margin	--	--	--		SG&A Margin	--	--	--
EBITDA Margin	7.0%	6.8%	6.2%		EBITDA Margin	4.1%	4.2%	4.2%
EBIT Margin	5.0%	4.7%	4.1%		EBIT Margin	3.1%	3.1%	3.2%
Earnings from Cont. Ops Margin	5.0%	4.7%	4.1%		Earnings from Cont. Ops Margin	3.1%	3.1%	3.2%
Net Income Margin	3.0%	2.8%	2.0%		Net Income Margin	2.0%	2.0%	2.1%
Normalized Net Income Margin	2.9%	2.8%	2.7%		Normalized Net Income Margin	2.0%	2.0%	2.0%
Free Cash Flow Margin	3.3%	4.3%	3.7%		Free Cash Flow Margin	1.6%	0.5%	3.3%
Asset Turnover					Asset Turnover
Total Asset Turnover	2.4x	2.4x	2.5x		Total Asset Turnover	3.5x	3.6x	3.7x
Fixed Asset Turnover	4.1x	4.2x	4.4x		Fixed Asset Turnover	7.7x	7.3x	7.3x
Accounts Receivable Turnover	77.8x	84.8x	87.4x		Accounts Receivable Turnover	98.0x	95.9x	96.1x
Inventory Turnover	8.1x	8.3x	8.6x		Inventory Turnover	11.6x	11.5x	11.9x
Short Term Liquidity					Short Term Liquidity
Current Ratio	0.9x	0.9x	0.8x		Current Ratio	1.0x	1.0x	1.0x
Quick Ratio	0.2x	0.2x	0.2x		Quick Ratio	0.5x	0.4x	0.4x
Cash from Ops. To Curr Liab	0.1x	0.1x	0.1x		Cash from Ops. To Curr Liab	0.4x	0.3x	0.3x
Avg. Days Sales Out.	4.7x	4.3x	4.2x		Avg. Days Sales Out.	3.7x	3.8x	3.9x
Avg. Days Inventory Out.	45.3x	44.3x	42.4x		Avg. Days Inventory Out.	31.3x	31.6x	31.2x
Avg. Days Payable Out.	38.9x	40.6x	42.7x		Avg. Days Payable Out.	31.4x	29.4x	28.3x
Avg. Cash Conversion Cycle	11.0x	8.0x	3.9x		Avg. Cash Conversion Cycle	3.6x	6.0x	6.7x
Long Term Solvency					Long Term Solvency
Total Debt/Equity	55.5%	53.1%	52.5%		Total Debt/Equity	56.7%	41.9%	60.2%
Total Debt/Capital	35.7%	34.7%	34.4%		Total Debt/Capital	36.2%	29.5%	37.6%
LT Debt/Equity	50.1%	49.9%	42.1%		LT Debt/Equity	45.7%	33.6%	61.0%
LT Debt/Capital	31.1%	31.5%	26.6%		LT Debt/Capital	28.6%	23.2%	37.0%
Total Liabilities/Total Assets	25.7%	25.8%	22.1%		Total Liabilities/Total Assets	17.1%	15.8%	21.4%
EBIT / Interest Exp.	9.46x	9.62x	8.77x		EBIT / Interest Exp.	29.23x	27.61x	30.68x
EBITDA / Interest Exp.	12.97x	13.67x	13.19x		EBITDA / Interest Exp.	34.43x	32.41x	36.54x
(EBITDA-CAPEX) / Interest Exp.	8.54x	9.25x	8.91x		(EBITDA-CAPEX) / Interest Exp.	17.09x	14.99x	19.86x
Total Debt/EBITDA	1.38x	1.30x	1.37x		Total Debt/EBITDA	1.29x	1.05x	1.22x
Net Debt/EBITDA	1.12x	1.09x	1.15x		Net Debt/EBITDA	-0.06x	0.09x	0.16x
Altman Z Score	4.83	4.75	5.1		Altman Z Score	5.83	6.33	5.8

Answer 1

Profitability Ratio :-This ratios show how well a company can generate profits from its operations. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratio are examples of profitability ratios.

The Return on Assets Ratio indicates the dollars in income earned by the firm on its assets In case of Walmart Inc Return on Asset with each coming year coming down from 7.3% to 4.9% companyshould see for reason.Costco return on Asset increase hence companyis in better position.

The Return on Equity Ratio- Investor choose to invest in company having higher Equity thus Costco have higher return as compared to Walmart Inc With each coming year Walmart return on equity is coming down

The Return on capital- For Return on capital ideal ratio is more or equal to 15% It indicate higher amount of productivity of capital.In the given case Walmart Inc have lowest return on capital whereas Costco had more than 15% in year 2018 hence productivity of capital is less as compared to ideal ratio.

Margin Analysis-

Grosss profit Margin -Low gross profit margin indicate unfavourable purchases and inabilityof management to devlop sales volume . In the given case of Walmart &Costco Gross Profit is stable in each coming year. But Walmart had highest Grossprofit margin as comparedto Costco

EBITA Margin is an assessment of a firm's operating profitability as a percentage of its total revenue. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue.In walmart margin is coming down same condition exist with Costco. Same is in EBIT as profitablity is reducing with each comng year.Overall margin analysis of Walmart is reducing each year.Hence it denotes low profitabilityof company whereas Costco had almost constant growth in Proft.

Asset Turnover ratio- It indicate performance of company. It indicate proper use of asset.

Total Asset Turnover- IdealRatio 2 times.Both company have higherratio which inicate efficient use of assets.

Fixed Asset Turnover- Idealratio is 5 times. Whereas Costco had high turnoverratio which indicate betterutilizationof asset

Account Receivable-Ideal ration 10 to 12 times. Higher debt turnover ratio means management policy is efficient

Inventory Turnover-It estblishesrelation between cost of good sold and average stock in hand in that period.Ideal ratio is 8 times Both had their ratio above 8 times It means concern is efficient and hence sell its good quickly.

Short term Liquiity

Current Ratio Ideal is 2:1 Low turnover indicates over trading and under capitalization Both company had low current ratio

QuickRatio- Ideal is 1:1 Low Quick ratio indicates that liquidity of company is not good

Long term Solvency-