QUESTION
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Research Project report
Your assignments for the Research Project Part 1 and Part 2 are posted as separate files in Content - Syllabus - on the right side of the screen.
Rubrics for the Part 1 and Part 2 of the Research Project are posted as separate files in Content - Syllabus - on the right side of the screen.
The links to the 7th Edition APA citation methodology are posted in Content – Course Resources – Writing Resources.
Format of the Research Project (As it is stated in the Syllabus):
Both parts of the Research Project report should be about 6-8 pages or more double-spaced typewritten pages (without tables and graphs). The assignments for both parts include suitable comparative, quantitative and qualitative analyses and conclude with a specific and supported recommendation and reflection.
The Research Project (Parts 1 and 2) must be posted to the LEO Student Assignments as Attachments. Attachments are limited to a maximum two files in doc, docx., xls. xlsx., or rtf. formats. OTHER FORMATS ARE NOT ACCEPTABLE, will not be reviewed or graded.
Please note that hand-written and scanned works, pdf. files, jpg. files, as well as files posted in google drive, will not be accepted or graded.
Please note that starting from the Fall 2020 semester the UMGC moved to the 7th Edition of the APA Style. The links to the 7th Edition of the APA Style methodology are posted in Content – Course Resources – Writing Resources.
All works must be Word processed. Handwritten and scanned work will not be accepted and graded.
In accordance with the UMGC Academic Policy, notes taken for papers and research projects should accurately record sources of material to be cited, appropriately quoted, paraphrased or summarized, and papers and research projects should acknowledge these sources in the appropriate places in the text of the paper as well as in a reference list at the end of the paper, in accordance with accepted citation practices. No more than 20% of the text of the project should be made up of quotes.
Written projects:
Must be typed, double-spaced, in 12-point Times New Roman or Arial font, with one-inch margins
Must have the title page in APA-7th style
Must have in-text citations in APA-7th edition style
Must have reference list in APA-7th edition style. Please note that you must reference the data you are using for the project
Must be prepared using word processing software (Microsoft Word preferred)
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade)
Essential research data, financial calculations and other documentation as necessary to support your recommendation should be referred to in summary form in your report and attached in detail as enclosures. All major sources should be referenced. There is no set limit to the size of the enclosures, but it is recommended that only essential enclosures be attached. You should use references and bibliography to identify any remaining supporting documents you wish to include.
Found it
FINC 330 Project DescriptionsResearch Project Part 1
Due at the end of week 5
This project is closely aligned with the Course Outcomes and Finance Program Objectives. Completion of this project can be used as part of a portfolio to show potential employers the student is skilled at performing company valuations and financial statement analysis and can be included on the student's resume.
Ratio Analysis
OBJECTIVE
You are to assume you have been recently hired by The Company and have been assigned to a team that reports to the CEO of THE COMPANY (SELECTED BY INSTRUCTOR). The head of your team is the CFO who is concerned about THE COMPANY’s current financial performance and comparison against major competitors in the industry and the impact that may have on the firm’s stock price. The CFO would like your team to provide insights that will help them to project future financial performance. Specifically, the primary question to answer is: will THE COMPANY be financially viable over the next two to three years, and which steps should be done to improve its financial stability?
THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.
Alternatively, you can request approval of another publicly traded company. This request must be submitted before the end of the first week of the course. The request must include
identification of the company by ticker symbol and name
a reasonable and appropriate explanation of why you want to examine the alternative company
the source of the analyst's report that will be used in the analysis (which must be submitted to me)
acknowledgement by you that all of the specific elements of the assignment (see below) will be prepared by you and included in the final research project report
SUGGESTED WEBSITES
www.morningstar.com - To find the information for your company you need to type the stock symbol in the Quotes window to get into the company’s page.
www.marketwatch.com -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.Finviz.com - To find the information for your company you need click on Screener on the top of the screen, type the stock symbol in the Ticker window to get into the company’s page., and click on the company in the list.
www.money.cnn.com -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.finance.yahoo.com - To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.nyse.com – Click on Data, then click on Stocks (under Quotes), and type the name of the company or the stock symbol in the window “Keyword or symbol” to get into the company’s page.
www.nasdaq.com - To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
Company’s websites
YOUR SPECIFIC ASSIGNMENT
Using the information from the websites the students will develop evaluation of the financial performance for THE COMPANY (SELECTED BY INSTRUCTOR). (The evaluation portion will total 85% of the assignment grade)
-1—Introduction (3% of the project grade)- The paper should begin with a short introduction, explains the purpose of the paper, and provides an overview of the contents that follow (one short paragraph).
2— Trend analysis (20% of the project grade)
Analyze the financial trends over the last 5 years of
Sale Growth,
COGS Growth,
Gross Income Growth,
Interest Expense Growth,
Net Income Growth,
Cash & Short Term Investments Growth
Assets - Total - Growth.
You can find these ratios in the Internet or calculate them. If you use published ratios you must indicate that and cite their source.
These growth rates are available in www.marketwatch.com -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page. Click on Financial > Income Statement (or Balance Sheet) > click on View Ratios.
To present your findings, you will create the table(s) and/or graphs. You can use the bar graphs provided by www.marketwatch.com or create your own ones.
Write about 1-2 pages of the analysis of the financial conditions, its stability, and trends. What important information does this analysis provide?
-3— Financial ratio analysis. (25% of the project grade)
In this part of the project you will complete ratio analysis of THE COMPANY. Please remember that you are the financial analyst of THE COMPANY and should prepare the report to be read by the chairman (CEO) of THE COMPANY. The ratio analysis should be completed from the point of view of THE COMPANY’s the management.
The chairman of THE COMPANY is especially concerned about the following groups of ratios:
Liquidity (current ratio, quick ratio)
Operating performance ratio (Days of Sales in Inventory, Days of Sales Outstanding, Days of Payables Outstanding), Receivables Turnover, Inventory Turnover, Fixed Assets Turnover, Total Assets Turnover)
Profitability ratios (Gross Profit Margin, Operating Profit Margin, Net Profit Margin)
Return on Investment ratios: (ROA, ROE)
These ratios are available on www.morningstar.com > Company’s page – under Financials and under Operating Performance
You can find financial ratios for the company for the last 1-5 years in the Internet or calculate them. If you use published ratios you must indicate that and cite their source.
a) Present the ratios as the table(s) in your project. Create graphs for some ratios on your choice over three years to show trends.
b) Write 2 pages (or more) of analysis of the ratio results that you found. In your analysis you should answer the following questions:
How liquid is the company?
Is management generating a substantial profit on the company’s assets?
If the management of the company would like to improve the company’s financial performance, what should the management of THE COMPANY do?
-5- Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (17% of the project grade).
You can find these ratios in the Internet or calculate them. If you use published ratios you must indicate that and cite their source.
Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis. Present the ratios as the table(s) in your project.
Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis. Present the ratios as the table(s) in your project.
Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?
Compare the ratios of you company to the peer competitor. If the management of the company would like to improve their return on equity, what should the management of the company do?
Write about 1 page of analysis to answer the questions (c) and (d).
-6- Develop a specific recommendation, with supporting rationale, as to whether the assigned company's recent trends and results in financial performance is of sufficient financial strength, will THE COMPANY be financially sustainable over the next two to three years, and which steps should be done to improve its financial stability? (about 1 page) (15% of the project grade).
-7- Reflection – the student should write a paragraph in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace. (5% of the project grade)
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary. Each section of the paper must begin with sub-headings. Please use the sub-headings included in the assignment. Please use double spaced, with one-inch margins, and use 12-point Times New Roman font. (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper. All tables and charts should have the numbering system, like “Table 1…”, the title, and foot/end note to reference the source of the information. (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade)
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| Subject | Business | Pages | 21 | Style | APA |
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Answer
Walmart Inc. Financial Analysis
Report to the
CEO Walmart Inc.
From the
Financial Analyst
Walmart Inc. Financial Analysis Introduction
Walmart Inc. formerly known as Wal-Mart Stores, Inc. (NYSE: WMT) is an American based retail corporation that operates in America as well as internationally. Founded in 1962, the company has more than 10,524 stores both in US and internationally (United States Securities and Exchange Commission, 2020). This paper evaluates and analysis the financial performance of the giant corporation. It evaluates the profitability of the company, its liquidity, financial leverage, operational performance, management and efficiency. Trend Analysis
Table 1.
Source: (MarketWatch, 2021)
Sales Growth
Sales growth for Walmart Inc. experienced the highest sales in 2021 compared to other years. The sales growth in 2018 was 3.04% while in 2019 and 2020 the company registered 2.90% and 1.86% sales growth respectively compared to 6.72% in 2021. The sales revenues in 2017 were 485.14 B compared to 499.91 B in 2018, 514.41B in 2019, 523.96B in 2020 and 559.15B in 2021 as illustrated in Table 1 above.
COGS Growth,
Cost of Goods Sold (COGS) growth for Walmart Inc. experienced the highest expense in 2021 compared to other years. The COGS growth in 2018 was 3.36% while in 2019 and 2020 the company registered 3.19% and 2.41% COGS growth respectively compared to 6.52% in 2021. The COGS in 2017 were 361.26 B compared to 373.4 B in 2018, 385.3 in 2019, 394.61B in 2020 and 420.32B in 2021 as illustrated in Table 1 above.
Gross Income Growth,
Gross Income Growth (GIG) for Walmart Inc. registered the highest revenue growth in 2021 compared to other years. The GIG growth in 2018 was 2.12% while in 2019 and 2020 the company registered 2.05% and 0.20% COGS growth respectively compared to 7.33% in 2021. The COGS in 2017 were 123.89B compared to 126.51 B in 2018, 129.1 in 2019, 129.36B in 2020 and 138.84B in 2021 as illustrated in Table 1 above.
Table 2.
Source: (MarketWatch, 2021)
Interest Expense Growth,
The Interest Expense Growth (IEG) for Walmart Inc. experienced the highest expense growth in 2020 compared to other years. The IEG growth in 2018 was -3.28% while in 2019 and 2020 the company registered 2.75% and 8.52% IEG growth respectively compared to -10.93% in 2021. The Interest expense in 2017 was 2.41B compared to 2.33 B in 2018, 2.4B in 2019, 2.6B in 2020 and 2.32B in 2021 as illustrated in Table 2 above. The reduction in interest expenses registered in 2018 and 2021 indicates positive returns and performance for the company.
Net Income Growth,
The Highest Net Income Growth (NIG) for Walmart Inc. was experienced in 2020 compared to other years. The NIG growth in 2018 was -27.71% while in 2019 and 2020 the company registered -32.37% and 123.10% IEG growth respectively compared to -9.21% in 2021. The NI in 2017 was 13.64B compared to 9.86 B in 2018, 6.67B in 2019, 14.88B in 2020 and 13.51B in 2021 as illustrated in Table 2 above. The reduction in Net income registered in 2018, 2019 and 2021 indicates a decreasing performance for the company though the company more than doubled increased it Net Income by more than double in 2020.
Table 3.
Source: (MarketWatch, 2021)
Cash & Short-Term Investments Growth
The Cash & Short-Term Investments Growth (C & STIG) for Walmart Inc. registered the performance in 2021 compared to other years. The C & STIG in 2018 was -1.62% while in 2018 and 2020 the company registered 14.8% and 22.03 % C & STIG growth respectively compared to -87.44% in 2021. The c & STI in 2017 was 6.87B compared to 6.76 B in 2018, 7.76B in 2019, 9.47B in 2020 and 17.74B in 2021 as illustrated in Table 3 above. The increase in C & STIG performance in 2019, 2020 and 2021 indicates an increasing positive performance for the company.
Table 4.
Source: (MarketWatch, 2021)
The Total Assets Growth (TAG) for Walmart Inc. experienced the highest performance in the year 2020 compared to other years. The TAG in 2018 was 2.87% while in 2018 and 2020 the company registered 7.22% and 7.84 % TAG growth respectively compared to 6.77% in 2021. The Total Assets in 2017 were 198.83B compared to 204.52 B in 2018, 219.3B in 2019, 236.5B in 2020 and 252.5B in 2021 as illustrated in Table 4 above. The increase in TAG performance in 2018, 2019, and 2020 indicates an increasing positive performance for the company despite the reduction in 2021 performance.
Significance of the Growth Trends
Importance of the Information illustrated above is that it provides a forecast on the future performance of Walmart Inc. Its very important to potential investors and company executives when making investment decisions.
- Financial Ratio Analysis
Liquidity
Liquidity is the financial health of the company and it indicates ease of its liquid in settling its financial obligations.
Table 5.
|
Liquidity/Financial Health |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Current Ratio |
0.88 |
0.83 |
0.88 |
0.97 |
0.93 |
0.86 |
0.76 |
0.8 |
0.79 |
0.97 |
|
Quick Ratio |
0.2 |
0.2 |
0.2 |
0.24 |
0.22 |
0.19 |
0.16 |
0.18 |
0.2 |
0.26 |
Source: (Morningstar, 2021).
Current Ratio
The current ratios for Walmart Inc. in 2021 was 0.97 compared to 0.79 in 2020 and 0.8 in 2019. The highest performance was in 2021 and 2015 while the lowest was in 2018.
Quick Ratio
The current ratios for Walmart Inc. in 2021 was 0.26 compared to 0.2 in 2020 and 0.18 in 2019. The highest performance was in 2021 while the lowest was in 2018 as illustrated in figure 1 below.
Figure 1
Source: (Morningstar, 2021).
The liquidity ratios indicate that the company’s liquidity is improving. However, the ratios are very low according to the rule of thumb. The current assets should be twice the current liabilities to facilitate easy settling of any emergencies that may arise while the quick ration should be at least 1:1 that is the liquid assets should be equal to current liabilities.
Table 6. Operating performance ratio
|
Efficiency |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Days Sales Outstanding |
4.5 |
4.94 |
5.15 |
5.06 |
4.69 |
4.3 |
4.18 |
4.22 |
4.38 |
4.18 |
|
Days Inventory |
41.95 |
43.76 |
45.19 |
44.99 |
45.3 |
44.21 |
42.44 |
41.71 |
41 |
38.81 |
|
Payables Period |
38.21 |
38.67 |
38.48 |
37.9 |
38.88 |
40.37 |
42.78 |
44.12 |
43.5 |
41.73 |
|
Cash Conversion Cycle |
8.24 |
10 |
11.86 |
12.14 |
11.1 |
8.14 |
3.84 |
1.81 |
1.91 |
1.26 |
|
Receivables Turnover |
81.07 |
73.85 |
70.85 |
72.19 |
77.75 |
84.8 |
87.4 |
86.48 |
83.4 |
87.37 |
|
Inventory Turnover |
8.7 |
8.34 |
8.08 |
8.11 |
8.06 |
8.26 |
8.6 |
8.75 |
8.9 |
9.4 |
|
Fixed Assets Turnover |
4.06 |
4.1 |
4.06 |
4.14 |
4.14 |
4.21 |
4.37 |
4.55 |
4.39 |
4.72 |
|
Asset Turnover |
2.39 |
2.37 |
2.34 |
2.38 |
2.39 |
2.44 |
2.48 |
2.43 |
2.3 |
2.28 |
Source: (Morningstar, 2021).
The performance of Days of Sales in Inventory, Days of Sales Outstanding, Days of Payables Outstanding, Receivables Turnover, Inventory Turnover, Fixed Assets Turnover, Total Assets Turnover as illustrated in figure 2 below indicates that the ratios are increasing with an exception of the cash conversion ratio.
Figure 2.
Source: (Morningstar, 2021).
Profitability ratios
Table 7.
|
Profitability |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Net Margin % |
3.51 |
3.62 |
3.36 |
3.37 |
3.05 |
2.81 |
1.97 |
1.3 |
2.84 |
2.42 |
|
Operating Margin |
5.94 |
5.93 |
5.64 |
5.59 |
5 |
4.69 |
4.08 |
4.27 |
3.93 |
4.03 |
|
Gross Margin |
25.02 |
24.87 |
24.82 |
24.83 |
25.13 |
25.7 |
25.37 |
25.1 |
24.69 |
24.8 |
Source: (Morningstar, 2021).
Gross Profit Margin,
The Gross Profit Margin for Walmart Inc. in 2021 was 24.8% compared to 24.69 in 2020 and 25.1 in 2019. The highest performance was in 2017 while the lowest was in 2020.
Operating Profit Margin,
The Operating Profit Margin for Walmart Inc. in 2021 was 4.03% compared to 3.93% in 2020 and 4.27% in 2019. The highest performance was in 2012 while the lowest was in 2020.
Net Profit Margin
The Net Profit Margin for Walmart Inc. in 2021 was 2.42% compared to 2.84% in 2020 and 1.3 % in 2019. The highest performance was in 2013 while the lowest was in 2019.
Return on Investment ratios
Table 8.
|
Profitability |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Return on Equity % |
22.45 |
23.02 |
21 |
20.76 |
18.15 |
17.23 |
12.67 |
8.87 |
20.22 |
17.37 |
|
Return on Assets % |
8.39 |
8.57 |
7.86 |
8.01 |
7.29 |
6.85 |
4.89 |
3.15 |
6.53 |
5.53 |
Source: (Morningstar, 2021).
Figure 3.
Source: (Morningstar, 2021).
Figure 3 above shows the profitability trends for Walmart inc. The ratios indicate that the company’s performance in its major profitability ratios are generally constant and fluctuations are minimal. The company is likely to continue on the same performance trend in future.
ROA
The Return on Assets for Walmart Inc. in 2021 was 5.53% compared to 6.53% in 2020 and 3.15 % in 2019. The highest performance was in 2016 while the lowest was in 2019.
ROE
The Return on Assets for Walmart Inc. in 2021 was 17.37% compared to 20.22% in 2020 and 8.87 % in 2019. The highest performance was in 2012 while the lowest was in 2019.
Figure 4
Source: (Morningstar, 2021).
Figure 4 above shows the profitability trends for Walmart inc. The ratios indicate that the company’s performance in its major profitability ratios are generally constant and fluctuations are minimal. The company is likely to continue on the same performance trend in future.
- Return on Equity Analysis Using DuPont analysis
DuPont equation breaks down the ROE into three basic parts; the profit margin, leverage and the asset turnover (Lumen, n, d). It evaluates the efficiency of the company in utilizing its shareholders capital (Hargrave, 2021).
Table 9.
|
ROE Analysis |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Asset Turnover (Average) |
2.39 |
2.37 |
2.34 |
2.38 |
2.39 |
2.44 |
2.48 |
2.43 |
2.3 |
2.28 |
|
Financial Leverage (Average) |
2.71 |
2.66 |
2.69 |
2.5 |
2.48 |
2.56 |
2.63 |
3.02 |
3.17 |
3.12 |
|
Net Margin % |
3.51 |
3.62 |
3.36 |
3.37 |
3.05 |
2.81 |
1.97 |
1.3 |
2.84 |
2.42 |
|
Return on Equity % |
22.45 |
23.02 |
21 |
20.76 |
18.15 |
17.23 |
12.67 |
8.87 |
20.22 |
17.37 |
|
Dupont Equation (ROE) |
22.73 |
22.821 |
21.15 |
20.052 |
18.08 |
17.55 |
12.85 |
9.54 |
20.71 |
17.21 |
Source: (Morningstar, 2021).
The company’s ROE has been fluctuating over the last few years as illustrated in figure 5 below. The asset turnover in 2021 was 2.28 while the financial leverage was 3.12 and the Net margin amounted to 2.42%. The financial leverage increased the profitability ratios by a wide margin. The debt Equity equation indicates that the company utilized more debts in the year 2020 and 2021 to finance its operations. In 2021 the ratio of debt to equity was 86% while in 2021 it reduced to 72% (Morningstar, 2021).
Figure 5.
Table 10.
|
ROE Analysis |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Return on Equity % |
22.45 |
23.02 |
21 |
20.76 |
18.15 |
17.23 |
12.67 |
8.87 |
20.22 |
17.37 |
|
Dupont Equation (ROE) |
22.73 |
22.821 |
21.15 |
20.052 |
18.08 |
17.55 |
12.85 |
9.54 |
20.71 |
17.21 |
|
Debt/Equity |
66 |
54 |
58 |
54 |
55 |
54 |
47 |
69 |
86 |
72 |
|
Net Margin % |
3.51 |
3.62 |
3.36 |
3.37 |
3.05 |
2.81 |
1.97 |
1.3 |
2.84 |
2.42 |
Target’s Corp.
Table 11.
|
Target Ratios |
|
|
|
|
|
|
|
|
|
|
|
Margins % of Sales |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Revenue |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
COGS |
69.14 |
69.62 |
70.47 |
70.61 |
70.47 |
70.32 |
71.13 |
70.73 |
70.24 |
70.73 |
|
Gross Margin |
30.86 |
30.38 |
29.53 |
29.39 |
29.53 |
29.68 |
28.9 |
29.27 |
29.76 |
29.27 |
|
SG&A |
20.19 |
20.35 |
21.18 |
20.21 |
19.88 |
19.22 |
19.82 |
20.86 |
20.78 |
19.9 |
|
R&D |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|
Other |
3.05 |
2.92 |
3.06 |
2.93 |
3 |
3.31 |
3.05 |
2.95 |
3.02 |
2.38 |
|
Operating Margin |
7.62 |
7.11 |
5.29 |
6.25 |
6.65 |
7.15 |
6 |
5.45 |
5.96 |
6.99 |
|
Net Int Inc & Other |
-1.24 |
-0.82 |
-1.01 |
-1.21 |
0.02 |
-1.44 |
-0.93 |
-0.58 |
-0.6 |
-1.06 |
|
EBT Margin |
6.38 |
6.29 |
4.27 |
5.03 |
6.67 |
5.71 |
5.07 |
4.88 |
5.36 |
5.93 |
|
Profitability |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Tax Rate % |
34.27 |
34.93 |
36.48 |
32.96 |
32.54 |
32.69 |
19.69 |
20.29 |
21.98 |
21.24 |
|
Net Margin % |
4.19 |
4.09 |
2.72 |
-2.25 |
4.56 |
3.94 |
4.08 |
3.9 |
4.2 |
4.67 |
|
Asset Turnover (Average) |
1.55 |
1.55 |
1.57 |
1.69 |
1.8 |
1.78 |
1.88 |
1.88 |
1.86 |
1.99 |
|
Return on Assets % |
6.48 |
6.33 |
4.25 |
-3.81 |
8.24 |
7.05 |
7.68 |
7.32 |
7.81 |
9.29 |
|
Financial Leverage (Average) |
2.95 |
2.91 |
2.74 |
2.96 |
3.11 |
3.42 |
3.33 |
3.65 |
3.62 |
3.54 |
|
Return on Equity % |
18.71 |
18.52 |
12.02 |
-10.82 |
24.95 |
22.89 |
25.89 |
25.53 |
28.37 |
33.25 |
|
Return on Invested Capital % |
11.02 |
10.75 |
8.57 |
-3.68 |
14.37 |
13.81 |
14.76 |
13.76 |
14.45 |
18.56 |
|
Interest Coverage |
6.13 |
7.05 |
3.76 |
5.14 |
9.11 |
4.95 |
6.47 |
8.97 |
9.78 |
6.68 |
Source: (Morningstar, 2021).
Target’s Corp.
Table 12.
|
Liquidity/Financial Health |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Current Ratio |
1.15 |
1.16 |
0.91 |
1.2 |
1.12 |
0.94 |
0.95 |
0.83 |
0.89 |
1.03 |
|
Quick Ratio |
0.47 |
0.13 |
0.16 |
0.28 |
0.38 |
0.26 |
0.27 |
0.18 |
0.24 |
0.48 |
|
Financial Leverage |
2.95 |
2.91 |
2.74 |
2.96 |
3.11 |
3.42 |
3.33 |
3.65 |
3.62 |
3.54 |
|
Debt/Equity |
0.85 |
0.89 |
0.78 |
0.91 |
0.92 |
1.01 |
0.97 |
1.08 |
1.15 |
0.95 |
Source: (Morningstar, 2021).
Table 13.
|
Target's Dupont Analysis |
2012-01 |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
2017-01 |
2018-01 |
2019-01 |
2020-01 |
2021-01 |
|
Net Margin % |
4.19 |
4.09 |
2.72 |
-2.25 |
4.56 |
3.94 |
4.08 |
3.9 |
4.2 |
4.67 |
|
Asset Turnover (Average) |
1.55 |
1.55 |
1.57 |
1.69 |
1.8 |
1.78 |
1.88 |
1.88 |
1.86 |
1.99 |
|
Financial Leverage (Average) |
2.95 |
2.91 |
2.74 |
2.96 |
3.11 |
3.42 |
3.33 |
3.65 |
3.62 |
3.54 |
|
Return on Equity % |
18.71 |
18.52 |
12.02 |
-10.82 |
24.95 |
22.89 |
25.89 |
25.53 |
28.37 |
33.25 |
|
Dupont ROE |
19.159 |
18.448 |
11.701 |
-11.26 |
25.53 |
23.99 |
25.54 |
26.762 |
28.28 |
32.9 |
Target Corp has a market capitalization of $117.769 billion compared to Walmart’s $398.811 billion. However, Targets liquidity ratios are better compared to those of Walmart as illustrated in table 12 (Morningstar, 2021). Its earnings per share amounted to $12.53 compared to Walmart’s $3.55. Target’s shares are currently trading at 241.31 while Wal-marts shares are trading at 143 (Yahoo. Finance, 2021). To improve its ROE, Walmart has to improve its liquidity so that the company can also reduce its dependency on borrowing. Table 11 and 13 also indicate that the ratios of target are almost similar to those of Walmart except for a few that are different.
- Recommendation
Sales growth for Walmart Inc. experienced the highest sales in 2021 compared to other years. Walmart’s sales growth in 2018 increased by 3.04% while in 2019 and 2020 the company registered 2.90% and 1.86% sales growth respectively compared to 6.72% in 2021. The sales revenues in 2017 were 485.14 B compared to 499.91 B in 2018, 514.41B in 2019, 523.96B in 2020 and 559.15B in 2021. The trend indicates that the company’s sales growth is most likely to continue based on its past performance. However, the Net Profit Margin for Walmart Inc. in 2021 reduced by 2.42% compared to 2.84% in 2020 and 1.3 % in 2019. The highest performance was in 2013 while the lowest was in 2019. The company borrowed heavily in between the years 2020 and 2021 while the interest rates grew extraordinarily high during this period. The interest expense amounted to about 2.6B, the highest in the period being analysed. Apparently, the Net Income was highest also under the same period being reviewed. The Net Income grew by 123.1%. It indicates that the management was more efficient during this period despite the high debts taken by the company.
The liquidity ratios indicate that the company’s liquidity is improving. However, the ratios are very low according to the rule of thumb. The current assets should be twice the current liabilities to facilitate easy settling of any emergencies that may arise while the quick ration should be at least 1:1 that is the liquid assets should be equal to current liabilities. The increase in C & STIG performance in 2019, 2020 and 2021 indicates an increasing positive performance for the company. The increase in TAG performance in 2018, 2019, and 2020 indicates an increase in its assets base.
The company needs to increase its liquidity by decreasing its asset’s growth strategy so as to ensure that its reliance on debt is reduced. The period that the company’s performance increased the most also coincided with its highest interest repayment as well as high debt preference.
7. Reflection
I have learnt how the operations of the company are affected by different decisions such as increasing the assets at the expense of maintaining higher liquidity rates impacts the company differently. The company increases its reliance on debt to finance most of its operations.
The lessons learnt in this topic can assist in maintaining a good balance between debt and equity as well as ensuring that debt is utilized effectively in exploiting different business opportunities in different situations.
References
Hargrave, M. (2021). Dupont Analysis, Investopedia https://www.investopedia.com/terms/d/dupontanalysis.asp
Lumen (n, d). The Dupont equation, ROE, ROA, and Growth. https://courses.lumenlearning.com/boundless-finance/chapter/the-dupont-equation-roe-roa-and-growth/
MarketWatch (2021). Walmart Inc. MarketWatch Updates. https://www.marketwatch.com/investing/stock/wmt/financials?mod=mw_quote_tab
Morningstar (2021). Target Corp. Morningstar Updates. https://financials.morningstar.com/ratios/r.html?t=tgt®ion=usa&culture=en-US
Morningstar (2021). Wal-Mart Inc. Morningstar Updates. https://financials.morningstar.com/ratios/r.html?t=wmt®ion=usa&culture=en-US
United States Securities and Exchange Commission (2020). Walmart Inc retrieved September 20, 2021 from https://corporate.walmart.com/media-library/document/2020-walmart-annual-report/_proxyDocument?id=00000171-a3ea-dfc0-af71-b3fea8490000
Yahoo. Finance (2021). Target Corp. Yahoo Updates. https://finance.yahoo.com/quote/tgT?p=WMT&.tsrc=fin-srch
Yahoo. Finance (2021). Walmart Inc. Yahoo Updates. https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=fin-srch