Introduction
While Walmart remains the leader in the US retail industry, it has also successfully expanded into the international market. In order to understand the company’s position in the modern market with reference to its competitors’ positions, it is important to analyze the data from the company’s 2018 Annual Report. Table 1 below presents the financial ratios calculated for the evaluation of the company’s financial performance with reference to the data given in the Annual Report. The purpose of this paper is to assess the current status of Walmart, draw conclusions regarding its overall condition, and provide specific recommendations to improve the company’s current, and future, situation.
Table 1. Walmart’s Ratios.
Evaluation of the Status of Walmart According to the Ratios
Utilizing the calculated ratios presented in Table 1, it is possible to evaluate the financial status of Walmart. It is important to note that the Operating Profit Margin after Taxes at 2% indicates that Walmart provides a comparably low value or profit to the company’s shareholders, but its position has been stable for several years (Walmart, 2018). The Gross Profit Margin at 24.7% is comparably high for the industry, demonstrating that Walmart generates the expected profit on sales (Brigham & Houston, 2016). In addition, the company’s Average Collection Period is low, accentuating Walmart’s capacity to turn receivables into cash within a comparably short period of time.
Furthermore, it should be noted that the company’s Total Asset Turnover (2.4) and Fixed Asset Turnover (4.3) improved from 2017 to 2018, indicating positive changes. In this context, Walmart’s Inventory Turnover is high for the industry, emphasizing that the company’s sales are stable and strong. Significantly, the company’s Debt to Total Assets is lower than 0.4 (0.38), and this denotes that Walmart does not depend on debt financing. In addition, Walmart’s solvency should be described as appropriate and risks for investors are low because Times Interest Earned is higher than 2.5 (9.38) (Walmart, 2018). From this perspective, Walmart’s financial status for the fiscal year of 2018 should be viewed as appropriate for the company to remain as leader in the industry.
The Overall Condition of Walmart
The presented ratios and information from the Annual Report leads to the assessment of Walmart’s overall condition as strong and advantageous to address the recent trends in the industry. Indeed, the company’s Total Revenues and Net Sales increased by 3% in comparison to previous years (Walmart, 2018). Despite the decreases in the Gross Profit Rate, operating expenses increased significantly, referring to both the US and international markets.
The overall situation can be viewed as positive because Walmart’s net sales and assets continuously grew in comparison to the data for 2017 and 2016. Moreover, long-term debt and obligations decreased (from $42,018 million in 2017 to $36,825 million in 2018), reflecting on the financial situation in the company positively (Walmart, 2018). From this perspective, the company demonstrates stability in its financial performance during the past several years.
Recommendations
While concluding that the financial performance of Walmart is stable and strong, it is still possible to provide two areas of recommendation. Firstly, it is possible to improve the Operating Profit Margin after Taxes by adjusting marketing strategies in order to guarantee further growth in profits for the company (Brigham & Houston, 2016; Pandey, 2015). Secondly, it is reasonable to pay more attention to opening more stores during the following fiscal year, as well as improve eCommerce strategies, as both have contributed to increased net sales that have influenced the overall situation in Walmart. In the context of the second recommendation, it is necessary to focus on developing the international segment.
Conclusion
The analysis of data provided in the Annual Report for the 2018 fiscal year leads to the conclusion that Walmart is successful in preserving its position in the market in spite of the impact of competitors. While some ratios have fallen in comparison to previous years, the overall tendency is positive. From this perspective, Walmart’s net sales can be expected to increase, and the company remains attractive to investors and shareholders.
References
Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning.
Pandey, I. M. (2015). Financial management (11th ed.). New Delhi, India: Vikas Publishing House.
Walmart. (2018). 2018 Annual report: Accelerating innovation. Web.