WALMART FINANCIAL HEALTH 1
Walmart Financial Health
Walmart Stores, Inc is a corporation that runs a series of hypermarkets and grocery
stores. It is headquartered in Arkansas, United States and has segments such as Walmart U.S,
Walmart International, and Sam's Club (MorningStar, 2016). This paper will present the
financial health of the company by analyzing its financial ratios, horizontal and vertical analysis
and some of the items from its MD&A. To get its overall performance in the industry, these
ratios are compared with that of Target Corporation; the biggest competitor of Walmart. It is also
a very large corporation in the U.S. and is headquartered in Minnesota, United States (Rowley,
Walmart Financial Health
Over 2014, 2015 and 2016, the current ratio of Walmart has been approximately 1. This
ratio measures the firm’s ability to use its current assets in order to pay the short-term liabilities.
There is no company that does not have short-term and long-term obligations (Goel, 2016).
Therefore, this ratio was selected to give Walmart's position regarding paying these liabilities.
Since 2014, there is no time Target Corporation has had a higher current ratio than Walmart
(1.10, 0.86 and 0.89) against 1.13, 1.03 and 1.07 for 2014, 2015 and 2016 respectively. This
implies that Walmart has enough resources that can cover both its short-term and long-term
liabilities than its competitor, Target (Troy, 2011).
Walmart posted an interest coverage ratio of 9.49, 11.08 and 11.56 for 2016, 2015 and
2014 respectively. For the same years, the ratios of Target Corporation are 9.11, 5.14 and 4.92.
The interest coverage ratio is a measure of a firm's ability in making interest payments on its
debts promptly (Michael, 2015). This ratio was selected to give the profitability and risk of the
company. So far as it stands, Walmart is capable of paying its bills timely without having to
sacrifice its operations and profits, unlike its biggest competitor.
Another essential financial ratio is the operating income margin. Through this ratio, one
can determine the amount of profits made by a company after variable costs of production have
been paid. The rationale for choosing this ratio was to determine how efficient Walmart is in
controlling costs and expenses associated with business operations (Setianto, 2016). Over the
past three years, this ratio has been below the 0.07 mark for Walmart showing that the company
has several sources of revenue and does not depend on income from its operations to generate its
revenue. These ratios for the past three years are almost comparable to those of Target; (0.06,
0.06 and 0.05) for Walmart verses 0.07, 0.06 and 0.07 for Target for 2014, 2015 and 2016
The company can generate the sales by using its assets. This ability is measured by the
asset turnover ratio(Goel, 2016). This ratio was selected to determine the position of Walmart in
generating revenue using its assets. For 2014, 2015 and 2016, this ratio was 2.33, 2.39 and 2.42
against 1.60, 1.76 and 1.83 for Target in the same years. The ratios of Target are almost 1,
showing that the difference between its sales and its assets is very slight. Moreover, Target isn’t
using its assets efficiently. We can say that Walmart is more efficient in using its assets and it's
likely to have good management and production strategies.
The total debts to assets for Walmart was 0.62 in 2014 and 0.60 for both 2015 and 2016.
For Target Corporation, this ratio was 0.64, 0.66 and 0.68 for 2014, 2015 and 2016 respectively.
Walmart has enough assets to cover all its debts. Target Corporation is highly leveraged and
riskier for lenders since its ratio for the past three years exceeds those of Walmart (Troy, 2011).
WALMART FINANCIAL HEALTH 3
The profit margin is the ratio that is obtained by dividing the company’s income by the
revenue generated in that particular year (Michael, 2015). This ratio was selected to determine
what percentage of sales is Walmart left with after paying all its expenses. Since 2014 up to date,
this ratio has been 0.03 for Walmart. In 2014 and 2016, this ratio was 0.03 and 0.05 respectively
for Target. In 2015, Target recorded a negative income pushing this ratio to -0.02 in this year. So
far this ratio is very small for the two companies implying that to operate in their industry, they
face several expenses. However, the two companies need to budget and cut down their expenses.
The equity multiplier and the ROE are also important parameters in analyzing the
financial position of the company. For 2014, 2015 and 2016, Walmart had the equity multiplier
of 2.69, 2.50 and 2.48 and its ROE was 0.21, 0.20 and 0.18. It can be noted that the two ratios
have been decreasing for the past three years. However, the same ratios have been increasing for
Target Corporation. This implies that the profitability of Walmart has decreased since 2014, and
it needs to improve the profitability to remain competitive in the industry; otherwise, it will be
outsmarted by Target.
The Altman's Z-score for both Walmart and Target for the past three years are above
three indicating that they are unlikely to enter bankruptcy. For 2014, 2015 and 2016, Walmart
posted a Z-score of 4.68, 5.05 and 4.47 respectively against 3.03, 3.47 and 3.51 of Target for the
same years (Yahoo Finance, 2016). The rationale for selecting this ratio was to determine if
Walmart is at risk of collapsing. Although Walmart does not a have strong Z-score, this ratio is
far above 1.8 (when 1.8 or below, the company is heading bankruptcy) and this shows that we
could expect it to remain operational in the future.
Having looked at the financial ratios of Walmart, it could be worthwhile to slightly
consider its vertical and horizontal analysis of its income and balance sheet statements. Of the
total revenue, the operating expenses consumed 21.13% in 2016, 19.24% in 2015 and 19.18% in
2014. This tells that most of its generated revenue is continuously being eaten by its operating
expenses and it needs to reduce its operating expenses to improve its net income. Picking the
total liabilities as the essential item from its balance sheet, out of the total assets, the total
liabilities was 62% in 2014 and 60% in 2015 and 2016 of the total assets. This shows that
Walmart has more than enough assets to cover all its liabilities (Setianto, 2016).
Taking our baseline as 2014, the total operating expenses of Walmart was 102.26% in
2015 and increased to 106.23% in 2016. There was, however, a slight decrease of its revenue
between 2015 and 2016 although the revenue in these years exceeded that was generated in
2014. For instance, this revenue was 101.22% in 2016 and 101.96% in 2015. The increase in the
operating expenses in 2015 and 2016 could be the reason the revenue decreased. The total assets,
on the other hand, experienced a decreased in 2015 and 2016 (99.38% and 97.47% respectively).
Although the assets have been decreasing, the generated revenue in 2015 and 2016 was higher
than that generated in 2014. Consequently, calculating the asset turnover across the years, we
could expect this ratio to exceed that recorded in 2014. This ratio increased from 2.33 in 2014 to
2.39 in 2015 and lastly 2.42 in 2016. This shows that Walmart continues to move away from
using the assets to generate its revenue, and therefore it has been coming up with other sources of
revenue besides its assets.
From the financial ratios above, overly, Walmart’s performance is satisfactory, though
we expect more from it being a giant retailer in the world. It cannot be said that it has good
performance, for instance, its operating expenses are very high, something that has made its
profit margin to stick at only 3% over the past three years. Additionally, its equity multiplier and
the ROE have been decreasing while that of its competitor have increased over the three years.
WALMART FINANCIAL HEALTH 5
From the management and discussion of the firm, Walmart reports finance from three of its
segments; Walmart U.S, Walmart International, and Sam's Club. In 2015, the net sales from the
three segments were $114,002 while it was $114,167 in 2014. This shows that there was no
significant change in its net sales, in fact, it even reduced by 0.14%.
The Return on Investment (ROI) is an essential parameter of sharing with the investors
since it helps investors to assess the way the company is using its assets. Walmart has not yet
reported its ROI in 2016. However, from the statistics reported on its MD&A, the company
posted ROI of 16.7% in 2014 and this value reduced to 16.6% in 2015. Closely related to the
ROI is the ROA (Return on Assets) that tells the degree of profitability of a company relative to
its total assets. In 2014 and 2015, Walmart maintained this value at 8.1%. The Gross profit
margin as a percentage of the net sales for the consolidated segments was 24.1 in 2015 and
24.0% in 2014 (MorningStar, 2016). Based on these figures, it can be seen that they are not
changing significantly, and if they do, they change towards a negative side. Therefore, although
its financial health is stable, its performance is not yet promising.
From the financial analysis of ratios presented in this paper, it can be concluded that
Walmart’s performance is satisfactory. It cannot be said that it has good performance since some
ratios speak otherwise. For instance, its operating expenses are very high, and this has made its
profit margin to stick at only 3% over the past three years. In 2015, the net sales from the three
segments were $114,002 while it was $114,167 in 2014 showing that there was no significant
change in its net sales. However, other ratios such as the current ratio, the interest coverage ratio,
the operating income margin, the asset turnover ratio, the total debts to assets and Altman’s Z-
WALMART FINANCIAL HEALTH 6
score suggest a better performance of the company. Therefore, overly, its financial health is
WALMART FINANCIAL HEALTH 7
Goel, S. (2016). Financial ratios. New York: Business Expert Press.
Michael, R. (2015). Financial Ratios for Executives: How to Assess Company Strength, Fix
Problems, and Make Better Decisions. Berkeley, CA: Apress.
MorningStar. (2016). Wal-Mart Stores Inc WMT. Retrieved from
Rowley, L. (2016). On Target: how the world's hottest retailer hit a bullseye. Hoboken, N.J: J.
Setianto, B. (2016). Benchmarking Financial Ratios Public company on the Stock Exchange
Basic Industry sector with the Public company on the NYSE: Financial reports Q3 and
Q4 2015. BSK Capital.
Troy, L. (2011). Almanac of business and industrial, financial ratios. Chicago, IL: CCH.
Yahoo Finance. (2016). Retrieved from https://finance.yahoo.com/quote/WMT/financials