· Wal-Mart employed a low cost strategy, it’s important to assess Wal-Mart’s operational efficiency. Inventory turnover ratio is crucial in its profitability. Return on Asset (ROA) and Working Capital Turnover can measure management effectiveness in asset usages. Cash Conversion Cycle (CCC) shows how long the company’s cash is being tied up by its current operations.
In 2011, Walmart's inventory turnover was 11.62 and the industry average was 10.4(stock-analysis). It's fixed asset turnover was 3.88 and the industry average was 3.56, and it's total asset turnover was 2.34 and the industry average was 1.56(Stock-analysis). The values calculated for all three ratios mentioned all resulted in substantially different values in a positive way (Appendix B). Historically the values of each ratio have maintained relatively constant, which in this case is not a weakness. Asset management is a strength for Walmart, which ultimately means that they are maintaining their assets in the correct manner in order to have an efficient way of business.
For the final project of managing finance Wal-Mart Stores Inc is chosen as the discussion target. Being one of the grocery retail shop leaders in the world, Wal-Mart (WM) operates business with 10,000 retail units in 27 countries with about USD444 million of sales in 2012 (Wal-Mart homepage 2012).
Asset turnover depicts investment efficiency, because it shows how many sales dollars are generated for every dollar invested in the company’s assets. Lowe’s had relatively lower asset turnover ratios than Home Depot because their recent investment in PP&E.
Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services on credit. These receivables are generally expected to be collected within 30 to 60 days. They are typically the most significant type of claim held by a company. Accounts receivable and notes receivable resulting from sales are also known as trade receivables. Accounts receivable resulting from sales are referred to as trade receivables in Alcatel's financial statements.
Accounts receivable for Wal-Mart is 9 days and Target’s is 6 days, and the industry is 17 days.
With the exception of ROE, most financial ratios and even absolute values bear testimony to Wal-Mart’s recognition as the leader in the retailing industry. The reason behind Sears’s higher ROE can be explained by a comparison of the 3 ratios that constitute the ratio known as DuPont identity that is profit margin, asset turnover and equity multiplier. While both firms had similar profit margins, Wal-Mart’s asset turnover was 2.8 compared to Sears’ 1.1 due to the firm’s effective utilization of assets and lease agreements to facilitate revenue generation.
The Total Asset Turnover or ROA (Return on Asset) lets us know how effectively assets generate revenue. Accounts Receivable Turnover tells us how effectively a company is collecting money from sales. As we can see, both companies are doing pretty comparable and so far, this does not explain the sudden cliff on Profit Margin.
The answer will be 1 .34 . this is a good sign that the company will be able to pay its obligations when they fall due . Based on both current ratios above , Sears company has a better current ratio at 1 .94 when compared with the current ratio of Walmart of only 1 .34 .B Sears Acid Test ratio Quick Assets 20201 1 .279354 Current Liabilities 15790 The quick assets are arrived at by adding the cash , cash equivalents ,receivables and marketable securities . The quick ratio is arrived at dividing the quick assets for the year 2007 of 20 ,201 . The quick ratio is 1 .28 times .Walmart Acid Test ratio Quick Assets 2423 0 .167566 Current Liabilities 14460 The quick ratio here is arrived at by dividing the quick assets of 2 ,423 for the year 2007 by the current liabilities amounting to 14 ,460 for the same year . The acid test ratio or quick ratio is .17 Based on the above data , Sears has a better quick ratio with its higher rate of 1 .28 as compared to the quick ratio or acid test ratio of Walmart at only .17 .C SOLVENCY LEVERAGE RATIOS Ability to pay long term obligations Sears 38700 The ratio of .85 . This shows that the company will be able to pay its obligations when the time of payment arrives .Walmart 45384 The Walmart will be able to pay its obligations when they
The final ratio we will analyze is the average collection period which measures the time it takes a firm to receive payments after a sale has been made. The average collection period was 55 days for 2001 and 42 days for 2000. While these numbers seem to be very high the reader needs to remember that they are dealing with a large ticket item and financing is usually arranged and payments from the finance company could take more time than cash payments that are normal in the traditional retail marketplace.