Essay Wal-Mart Financial Analysis - Fin515

Gross Profit Percentage measures what percentage of revenue is converted to gross profit. Although they managed to remain stagnant in this category, that is not something that is ideal. One wants to see this number increase year after year meaning that the company is getting more proficient in utilizing the money it has gotten through investments. Gross profit percentage for Walgreens is 28%.

The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.

Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.

Current ratio is type of liquidity ratio. It is a financial tool used to measure a company’s ability to pay off its short-term debts with its short-term assets. A company’s current ratio is expressed by dividing its current assets by its current liabilities. A higher current ratio means the company is more capable of paying off its debts. If the current ratio is under one, this suggests the company is unable to pay off its obligations if they were due at that point (Investopedia, 2013). Companies that have trouble collecting money for its receivables or have long inventory turnovers can run into liquidity problems because they are unable to lessen their obligations.

The current ratio is used to show if a business can raise enough money to pay the debts that it has.

a. Current ratio is known as the company’s ability to pay back their debits and obligations. The current ratio of .98 which is under 1 means the company would not be able to pay of the obligations that it owes. This shows the company is not in good standing and will cause more risk, if invested into.

In analyzing the growth in earnings of the shareholder, a simple but effective tool is the Earnings per share value. For Wal-Mart, this is given as under:

Current ratios give the investor the opportunity to see the company’s ability to pay back its short-term liabilities with its short-term assets (Current Ratios, n.d.). The higher the current ratio, the more capable the company is to pay back its debts

Undra, Wal-Mart is an interesting company to choose for this discussion. Consequently, in my opinion, it is probably one the best companies that could have been chosen for this exercise. First, Wal-Mart is a pulverizing competitor in the retail world, with good reason. Honestly, I believe that both economic scope (combining multiple product lines) and scale (one product line) could apply to Wal-Mart. Nevertheless, whenever I see a new Wal-Mart being built next to a Food Lion or Kmart, I feel sorry for them. However, I will be the first to admit that if I stop at a store other than Wal-Mart, my first thought is usually, I wonder if this is cheaper at Wal-Mart. Consequently, Wal-Mart’s massive size allows it to maintain quite a few advantages

The return on assets is examining how effective the company's resources are being utilized to generate profits. For managers, this helps them to decide if a particular strategy is allowing the business to maximize its productivity. This is important, in determining if the firm will need to refocus their efforts on other areas in order to increase the total returns. ("Financial Ratios," 2011)

The following report contains an analysis with an overview of Wal-Mart Inc. and it’s financial statements. Wal-Mart, one of the biggest corporations and the largest employer in the world, has used exceptional ways of generating revenue and systems of tracking inventory, two very distinct characteristics of the company, while still maintaining a powerful imagine over all these years.

This is the current assets divided by current liabilities and it also measures a company’s capability to pay obligations (SOURCE). Boeing Co.’s current ratio for 2015 was 1.35:1 and Lockheed Martin had a current ratio of 1.15:1 (SOURCE). Due to the fact that the ratios for both companies were over 1, both Boeing and Lockheed Martin have the ability to easily repay obligations if required in a short period of time. The difference is that Boeing Co. has higher current ratio and therefore a greater ability to pay off obligations that are expected in the next business year.

The gross profit margin indicates the total profit of the company by the sales generated by the same company in the same period. It is a tool for calculating profit before any expenses are taken

Current ratio: current ratio is calculated as current assets/current liabilities. In this type of ratio it is used to evaluate the claims of short term creditors were claim is covered by assets which can be easy converted into liquid assets i.e cash at the time of maturity of the claims.

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The gross margin represents the percentage of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.