Answer

Financial Management

Wal-Mart Stores is a multinational American corporation that was founded in 1962 and it is based in Bentonville in Arkansas. It is the largest company in terms of revenues globally. The company owns over 11,573 stores in 28 countries that operate as hypermarkets, grocery stores and discount department stores.

Wal-Mart had outstanding bonds payable amounting to $2.7 billion for short term commercial paper in 2016 and $1.6 billion in 2015. The maximum amount that were outstanding at the end of the year 2016 were $10.551 billion and an average daily borrowings of $4.536 billion for short term debts with an average rate of 1.5% in 2016 (Wal-Mart, 2016).

(Wal-Mart, 2016)

Wal-Mart has also other committed credit lines totaling to $15 billion in 23 financial institutions for short term debts. The long term debts that are carried forward at the financial instruments fair value totaled to $38.314 billion in 2016 while the long term debts that were to mature in five years’ time amounted to $40.959 billion. In 2016 $4.230 billion was repaid compared to $3.475 that was paid in 2015.

I support the choice to use bonds for financing instead of investment purposes. Wal-Mart is a huge company and the retailing nature of its business requires shorter lead times as the products shelf lives are very short and requires replenishing many times a day. Investing the money in bonds would reduce the cash flow in the corporation. Wal-Mart has a revenue turnover of over 482.13 billion and it requires all the funds to make its huge profits especially for medium and short dated bonds.

Bonds are cheaper than ordinary loans from banks as their interest rates can be bargained and their volatility is general lower than those of equities (Leif & Vladimir, 2010). Most bonds are generally considered to be much safer investment compared to stocks. Bondholders generally enjoy legal protection to some extent incases of bankruptcies they have first preference as they come with indentures and covenants. But their best advantage is that they are highly liquid and selling them is very convenient considering their interest payments that are paid twice in a year (Ross, Westerfield and Bradford, 2010).

Bonds are susceptible to interest rates risks, reinvestment risks, prepayment risks and liquidity risks. Fixed rate bonds are mostly subjected to interest rates risks which mean that the bonds market prices may decrease when the interest rates increase (Berk & DeMarzo, 2011). In cases of companies going bankrupt the bondholders may lose their investments. Some bonds maybe recalled anytime the company can pay them off and the investor may be compelled to look for other means of investing their funds.(2017) study employed, there are very little room for generalizing the study’s findings.