FINANCIAL ANALYSIS OF SEARS VS. WAL-MART

Profitability ratios are used to measure the overall efficiency of thebusiness, as well as management effectiveness. Examples of profitability ratios include the gross margin ratio and the net margin ratios.

The profitability ration in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins

EBITDA - Earnings before interest, taxes, depreciation and amortization is an indicator of a company's financial performance which is calculated in the following manner: ("EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization Definition | Investopedia," n.d.)

And Walmart has always been able to keep a low price from all the in house stuff they do and subbing it out.

Walmart is a multinational corporation with 11,000 retail locations located in 27 countries and is the largest retailer in the world. With over 2.2 million employees, Walmart is the also largest employer in United States the world. The history of Walmart dates back to 1962 when founder Sam Walton opened the first Walmart store in Rogers, Arkansas. By the late 1960s, total sales were over $12 million with 24 Walmart stores spread across Arkansas (Riffel, 2014). “By the end of the 1970s, Wal-Mart had expanded into a number of different services in its stores—selling pharmaceuticals, adding auto service centers, and introducing jewelry divisions.

From above, the main driver for Sears to create value for shareholders is through leverage while Wal-mart’s effective use of assets acts in increasing ROE.

Wal-Mart operates fewer stores than Sears but is ahead in terms of total selling area by a ratio of 3.4:1. Between 1995 and 1997, Sears’ retail store revenue per selling square foot was not only lower than that of Wal-Mart but in decline.

National mass merchandising chains such as Wal-Mart, on the other hand, had much more bargaining

Wal-Mart is sitting at number one on the Global Fortune 500 list. Sam Walton would never have thought that his creation of Wal-Mart in 1962 would lead to a global dynasty. By 1972 Wal-Mart went public which gave an infusion of money and capital for Mr. Walton that gave them 276 stores by 1980. In the mid 80's Wal-Mart expanded to having member only warehouse stores, Sam's Club. From there Wal-Mart opened supercenters that included full grocery and 36 departments of regular merchandise. By the end of the 1980's there were 1,402 stores and 123 Sam's Clubs (Wal-Mart corporate 2012).

With around 5000 retail outlets worldwide, operating in more then a dozen countries and with over US$286 billion in annual sales, Wal-Mart is the top retail chain and number one fortune 500 company in the world. Wal-Mart is the top employer in the U.S. with 1.3 million employees, “the company accounts for 9 cents of every US retail dollar and sells around 20 per cent of the nation’s groceries and pharmaceuticals.” (Times News Network).

Used to determine the competitive strength and cost effectiveness of a company, the operating profit margin shows what percentage of a company’s revenue is left over after covering variable costs. It is the operating profit divided by the net sales. Essentially, the operating profit margin depicts how much a company makes on each dollar of sales.

This report is intended analyze and compare the operating profitability of Sears, Roebuck and Co. (SRC), and Wal-Mart Stores Inc. (WM) for the accounting periods of 1996 and 1997.

Wal-Mart was founded in 1962 and has the ROE of 20%. Wal-Mart also offers store Credit Card, but unlike Sears, it is Chase Manhattan Bank rather than its own credit company. Wal-Mart also boosts the annual sale by diversifying products as Sears does, but Wal-Mart also has different stores to target at the customers of various market segments, such as Wal-Mart Discount Store, Wal-Mart Supercenters and Sam’s Clubs.

Every company for example Wal-Mart worries about its profitability. One of the most regularly utilized implements of financial ratio analysis is profitability ratios which are utilized to figure out the bottom line of the company. Profitability measures are vital to corporation managers and owners alike. If a small industry has outside stockholders who have put their own money into the corporation, the primary owner surely has to show profitability to those equity stockholders. (Blanchard, 2008)

Profitability (performance) ratios are used to assess a company’s ability to create equity as compared to its debt and other appropriate expenses created during a particular time frame. A favorable analysis of profitability ratios will reveal that a company’s value is higher than a competitor’s value.