COURSEWORK: WALMART AND ITS FINANCIAL

STATEMENTS’S ANALYSIS
Group 3:
Members:
1. Lê Hữu Phúc Thành - Student ID: 11206870
2. Đặng Hà My - Student ID: 11202610
3. Trần Thị Thanh Vân - Student ID: 11208441
4. Nguyễn Thị Thu Hằng - Student ID: 11201324
5. Lê Đình Cường - Student ID: 11200687
6. Nguyễn Việt Anh - Student ID: 11204468
7. Phạm Ngọc Khánh - Student ID: 11201945

Duty Roster

No. Name Duties

1 Lê Hữu Phúc Thành
2 Đặng Hà My
3 Trần Thị Thanh Vân
4 Nguyễn Thị Thu Hằng
5 Lê Đình Cường
6 Nguyễn Việt Anh
7 Phạm Ngọc Khánh
Profitability ratios group + Slide
Assets management ratios group
Market value ratios group
Debt management ratios group
Liquidity ratios group
Dupont equation
Liquidity ratios group + Slide

I. Liquidity ratios group:

1. Quick ratios
The quick ratio measures a company's ability to meet its short-term obligations
with its most liquid assets. It is calculated as a company's Total Current Assets
excludes Total Inventories divided by its Total Current Liabilities. Walmart's
quick ratio for the quarter that ended in Jan. 2022 was 0.28.
Walmart has a quick ratio of 0.28. It indicates that the company cannot currently
fully pay back its current liabilities.
- The historical rank and industry rank for Walmart's Quick Ratio or its related
term are showing as below:
 - During the past 13 years, Walmart's highest Quick Ratio was 0.54.
The lowest was 0.10. And the median was 0.22.

Walmart Quick Ratio Historical Data

The historical data trend for Walmart's Quick Ratio can be seen below:
* For Operating Data section: All numbers are indicated by the unit behind each
term and all currency related amounts are in USD.
* For other sections: All numbers are in millions except for per share data, ratio,
and percentage. All currency related amount are indicated in the company's
associated stock exchange currency

Walmart Quick Ratio Historical Data

Date Current Assets - Inventory Current Liabilities Quick Ratio

2022-01-31 $24.56B $87.38B 0.28

2021-10-31 $25.48B $87.62B 0.29

2021-07-31 $30.49B $81.12B 0.38

2021-04-30 $30.21B $80.84B 0.37

2021-01-31 $45.12B $92.65B 0.49

2020-10-31 $21.76B $88.12B 0.25

2020-07-31 $23.91B $81.96B 0.29

2020-04-30 $22.11B $82.65B 0.27

2020-01-31 $17.37B $77.79B 0.22

2019-10-31 $16.37B $83.78B 0.20

2019-07-31 $17.24B $80.28B 0.22

2019-04-30 $16.99B $79.89B 0.21

2019-01-31 $17.63B $77.48B 0.23

2018-10-31 $19.07B $85.75B 0.22

2018-07-31 $24.39B $71.68B 0.34

2018-04-30 $15.94B $80.76B 0.20

2018-01-31 $15.88B $78.52B 0.20

2017-10-31 $15.22B $80.44B 0.19

2017-07-31 $13.32B $72.81B 0.18

2017-04-30 $13.98B $74.19B 0.19

2017-01-31 $14.64B $66.93B 0.22

Walmart (NYSE: WMT) Quick Ratio Explanation
The quick ratio is more conservative than the Current Ratio because it excludes
inventories from current assets. The ratio derives its name presumably from the
fact that assets such as cash and marketable securities are quick sources of cash.
Inventories generally take time to be converted into cash, and if they have to be
sold quickly, the company may have to accept a lower price than book value of
these inventories. As a result, they are justifiably excluded from assets that are
ready sources of immediate cash.
The higher the quick ratio, the better the company's liquidity position but the
Walmart’ quick ratio is slowing or decreasing generally suggesting that a
company is over-leveraged, struggling to maintain or grow sales, paying bills
too quickly or collecting receivables too slowly.
Current ratios
The current ratio is a liquidity ratio that measures a company's ability to pay
short-term obligations. It is calculated as a company's Total Current
Assets divided by its Total Current Liabilities. Walmart's current ratio for
the quarter that ended in Jan. 2022 was 0.93.
Walmart has a current ratio of 0.93. It indicates that the company may have
difficulty meeting its current obligations. Low values, however, do not indicate
a critical problem. If Walmart has good long-term prospects, it may be able to
borrow against those prospects to meet current obligations.
- The historical rank and industry rank for Walmart's Current Ratio or its
related term are showing as below:

- During the past 13 years, Walmart's highest Current Ratio was 2.07.

The lowest was 0.76. And the median was 0.96.

Walmart Current Ratio Historical Data

The historical data trend for Walmart's Current Ratio can be seen below:
* For Operating Data section: All numbers are indicated by the unit behind each
term and all currency related amounts are in USD.
* For other sections: All numbers are in millions except for per share data, ratio,
and percentage. All currency related amounts are indicated in the company's
associated stock exchange currency.

Walmart Current Ratio Historical Data

Date Current Assets Current Liabilities Current Ratio

2022-01-31 $81.07B $87.38B 0.93

2021-10-31 $82.96B $87.62B 0.95

2021-07-31 $78.24B $81.12B 0.97

2021-04-30 $76.59B $80.84B 0.95

2021-01-31 $90.07B $92.65B 0.97

2020-10-31 $73.60B $88.12B 0.84

2020-07-31 $65.00B $81.96B 0.79

2020-04-30 $63.33B $82.65B 0.77

2020-01-31 $61.81B $77.79B 0.80

2019-10-31 $67.91B $83.78B 0.81

2019-07-31 $61.37B $80.28B 0.76

2019-04-30 $61.74B $79.89B 0.77

2019-01-31 $61.90B $77.48B 0.80

2018-10-31 $69.45B $85.75B 0.81

2018-07-31 $66.37B $71.68B 0.93

2018-04-30 $59.24B $80.76B 0.73

2018-01-31 $59.66B $78.52B 0.76

2017-10-31 $65.37B $80.44B 0.81

2017-07-31 $56.76B $72.81B 0.78

2017-04-30 $57.34B $74.19B 0.77

2017-01-31 $57.69B $66.93B 0.86

Walmart (NYSE: WMT) Current Ratio Explanation

The current ratio can give a sense of the efficiency of a company's operating
cycle or its ability to turn its product into cash. Companies that have trouble
getting paid on their receivables or have long inventory turnover can run into
liquidity problems because they are unable to alleviate their obligations.
Because business operations differ in each industry, it is always more useful to
compare companies within the same industry.
Acceptable current ratios vary from industry to industry and are generally
between 1 and 3 for healthy businesses.
The higher the current ratio, the more capable the company is of paying its
obligations. A ratio under 1 suggests that the company would be unable to pay
off its obligations if they came due at that point. While this shows the company
is not in good financial health, it does not necessarily mean that it will go
bankrupt - as there are many ways to access financing - but it is definitely not a
good sign.
If all other things were equal, a creditor, who is expecting to be paid in the next
12 months, would consider a high current ratio to be better than a low current
ratio, because a high current ratio means that the company is more likely to
meet its liabilities which fall due in the next 12 months.
 II. ASSET MANAGEMENT RATIO:
1. Purpose:
- Analysis of asset management ratios tells how efficiently and effectively
a company is using its assets in the generation of revenues. They indicate
the ability of a company to translate its assets into sales
- Answer the question: Does the amount of each type of asset seem
reasonable, too high, or too low given current and projected sales?

2. Inventory turnover ratio:

- It indicates how many times inventory is turned over during the year.
𝑆𝑎𝑙𝑒𝑠 / 𝐶𝑂𝐺𝑆
- Formula: Inventory turnover ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝑋

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 8.39 8.53 8.70 8.88 9.35

Costco 11.47 11.15 11.66 11.84 12.01

Wholesale
Corp.
Ind. 4.8 4.74 4.62 4.4 4.62

- The inventory turnover ratio of Walmart has increased slightly over the 5
years, and in the year 2020-2021, it has the highest increase (
approximately 5.3%). The higher the inventory turnover ratio over years
indicates that the company is selling goods quickly, and there is
considerable demand for their products.

- In comparison with competitors, the inventory turnover ratio of Walmart

was lower, which means that Costco can more efficiently sell the
inventory, not overspending on inventory purchases and incurring high
 storage, holding costs compared to Walmart. However, the very high
inventory turnover ratio of Costco implied that Costco did not have
enough inventories to meet their customer demand. As a result, their
customers will buy goods from their competitor - Walmart more and
increase their sales. In fact, sales of Walmart in 2021 were $420.315
million while Costco was $203,084 million. (If the inventory ratio is too
high, your company is limiting its revenue by curtailing sales to fit a
too-small inventory supply. It usually takes time for new stock to arrive
and be placed in the sales cycle. That’s lost time and lost opportunity,
too.)

- In comparison with the industry average, the very high inventory

turnover ratio shows that there is insufficient inventory and Walmart
misses out on sales opportunities. The reason for this high ratio is
Walmart was dealing with the supply chain challenges under covid 19
pandemic: high demand for products, tight transport capacity, and delays
on every freight mode. ( The longer an item is held, the higher its holding
cost will be, and the fewer reasons consumers will have to return to the
shop for new items.)
3. Days sales outstanding
- Represent the average length of time the firm must wait after making a
sale before receiving cash
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
- Formula: DSO= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑎𝑙𝑒𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦
(𝑑𝑎𝑦𝑠)

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart 4.38 4.1 4.46 4.37 4.25
Inc.
Costco 4 4.3 3.67 3.4 3.36
Wholesale
Corp.
Ind. 3 3 3 3 4
 - The DSO ratio of Walmart has fluctuated through 5 years, it decreased
in 2017-2018, then increased in 2019, and continually declined until
2021. In 2019, Walmart had the highest DSO ratio, implying that a
company took the longest time to receive customer payment over 5 years.
Over the past 3 years, the DSO ratio was decreased continuously, which
means that their liquidity and cash flow measurement was improved

- Compared with Costo, we can see that the DSO of Costco was lower
than Walmart. The only time it was higher was in 2018 (4.1-4.3). It shows
that Walmart was struggling in collecting debt from customers more than
Costco.

- Compared with the industry, the DSO ratio of Walmart was higher than
the industry average, however, in 2021, the ratio was lower. Even though
the average time to collect cash after sales of Walmart has improved
slightly, it is still higher than the industry average. It can make a huge
impact on their cash flow, liquidity as well as the funds to pay bank loans,
and other payments. It warns that customers are dissatisfied with the
company’s product or service, or they have to offer longer payment terms
to generate sales.
4. Net fixed assets turnover ratio
- The net fixed asset turnover ratio looks at how efficiently the company
uses its fixed assets, like plant and equipment, to generate sales
𝑆𝑎𝑙𝑒𝑠
- Formula: NFA turnover = 𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠
𝑋

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 4.22 4.32 4.58 4.74 5.77
 Costco 6.82 6.9 7.03 7.29 7.84
Wholesale
Corp.
Ind. 4.6 4.68 4.78 4.89 5.64

- The net fixed assets turnover ratio of Walmart has gradually improved
over the past 5 years. During 2020-2021 it has the highest increase (
approximately 21.7%). A higher turnover ratio is indicative of greater
efficiency in managing fixed-asset investments

- In comparison with Costco, the NFA turnover ratio was much lower,
which means that Costco has invested in their fixed assets more
intensively and effectively than Walmart. As a result, one dollar invested
in Walmart’s fixed assets could generate fewer sales than Costco.

- In comparison with the industry average, the NFA turnover was slightly
lower during 2017-2020 and higher than the average of the industry in
2021. It shows that Walmart has used its fixed assets at least as
intensively as other firms in the industry in 2021. Therefore, it seems to
have about the right amount of fixed assets relative to its sales. However,
when looking at the whole period, we can see that Walmart has been
over-invested in its fixed assets and could not generate sales as efficiently
as other companies. There could be Walmart has bought too many fixed
assets or their assets were old, and can not operate effectively.
5. Total assets turnover ratio
- This shows how efficiently your assets, in total, generate sales.
- The summary ratio for all the other asset management ratios. If there is a
problem with inventory, receivables, or fixed assets, it will show up in the
total asset turnover ratio.
𝑆𝑎𝑙𝑒𝑠
- Formula: TA turnover = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑋
 31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021
Walmart Inc. 2.4 2.42 2.33 2.2 2.2

Costco 3.47 2.39 3.29 2.94 3.24

Wholesale
Corp.
Ind. 1.33 1.35 1.36 1.29 1.39

- Walmart Inc.’s total asset turnover ratio deteriorated from 2019 to 2020
but then slightly improved from 2020 to 2021. The peak of their TA
ratio was in 2018 with 2.42X. As the TA turnover ratio increases in
2017-2018, it shows that Walmart has efficiently used its assets to
generate sales. However, Walmart slowly loses its ability to manage its
assets and make sales since its TA turnover ratio has declined over time

- In comparison with Costco, for every dollar invested in assets, Walmart

generated sales lower than Costco, on average. Walmart’s turnover
could indicate that the company was holding more inventory than
Costco. Furthermore, its lower turnover also meant Walmart's collection
period was longer, leading to higher accounts receivable. Walmart also
used its assets inefficiently: fixed assets: property or equipment could not
be utilized to their full capacity.

- The ratio of Walmart was higher, nearly double the industry ratio.
Although the consumer staples have the highest average asset turnover
ratio (relatively small asset bases but have high sales volume), the very
high TA turnover ratio of Walmart in comparison with the industry
average indicates that the company does not invest intensively in their
 total assets, especially current assets: inventories are low while the
receivables and fixed assets are quite higher than other firms in the
industry.

=> In conclusion, to improve its operations, Walmart should be more focused on

investing in its assets. In Particular, they need to increase their inventories to
meet up their customer demand, issue a better credit payment policy to collect
receivables faster, and fixed assets need to be reduced.
III. Debt management ratios group:
1. Definition:
- A set of ratios that measure how effectively a firm manages its debt.
2. Debt to asset ratio

Year 31/1/2021 31/1/2020 31/1/2019 31/1/2018 31/1/2017

Walmart 19% 23% 26% 23% 23%
Inc.
Costco 14% 15% 16% 17% 19%
Wholesale
Corp.
Industry 18% 21% 25% 22% 23%
Average

- Let’s see the the first ratio, Debt to asset ratio, which shows the degree to
which a company has used debt to finance its assets in the form of total
debt relative to total assets
- Over years: Looking back at these five years, Walmart's total debt / total
assets peaked in January 2019 at 26% that splitted the growth into two
 periods: 2017-2019 was an upward slope, whereas 2019-2021 had a
downward trend, but it‘s also quite steady. The company’s financial risk
profile was improving, and was willing or able to pay down its debt,
which could indicate a default in the future.
- Compared to the industry average, Walmart kept the ratio growth in the
same with IA, and a little bit higher than IA that illustrated the business
was operating stably and has great internal resources.
- Compared to Costco, which had a downward sloping over time, it seems
to be that Walmart did prefer to use financial leverage over Costco.
3. Debt to equity ratio
- For a large-cap retailer such as Walmart (WMT), Debt to equity ratio is
more reliable than almost. It indicates how much debt and how much
equity a business uses to finance its operations.
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡
- Formula: Debt to equity ratio = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦

Year 31/1/2021 31/1/2020 31/1/2019 31/1/2018 31/1/2017

Walmart Inc. 60% 73% 80% 60% 59%
Costco 49% 45% 48% 54% 65%
Wholesale
Corp.
Industry 58% 68% 74% 59% 60%
Average

- From the table, it can be seen that Walmart used a quite large level of debt
to finance for the asset purchase, but still less than equity (because all
figures over the years were under 100%). There were also two periods of
growth like the debt to asset ratio, which went up from 2017-2019 and
 went down in the 2019-2021 series. The increase in 2019 due to the
revenue expenditure for hiring employees (over 200.000 new ones) and
expanding e-commerce in relation to increase in demand for shopping for
essentials and household items during the Covid-19 pandemic season.
- Actually, the trend of Walmart’s debt to equity ratio was always close to
the industry average. These were healthy figures that had remained
remarkably steady over time. its debt management practices had not
wavered for several years, and the company refrained from using excess
debt even during an economically turbulent period.
- Compared to Costco, which had a D/E ratio stood at an impressive figure
and was more stable. It is difficult to evaluate which company managed
the debt better. Both Costco and Walmart did a good job of keeping risk
to a minimum but, Walmart was more kind of financial leverage than
Costco
=> Walmart has been prospected to be in a solid financial position and can
pay creditors back in full.

4. TIE
- Time interest earned presents how many times a company can pay the
interest on its outstanding debt with its current earnings
𝐸𝐵𝐼𝑇
- Formula: TIE = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒

Year 31/1/2021 31/1/2020 31/1/2019 31/1/2018 31/1/2017

Walmart Inc. 12.41x 9.53x 11.31x 13.14x 11.04x
Costco 40.06x 34.54x 32.77x 28.94x 31.14x
Wholesale
Corp.
Industry 11.96x 10.24x 7.50x 8.86x 10.81x
Average

- In general, Walmart's interest cover ratio was significantly high and

lightly fluctuated over the five-year period. It proves that the company is
not likely to default on debt obligations in the near future. The decrease in
ratio in the 2018-2020 period mainly due to a drop-off in EBIT. Overall,
Walmart has more EBIT to cover interest expenses.
- Compared to the Industry Average, Walmart negotiated in the same way,
but its ratios were a bit higher which depicts that Walmart had a better
performance in ability to pay off interest. The company has concentrated
on the payment activities
 - Meanwhile, consider Costco, this company had extremely high ratios that
were approximately as three times as Walmart’s ones. It was also higher
than Industry Average about four times and strongly fluctuated. It can't
conclude this is a bad signal because Costco seems not to be fond of
financial leverage. It results in the lower interest expense, the higher
interest coverage ratio. However, in good conditions about interest rate,
compared to Walmart which promotes utility of financial leverage,
Costco will not have the ability to make profitability like Walmart.

IV. Profitability ratios group:

1. Definitions:
- A group of indicators that show the combined effect of liquidity, asset
management, and debt management on operating results.
2. Operating margin:
- It shows us how well the company manages the operating cost.
𝐸𝐵𝐼𝑇
- Formula: Operating margin = 𝑆𝑎𝑙𝑒𝑠

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 4.6852% 4.0846% 4.2684% 3.9255% 4.0325%

Costco 3.1862% 3.1644% 3.1021% 3.2592% 3.4237%

Wholesale
Corp.
Ind. 4.7223% 5.1217% 4.9872% 5.2338% 4.0021%

Comparing overtime itself:

- We see this index of Walmart is quite stable but not high, approximately only
3.9 - 4%. The reason is that the management policies for the collection of
receivables are not effective, which is proven by the results of the DSO index.
- However, Walmart's inventory turnover is quite good and it has helped offset
the weakness of Walmart's inefficient receivables collection policy.
(Xin bảng của Hà My để thuyết minh- bảng DSO xuất hiện trước, bảng
inventory turnover xuất hiện sau).
Comparing to industry average:
- The story is similar when we explain why this index of Walmart has always
been kept at a stable level. When we compare it with the whole industry, we see
its DSO is much longer than the industry average, but inventory turnover is just
a sufficient amount higher, which helps Walmart to maintain OP at par with that
of the whole industry.
 - In the period from 2018-2020, it can be seen that Walmart's credit term policy
and receivable collection policy are not really effective and the large turnover of
inventory is not enough to balance it to the same level as that of. industry
average. However, the story is different when in 2021, Walmart's index is close
to the industry average, the reason is because Walmart's DSO has decreased
significantly, along with Walmart's ability to rotate inventory is higher.

Comparing to Costco:
- When compared to its competitor, Costco, we see Walmart outperforming all
years, thus proving Walmart's ability to manage operating costs is better.

3. Profit margin:
- Show how well the company manages the total cost (including operating
cost). If PM is high → low level of cost → company manages the total
cost well
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
- Formula: Profit margin = 𝑆𝑎𝑙𝑒𝑠

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart 2.8079% 1.9710% 1.2966% 2.8401% 2.4162%
Inc.
Costco 2.0763% 2.2137% 2.3962% 2.3998% 2.5555%
Wholesale
Corp.
Ind. 2.7890% 2.1235% 2.3629% 2.7672% 2.5312%
First, we will analyze overtime to get a visual look at Walmart's PM:
- On 31/01/2017, Walmart's PM was quite high, even higher than the industry
average, however, due to problems with managing costs, this index of the
company plummeted soon after, lower than industry average and much lower
than that of its direct competitor, Costco.
→ This situation occurs partly because Walmart has used financial leverage
more ( interest charge in 2017 is just $9,121,in 2018 is $10,575 and in 2019 is
$15,287. Perhaps it was the right decision by management as the number has
improved significantly since 2020, returning to a stable level in 2021 (although
still below the industry average). This proves that the use of financial leverage
has brought positive effects to Walmart and the company also has more
effective cost management policies.
Next, we compare Walmart to the whole industry to get a general look:
- Walmart’s profit margin in 2018 and 2019 is still below the industry average of
2.5312%, and this subpar result occurred for two reasons:
+ First, Walmart’s operating margin was below the industry average because of
the firm’s high operating costs.
+ Second, the profit margin is negatively impacted by Walmart’s heavy use of
debt.
(To see this second point, recognize that net income is after interest. Suppose
two firms have identical operations in the sense that their sales, operating costs,
and operating income are identical. However, one firm uses more debt; hence, it
has higher interest charges. Those interest charges pull down its net income, and
because sales are identical, the result is a relatively low profit margin for the
firm with more debt. We see then that Walmart’s operating inefficiency and its
high debt ratio combine to lower its profit margin below the supermarket chains
industry average. It also follows that when two companies have the same
operating margin but different debt ratios, we can expect the company with a
higher debt ratio to have a lower profit margin. But we know that a high debt
level does not mean a bad sign, it’s just more risky, and more risk, more
reward.)
- Let's look at the PM of the industry average, what we see is a uniform and
stable number, so the fact that Walmart has such a low PM does not mean that
there is something wrong with the supermarket chain industry, it is because
Walmart's BOM has changed its financial policies to reflect its vision of the
future, accepting past weak metrics to enable strong future metrics.

- Note too that while a high return on sales is good, we must also be concerned
with turnover. If a firm sets a very high price on its products, it may earn a high
return on each sale but fail to make many sales. It might generate a high profit
 margin but realize low sales, and hence experience a low net income. We will
see shortly how, through the use of the DuPont equation, profit margins, the use
of debt, and turnover ratios interact to affect overall stockholder returns.
We continue to compare Walmart's PM with its competitor, Costco
- This index of Costco has increased uniformly, which proves their ability to
manage cost very well. Looking at their balance sheets we see that clearly. On
the other hand, they do not use debt as high as Walmart so their Net income is
not low, which is the main reason for their higher PM than Walmart.

4. Basic earning power (BEP) ratio:

- This ratio shows the raw earning power of the firm’s assets before the
influence of taxes and debt, and it is useful when comparing firms with different
debt and tax situations (because it removes the effects of taxes and financial
leverage).
𝐸𝐵𝐼𝑇
- Formula: BEP = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 10.2789% 10.7357% 9.3791% 9.5342% 10.2742%

Costco 11.3104% 10.9723% 10.4339% 9.7829% 11.3180%

Wholesale
Corp.
Ind. 11.3208% 11.0273% 10.5675% 10.2733% 11.2789%
Comparing to itself overtime:
- Because of its low turnover ratios and poor profit margin on sales in 3 year
2018, 2019 and 2020, Walmart has a low BEP ratio in these years. However, we
have a good signal here when in 2021, Walmart came back to have an improved
figure ( even though it’s still lower than the industry average ).
Comparing to industry average:
- As noted above, because Walmart's PMs and inventory turnovers were quite
low in 2018-2020, Walmart's BEP is below the industry average. On the other
hand, in 2021, although the number has improved but is still lower than the
industry average, Walmart should have some policies to strengthen price
management and continue to effectively use financial leverage to increase the
index PM, thereby increasing the BEP index.
- Though Walmart’s BEP is lower than industry average, it’s proved to us that it
has an effective financial leverage use policy → There is definitely room for
improvement in the future.
Comparing to Costco:
- It is easy from the graph that we can see that over the past 5 years, Costco's
BEP has completely outperformed Walmart's. This is a result of Costco's
inventory turnover outperforming Walmart's. On the other hand, due to high
non-debt utilization, Costco's PM is also higher than Walmart's. These add up
and give us an outstanding Costco BEP.

5. Return on total assets:

- The ratio of net income to total assets; it measures the rate of return on the
firm’s assets.
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
- Formula: ROA = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 7.1887% 5.1452% 3.2737% 6.4276% 5.4282%

Costco 7.4669% 7.7859% 8.1586% 7.3061% 8.5695%

Wholesale
Corp.
Ind. 7.4672% 7.0346% 6.0342% 6.7896% 5.8076%

Comparing to itself overtime:

- Walmart's ROA fluctuates a lot. It can be seen that in 2017, Walmart's ROA
was very high, but by 2018, it gradually decreased and in 2019, ROA reached
the bottom, only 3.27%, and only gradually improved from 2020. From the
balance sheets of the above, We can easily see such a decrease in ROA because
in 2018-2020, Walmart increased its use of debt to finance financial activities,
and the debt level in 2018 was the highest.
- However, it should be noted that not every low ROA or high debt level is a
bad sign.
Comparing to industry average:
- Walmart’s ROA in 2021 is well below the industry average. This is not good -
it is obviously better to have a higher than a lower return on assets. Note,
though, that a low ROA can result from a conscious decision to use a great deal
of debt, in which case high interest expenses will cause net income to be
relatively low. That is part of the reason for Walmart’s low ROA.

- It is possible that in the years when Walmart increased its leverage, its ROA
dropped significantly and was much lower than the industry average, Walmart
soon returned and was at a level close to the industry average. (In 2021,
Walmart's ROA is 5.43% compared to the industry average of 5.81%) - a good
signal.
Comparing to Costco:
 - Costco has an outstanding ROA above all (higher than the industry average
and also Walmart). But the reason behind this is because Costco's debt usage is
not too high,and the cost management policies of Costco are too good, which
keeps Costco’s high net income, leading to its higher ROA than WAlmart and
the industry average.
6. Return on common equity:
- The ratio of net income to common equity; it measures the rate of return on
common stockholders’ investment.
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
- Formula: ROE = 𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 17.7476% 13.0234% 9.0151% 18.6396% 15.6585%

Costco 24.4986% 24.2616% 23.768% 21.7001% 28.0949%

Wholesale
Corp.
Ind. 23.4965% 16.7895% 14.4725% 18.9875% 15.9098%

- As analyzed above, with the increased use of financial leverage since 2018,
Walmart has had an impressive ROE.
- However, the question is, why is the ROE of 2019 so low?
- The reason is that Walmart's Normalized Income in 2019 is only half of that of
2018, so even with efforts to use more financial leverage, it cannot make up for
the low Income. The root cause of the sharp drop in Income was the Covid-19
shock and some drama which had a bad impact on Walmart’s reputation. And
the fact that thanks to the recovery of the world economy Walmart is back with
a stable ROE just a year later, and by 2021 the numbers are very positive.
- Walmart's ROE is approximately the industry average in 2021, and it's a
positive sign that the company has taken the right steps.
 - We see that when we compare Walmart's ROE with Costco's, Costco's
numbers are outnumbered even though Costco's leverage is not high. The reason
is because Costco is a company with a much smaller scale than Walmart,
Costco's administrative expenses are very low. Besides, it has a better marketing
campaign than Walmart and with a fall in reputation of Walmart in recent years
and that helps Costco's sales skyrocket, making its ROE very, very high.

7. Return on invested capital:

- The ratio of after-tax operating income to total invested capital; it measures the
total return that the company has provided for its investors.
𝐸𝐵𝐼𝑇(1−𝑇)
- Formula: ROIC = 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 11.6627% 8.9446% 5.5292% 11.7316% 10.3385%

Costco 15.375% 16.2277% 17.8868% 15.4811% 20.5046%

Wholesale
Corp.
Ind. 15.0067% 14.8727% 10.9814% 13.3232% 12.2987%

- ROIC differs from ROA in two ways. First, its return is based on total invested
capital rather than total assets. Second, in the numerator it uses after-tax
operating income (NOPAT) rather than net income. The key difference is that
net income subtracts the company’s after-tax interest expense and therefore
represents the total amount of income available to shareholders, while NOPAT
is the amount of funds available to pay both stockholders and debtholders
- Compared to the industry average, Walmart's ROIC is actually very weak,
which indicates that the company needs to improve its operating activities to
increase NOPAT, and give the market a more solid ROIC. Walmart has the
potential to do that because it is itself a reputable company with great potential,
what Walmart needs to do is to manage costs well and increase revenue to
deserve its position.
- Compared to Walmart's competitor Costco, Costco has an impressive array of
metrics with ROICs that far exceed the industry and Walmart averages. That
shows that Costco's business is extremely efficient and its cost management
policies are also very good. This is really a big competitor of Walmart.
V. MARKET VALUE RATIO
1. P/E
● Price/Earnings ratio measures how much investors are willing to pay per
share for 1$ of earnings. It means that a company with a high P/E ratio
has so much potential in the market and investors are willing to pay a
high price for a company’s share with the expectation to gain high
earnings in the future or maybe the company is performing ineffectively
and it is overvalued compared to its true value that it has
𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
● Formula: 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
● The next one, we will see how the P/E ratio of Walmart changes and
fluctuates overtime.
● So, we can see from the table, it is showing the Walmart P/E ratios from
2017 to 2021. Because the P/E ratio is created by the stock price and
Earnings per share, I have added these two factors to make it easier to
understand why the P/E ratios have changed
● We can see from this line chart, Walmart stock price tends to go up over
time. In 2017, stock price was only about 60 dollars but it has increased
continuously for 5 years and it was recorded to be 138 in January 2021.
However, the earnings per share are not stable and very volatile within 5
years. This problem causes the P/E ratio also to fluctuate overtime. So,
let’s find out why the P/E ratios fluctuate like that
● In the fiscal year ended 2019, the EPS decreased suddenly because the
net income dropped down in 2019, not because of sales ability. Walmart’s
total sales in 2019 was still higher than the total sales in 2018 but this
firm had to bear a larger amount of operating costs and interest expenses.
So that’s the reason why the earnings per share went down suddenly in
2019. Earnings per share went down but the stock price was still
increasing, so the P/E ratio has increased to 39 in 2019. However, since
2020, Walmart has been performing very well, net income in 2020
doubled compared to net income in 2019 and it made earnings per share
grow faster than the stock price and this is the reason why the P/E ratio
dropped down in 2020. The decrease in P/E indicates that Walmart is
performing well and bringing more value for its shareholders.
 31.1.2017 31.1.2018 31.1.2019 31.1.2020 31.1.2021
Stock Price ($) 60.08 98.43 90.58 110.41 137.76
EPS 4.39 3.27 2.28 5.19 4.73
P/E 13.69 30.10 39.73 21.27 29.13

Next, I’m gonna compare Walmart’s P/E ratios with Costco - one of the biggest
competitors in the supermarket retailing industry. Let’s look at the line charts.
The red line is Cosco, the blue one is Walmart and the other one is industry
average. Because Walmart and Costco are two leading companies in the US
supermarket retailing industry, the shares of the two companies are overvalued
in the market. However, Costco's P/E is more stable than Walmart’s. We can
see easily that the red one has a tendency to go up overtime but the blue one is
so volatile, going up and down unexpectedly. It indicates that currently,
investors are valuing Cosco’s stock higher than Walmart because they believe
that Costco will bring them more earnings in the future

● Compare to Costco:

2017 2018 2019 2020 2021

Walmart 13.69 30.10 39.73 21.27 29.13
Costco 24.13 31.07 34.11 37.16 40.29
 2. Market/Book Ratio (M/B Ratio)
● The M/B ratio measures how much investors are willing to pay per share
for 1$ of book value
And we have a formula
𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
● Formula: 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
If a company has a high M/B, it means that its stocks have been overvalued in
the market and it has potential to grow in the future, it’s really safe for investors
to put money in the company
● In general, Walmart’s M/B is quite stable within 5 years. We can see from
the table and line chart, M/B ratio has gone up steadily, it doesn’t
fluctuate unexpectedly like the P/E ratio. So it is a positive sign that the
company doesn't have any severe problems with the shareholders’ equity
because retained earnings and contributed capital always keep a stable
position. So, putting money in the company is really safe for investors
● The fact that the M/B ratio increases to 4.4 in 2021 shows that the
company is being valued higher overtime in the market.

2017 2018 2019 2020 2021

Stock price 60.08 98.43 90.58 110.41 137.76
BVPS 26.42 27.38 27.67 28.80 31.03
M/B ratio 2.27 3.59 3.27 3.83 4.44
 ● Compared to Costo:
And next, we also compare M/B ratios between Costco and Walmart. Looking
at the line charts, we can see that Costco has really high M/B ratios in the
supermarket industry. Because Costco has potential to grow strongly in the
future, having good financial performance in many years, we can see it in the
previous sections, most of Costco’s financial ratios are very high compared to
the industry average. So that’s the reason why investors are willing to pay a high
price for Costco’s stocks because they expect that it will bring them a huge
amount of earnings in the future. As for Walmart, we can see the line chart is
quite stable overtime and it is not much different from the industry average. So
we can conclude that Walmart is potential as much as other companies in the
industry and able to grow stably in the future

2017 2018 2019 2020 2021

Walmart 2.27 3.59 3.27 3.83 4.44
Costco 5.79 7.38 7.95 7.91 11.1
 3. EV/EBITDA Ratio
● The ratio of EV/EBITDA is used to compare the entire value of a
business with the amount of EBITDA it earns on an annual basis.
● This ratio also has the same meaning as the P/E ratios. If EV/EBITDA is
high, it means that the company is overvalued in the market.
We also have a formula to calculate this one is Enterprise value divided by the
EBITDA. We can understand enterprise value simply is the cost that you have to
pay if you want to buy the company. It will include the entire market value of
equity and total debts and minus for cash and equivalents.

𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒
● Formula = 𝐸𝐵𝐼𝑇𝐷𝐴
𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡𝑠 − 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠
= 𝐸𝐵𝐼𝑇𝐷𝐴

● Next, we’re going to focus on the EV/EBITDA of Walmart over 5 years.

We can see from the line chart, the EV/EBITDA of Costco is growing
faster than Walmart’s in the market. Costco is always overvalued by
investors in comparison with other companies in the same industry. As
for Walmart, we can see the EV/EBITDA ratios of Walmart are nearly
equal to the industry average. This means that Walmart is priced
relatively in line with the EBITDA it generated overtime.

2017 2018 2019 2020 2021

EV 225.8 336 317.1 379.62 437.71
(billion)

EBITDA 32.84 30.97 32.63 31.6 33.7

(billion)

EV/EBITDA 6.9 10.8 9.7 12 13

2017 2018 2019 2020 2021

Walmart 6.9 10.8 9.7 12 13
Costco 13 17.2 20.8 23.5 23.2
Ind. 9.1 10.9 10.8 12.2 12.5
 From all the market value ratios I have just analyzed, we can conclude that
Walmart is quite potential in the market in comparison with the supermarket
retailing industry and this company is priced reasonably with the true value it
brings for investors at present and the potential it has in the future

VI. Dupont equation:

1. Definition
Return on equity (ROE) measures the rate of return on the ownership interest or
shareholders’ equity of the common stock owners. It is a measure of a
company’s efficiency at generating profits using the shareholders’ stake of
equity in the business. In other words, return on equity is an indication of how
well a company uses investment funds to generate earnings growth. It is also
commonly used as a target for executive compensation since ratios such as ROE
tend to give management an incentive to perform better. Returns on equity
between 15% and 20% are generally considered to be acceptable.

ROE= Profit margin x Total assets turnover x Equity multiplier

ROE = Net income/Sales x Sales/ Total Assets x Total assets/Equity
With this breakdown, it is clear that if a company grows its Net Profit Margin,
its Asset Turnover, or its Leverage, it can grow its ROE %.

Profit margin increases => every sale will bring more money to a company’s
bottom line, resulting in a higher overall return on equity.

Asset turnover increases, a company will generate more sales per asset owned,
resulting in a higher overall return on equity.

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Walmart Inc. 7.1887% 5.1452% 3.2737% 6.4276% 5.4282%
 Costco 7.4669% 7.7859% 8.1586% 7.3061% 8.5695%
Wholesale
Corp.

31/01/2017 31/01/2018 31/01/2019 31/01/2020 31/01/2021

Profit margin 2.8079% 1.9710% 1.2966% 2.8401% 2.4162%

Total assets 2.4 2.42 2.33 2.2 2.2

turnover
Equity 2.46 2.53 2.75 2.89 2.88
multiplier
Return on 17.7476% 13.0234% 9.0151% 18.6396% 15.6585%
equity

Focuses on expense control (PM), asset utilization (TATO), and debt utilization
(equity multiplier).

So far, we've learned that ROE is a measure of a company's profitability. Based

on how much of its profits the company chooses to reinvest or "retain", we are
then able to evaluate a company's future ability to generate profits. Generally
speaking, other things being equal, firms with a high return on equity and profit
retention, have a higher growth rate than firms that don't share these attributes.

As can be seen from the table and the previous part, the overall profit margin
figure of Walmart is slightly lower compared to its competitor, Costco.
Meanwhile, the total assets turnover of Walmart stayed lower than Costco
during the 5-year period.

Since the return on equity of Walmart varies from 9% to 18%, which is an

acceptable figure. This also implies that to increase return on equity, the
company needs to focus on increasing total asset turnover and equity multiplier.

However, the total asset turnover is considered low during the time period.
→ Hence, the equity multiplier must be higher with regard to raising the return
on equity ratio.

In general, investors look for companies with a low equity multiplier because
this indicates the company is using more equity and less debt to finance the
purchase of assets. Companies that have a high debt burden could be financially
risky. This is particularly true if the company begins to experience difficulty in
generating the cash flow from operating activities (CFO) needed to repay the
debt and the associated servicing costs, such as interest and fees.

→ Walmart needs to maintain its return on equity along with the total asset
turnover at an average level and raise its profit margin. Even though a high
return on sales is good, we must also take turnover into consideration. A firm
can earn a high return on each sale by setting a very high price, but by that
means it can fail to make many sales. A high-profit margin may be generated
but the sales are low, thereby can lead to a low net income.