Wal-Mart is a US-based public limited company that runs several discount stores across the globe. The retail store giant was started in 1962 and by 1972; its shares were floated on the New York stock exchange (Soderquist, 2005, p. 1). Currently, Wal-Mart’s headquarter is in Bentonville, Arkansas, and it is regarded as the largest privately run enterprise, with the highest number of employees, because across its global outlets, Wal-Mart is said to be home to more than two million employees. In terms of grocery sales, Wal-Mart is estimated to be the biggest grocery store in America because it is estimated that, the retail giant generates more than half of its revenues from the US alone (according to 2009 company reports) (Zimmerman, 2011, p. 2). In 2010, it is also estimated that, the company is the largest in the world, with regards to revenue, but part of its success is attributed to its affiliate Sam’s club retail warehouses which dot major states in North America (Soderquist, 2005, p. 1).
Across the globe, Wal-Mart is said to have a global presence in 15 countries, but in all these destinations, the company operates under several names. Some of the popular countries where Wal-Mart has a strong presence are South American countries such as Puerto-rico and Mexico. The company’s global presence in Asia is also strong in countries such as Japan and India but its presence in Europe is most felt in its United Kingdom (UK) outlets (Soderquist, 2005, p. 3). Despite the poor performance of the world economy, Wal-Mart has been able to increase its revenues over the past three years (2008, 2009 and 2010). In the three years, the company posted total revenues of $377,023, $404,254, and $408,025 (figures in millions) in the years 2008, 2009 and 2010 respectively (Walmart, 2011). Consequently, the company’s profits have increased in the same pattern with 2008, 2009 and 2010 postings estimated at $89,684, $97,146 and $100,688 respectively (figures in millions) (Walmart, 2011). To a large extent, these figures represent the financial progress of Wal-Mart over the past few years. These statistics abound, this study seeks to further analyze Wal-Mart and determine its common stock standing, in the determination of future potential for financial investments. To do this, a ratio analysis and stock price analysis will be undertaken.
Wal-Mart’s ratio analysis shows a consistency in current and fixed assets for the company in the past four years. For the years 2007, 2008, 2009 and 2010, Wal-Mart’s current assets have been on a constant level, with minimal growth in the first months of 2011. For instance, in the years 2011, 2010, 2009, 2008 and 2007, Wal-Mart posted current asset figures of $51,893, $48,032, $48,949, $48,020 and $46,982 respectively (figures in millions) (Money Central, 2011). Considering, the world market is picking up and the company is undertaking more expansionary strategies, the company’s current asset is expected to grow and stabilize at the range of 50 million dollars and above.
With regards to the company’s fixed assets, the value has been gradually increasing over the years, as can be seen from the company’s increase in fixed asset value from $104,605 in 2007 to $128,770 in 2011 (figures in millions) (Money Central, 2011).This progress in fixed asset value has increased over a span of five years, with estimates of 2008, 2009 and 2010 being $115,494, $114,480 and $122,375 respectively (figures in millions) (Money Central, 2011). In the coming three years, the fixed asset value for Wal-Mart is projected to be in the range of $122,000 and $130,000 (millions) (if past trends are anything to go by); considering the company is expected to undertake an expansionary strategy which will see it open more outlets across the globe. This analysis also stands true if the company does not shut down any of its stores.
With regards to Wal-Mart’s current liabilities, the company has shown an inconsistent trend in current liability estimations, considering its figures have been dwindling over the past five years. Factoring the analysis of the company’s performance in the past five years, it is correct to say that, the company’s current liabilities will increase in the coming three years by a margin of $58,000 to $60,000 because world food prices are increasing and the cost of doing business is also assuming the same trend. However in the past five years (2007, 2008, 2009, 2010 and 2011), the company has posted current liabilities of $52,148, $58,478, $55,390, $55,543 and $58,484 respectively (figures in millions) (Money Central, 2011).
With regards to the company’s long-term liabilities, there has been an unfortunate growth in long-term liabilities over the past five years, starting from the year 2007. For instance, in every year, from 2007 to 2011, the company has posted long-term liability figures of $37, 866, $40,428, $42,754, $44,396 and $53,637 respectively (figures in millions) (Money Central, 2011). These figures predict a bleak future for Wal-Mart’s long-term liability standing because in the coming three years, the company’s long-term liabilities are expected to rise to $57,000 if the past trend is to be considered.
The company’s owner’s equity has seen a slow progression over the past years, except for the year 2011, when it slightly dipped. In the year 2007, 2008, 2009, 2010 and 2011, the company posted an owner’s equity of $61,573, $64,608, $65,285, $70,468, and $68,542 respectively (figures in millions) (Money Central, 2011). This trend shows a consistent progression of owner’s equity. In the coming three years, the company’s owner’s equity standing is going to increase to margins of between $68,000 and $75,000. The company’s total sales revenue for the years 2011, 2010, 2009, 2008 and 2007 were $421,849, $408,085, $404,254, $377,023, and $348,368 (figures in millions) respectively, showing a consistent increase in sales revenues from the year 2007 to 2011 (Walmart, 2011). In the coming three years, the company is expected to sustain this growth, to post sales revenues of between $421,000 and $450,000. These estimations come about from undertaking a trend analysis of the past sales revenues. The company’s earnings before interests and tax (EBIT) also show the same trend as the sales revenue because in the years 2011, 2010, 2009, 2008 and 2007, the company posted EBITs of $103,665, $100,688, $97,146, $89,684, and $80,780 respectively (figures in millions) (Walmart, 2011). In the next three years, the company’s BIT is expected to increase from $103,665 to about $110,000 (figures in millions).
With regards to the net income, the company posted figures of $16,389, $14,370, $13,381, $12,731, and $11,284 for the periods of 2011, 2010, 2009, 2008 and 2007 respectively (figures in millions) (Walmart, 2011). The company’s earnings per share have also exhibited the same trend as the company’s net income, because in the years 2011, 2010, 2009, 2008 and 2007, the company posted earnings per share of 1.21, 1.09, 0.95, 0.88, and 0.67 respectively. Three year projections for the company’s net income is bound to show the same trend, with estimates expected to fall between $16,000 and $22,000 (figures in millions), factoring the gradual increment in the past five years. With regards to the earnings per share increment in the coming three years, the company is expected to post figures ranging between 1.2 and 2.0 per share.
Stock Price Analysis
Wal-Mart’s common stock price for the past five years has been ranging between $40 and early $50. In the first quarter of the year 2007, the company’s high in common stock price was $48.87 and the low was $44.52 (Wikiinvest, 2011). In the second, third and fourth quarters of the same year, the company posted common stock price highs of $50.00, $52.15 and $49.70 respectively and common stock price lows of $42.31, $43.48 and $44.80 respectively. In 2008, the company posted common stock price highs of $50.42, $51.44, $48.42 and $51.30 for the first second, third and fourth quarters respectively (Wikiinvest, 2011). In 2009, the company posted a common stock price of $57.5; in 2008 it posted a common stock price of $54.00 and in 2011, its common stock price is estimated at $54.5. The following diagram shows this common stock price trend:
The company’s Standard and poor stock performance index (S&P index) for the years 2010, 2009, 2008, 2007 and 2006 have been $82, $80, $57, $97 and $95 respectively. The company’s common stock price trend when charted against the S&P price index manifests as follows:
From the analysis of Wal-Mart’s stock quote price index, we see that Wal-Mart is slowly emerging as a good investment ground, considering its stock price performance has been on an upward trend. The stock price dip experienced in the 2007/2008 period can be attributed to the global financial crisis which affected most companies across the globe. Wal-Mart’s poor stock performance during the same period can therefore not be assumed to be a poor financial performance of the company, but rather, of the economy. From this analysis therefore, we see that Wal-Mart is a safe investment destination with the potential of providing lucrative returns.
Money Central. (2011). Financial Results. Web.
Soderquist, D. (2005). The Wal-Mart way: The Inside Story Of the Success Of The World’s Largest Company. New York: Thomas Nelson Inc.
Walmart. (2011). Financial Results. Web.
Wikiinvest. (2011). Wal-Mart. Web.
Zimmerman, A. (2011). Rival Chains Secretly Fund Opposition to Wal-Mart. Web.