Introduction
With sufficient capital, a firm can seize promising opportunities, such as developing innovative new products and services. Walmart is a large, successful company, but it is always looking for more funding so it can expand, reach a wider audience, and keep pace with technological advancements. Walmart’s shared value priorities and aspirations for 2025 include using only renewable energy, selling environmentally friendly items, and offering free training to all employees (Wal-Mart Stores, 2017). There is no denying the importance of capital in the growth and commercialization of renewable energy projects. Money and resources are needed to pay for millions of workers’ education, wages, and training. Walmart’s efforts also include feeding the hungry, making communities more resilient to natural disasters, and improving the quality of life in neighborhoods across the country. Therefore, additional financial sources are needed to support the company’s good deeds and internal business endeavors.
Sources of Funding
When looking into financial options, venture capital may be worth considering. When it comes to venture capital, however, the typical lender is a new company that may or may not be profitable at the moment but has a unique and potentially lucrative product or service offering. In return for investing between one and two years of a firm’s start-up, venture investors demand 10 times capital returns over 5 years (Manigart & Sapienza, 2017). Most venture capital due diligence and decision documents emphasize market, technological, and financial risks. When looking for capital, equity funding is another option to think about. The sale of stock by a corporation to investors is one method by which capital can be obtained. Since this funding model is based on investors rather than creditors, it suggests that no money is owed. The company may lose some control over its direction as it issues and sells more shares of stock, which is one of the risks associated with this type of funding. As a result of the potential for profit sharing with investors, equity capital is also one of the costliest types of financing.
Moreover, self-funding may be a viable strategy for accomplishing long-term objectives. Securing the firm with internal capital guarantees roughly one hundred percent of sales and investment returning directly to the company, as opposed to taking out periodic loans or borrowing contracts. Self-funding businesses can put all of their attention on serving their customers and achieving their objectives, unlike venture capital-funded businesses, which must give up board seats to investors, and publicly traded businesses, which must satisfy the interests of their shareholders. This provides a great deal of leeway for coming up with price models, planning a product roadmap, forming strategies, and putting those plans into action. However, this strategy calls for monetary risk and a slower rate increase from the corporation.
Conclusion
The cost of capital is used by companies and financial analysts to evaluate the efficiency of an investment. An investment is beneficial to the books if its return exceeds the cost of capital. Due to its size and long-term goals, the company’s cost of capital might be anywhere from $5 billion to $8 billion. Walmart’s WAC of capital is 7.9% as of the year 2022 (Value Investing, 2022). Walmart’s investment returns consistently exceed the company’s capital-raising expenses and have a positive return on investment. If a company can sustain positive excess returns on future investments, its stock value will rise in tandem with the rate of that company’s expansion.
Annual Percentage Rate
References
Manigart, S., & Sapienza, H. (2017). Venture capital and growth. The Blackwell Handbook of Entrepreneurship, 240–258. Web.
Value Investing. (2022). Walmart WACC – Weighted average cost of capital. Web.
Wal-Mart Stores. (2017). Shared value priorities and aspirations for 2025. Walmart. Web.