o Do a trend/horizontal analysis (see Week 3 slides and online reading resources on Analysis of Financial Statements ) and evaluate the results.
o Compute the company’s profitability (using ratios discussed in Week 3 slides and online reading resources on Analysis of Financial Statements) and evaluate the results.
o Compute the company’s long term solvency (using ratios discussed in Week 3 slides and online reading resources on Analysis of Financial Statements) and evaluate the results.
o Compute days sales in accounts receivable and days sales in inventory (see Week 3 slides and online reading resources on Analysis of Financial Statements) and evaluate the results.
o Comment on the Statement of Cash Flow (i.e. uses of cash and sources of cash).
o Discuss other factors (qualitative factors) besides the financial data presented in the financial statements that can impact the financial health of the company.
Walmart Inc.’s Solvency Ratio
Solvency can be described as the ability of the organization to pay debts. An organization is termed solvent if it is able to settle its long-term debts without getting bankrupt. Solvency is one of the factors mostly used to analyze the monetary well-being of an organization. To determine a corporate’s solvency, it is essential to determine its debt to equity and debt to total asset ratios.
Determining Walmart Inc.’s Solvency through calculating its debt to total asset and debt to equity ratios
Walmart Inc.’s Debt to Equity Ratio
K-10 Debt (million $) Equity (million $) Ratio
January 31, 2021 41,194 87,531 0.50
January 31, 2020 43,714 81,552 1.03
Walmart Inc.’s Debt to Asset Ratio
K-10 Debt (Million $) Assets (Million $) Ratio
January 31, 2021 41,194 252,496 0.16
January 31, 2020 43,714 236,495 0.18
For the past two years, Walmart Inc.’s solvency ratio has decreased. In 2020, the debt to equity ratio for the company was 1.03, and in January 2021, the ratio had decreased to 0.5. similarly, in January 2020, the company debt to asset ratio was 0.18, and in 2021, it decreased to 0.16. this implies that as of January 2021, the company was in a better position to settle its long-term debts as compared to January 2021. The decrease in Walmart’s solvency ratio is associated with the inset of the COVID-19 pandemic, which affected almost all businesses in the entire world. It is financially unhealthy for a company to have its solvency ratio decreased. This is because investors prefer to invest in companies that are able to settle their long-term debts as they believe that through investing in such a company, there are lesser risks of running at a loss (Brindescu–Olariu, 2016). A stronger or rather a higher solvency ratio indicates financial strength. On the other hand, a lower ratio is an indicator of possible financial struggles in the future.
Reference
• Brindescu–Olariu, D. (2016). Solvency ratio as a tool for bankruptcy prediction. Eco forum Journal, 5(2).
• SEC. (2021, March 19). Walmart Inc. 2021 annual report 10K.SEC.report. https://sec.report/Document/0000104169-21-000033/#iaaf0cabf1f7048c9b7e317b3e9c1cfc5_136
Week 3:
2. Profitability:
Comment on your company’s profitability based on the 2 most recent years financial reporting. You should also see the profitability ratios on the Week 3 slides.
Analysis of Walmart’s balance sheets and income statements on the US SEC database over the last two years reveals growth in revenue and overall profitability. The increase in profit was primarily attributed to the rise in revenues and net sales in 2021 compared to 2020. In the fiscal years ending on 31st January, Walmart made $559.15 billion in 2021 compared to $ 523.96 billion made in 2020. The change represented a 6.7% increase in revenue compared to the previous 1.9% rise in revenue. The increase in revenue was accompanied by an increase in net sales from $519.93 billion in 2020 to $555.23 billion in 2021 (SEC Report, 2021). Further proof of Walmart’s profitability was the rise in the percentage return on investment (ROI) from 13.4% in the previous year to 14% in 2021. The increase in operating income led to the enhanced ROI and the overall organizational profitability.
3. Horizontal/Trend Analysis:
Choose any 2 items on your company’s balance sheet or income statement and discuss their changes based on the financials of the 2 most recent years.
An organization’s current assets play a critical role in demonstrating solvency and flexibility within the company. Walmart’s total current assets analysis indicates a significant increase to $90 billion in 2021 from the previous US $61.8 billion recorded in the previous fiscal year. The rise in current assets signifies that Walmart is doing a great job of satisfying its customers while generating a lot of cash in the process. Walmart’s total assets, comprising current and long-term liabilities, rose to $ 252.5 billion against $236.5 billion in 2020 (SEC Report, 2021). Liabilities are the other crucial aspect of an organization’s balance sheet. However, to effectively determine the financial health of an organization, one must compare the liabilities against the assets. Walmart’s total liabilities rose from $236.5 billion to $252.5 billion (SEC Report, 2021). A comparison between Walmart’s assets and liability reflects a healthy equity ratio in 2020 and 2021, where the assets are equal to the liabilities.
References
SEC Report. (2021). Form 10-K Walmart Inc. Annual report. Retrieved from United States Securities and Exchange Commission: https://sec.report/Document/0000104169-21-000033/#iaaf0cabf1f7048c9b7e317b3e9c1cfc5_136
Note that in doing your evaluations, you should do the following:
Use 2-3 years financial data of the company.
Do computations and show diagrams/tables with computations. Also show the financial statements of the company.
Explain the company’s changes (based on the computations’ results) over the years with information gathered from the notes to the financial statement or through other research.
Compare the company’s financial performance with its competitor and or with its industry.
