Professor Stephen Rosales
Walmart is an American multinational retail corporation that runs chains of large discount department stores headquartered in Bentonville, Arkansas. The company was founded in 1962 by Sam Walton and the first Walmart was opened that year in Rogers, Arkansas. Walmart is now the world’s largest public corporation, the biggest private employer, and the largest retailer in the world. According to the Fortune Global 500 list in 2014.
Each week there are more than 245 million customers that visit their 11,000 stores worldwide. Walmart operates in 27 countries while provides e-commerce websites in 10 additional countries. “With fiscal year 2014 sales of approximately $473 billion, Wal-Mart employs 2.2 million associates worldwide” (Walmart, 2014).
Wal-Mart operates retail stores. Its operations comprise three segments: Wal-Mart U.S., Sam's Club and International. Wal-Mart U.S. segment includes its discount stores, supercenters and neighborhood markets in the U.S. as well as walmart.com. Wal-Mart Stores, Inc. is committed to saving people money so they can live better by providing quality merchandise and services at everyday low prices (Wal-Mart and Mergent On Line, 2014).
Costco Wholesale Corp. operates a membership warehouses that provide different types of products such as food, electrical appliances, office supplies, pharmaceutical medicines, furniture, and automotive supplies among others. Until August 31st 2009, Costco operated 527 membership warehouses, eight regional offices in the United States, two regional offices in Canada and five regional offices internationally. In addition, it operates regional cross-docking facilities for the consolidation and distribution of most shipments to the warehouses, and various processing, packaging, and other facilities to support other businesses. Finally, its mission statement is to offer its members low prices on branded and selected label products, producing high sales volumes and rapid inventory turnover (Mergent Online, 2014). Financial ratios are crucial to analyze because it helps to identify problems and opportunities within an organization. This paper analyzes the performance measurement and analysis through ratio analysis of Costco and Wal-Mart stores as well as a comparison with its industry ratios along with my choice of investing options.
When compared with the other companies, Wal-Mart has healthy liquidity, which signifies that the company can successfully run its operations without running of operating cash; also, it can pay off its debts without much hassle. This assertion can be supported with good average current ratio that stands at 0.88; average quick ratio comes to 024; Although the average net working capital for the four quarters came at a dismal figure of 0.05; but this is offset by average cash ratio of 0.11 and average operating ratio of 0.25.
In fiscal 2015, Walmart grew sales by $9.3 billion to a record $485.7 billion. All three Walmart segments—Walmart US, Walmart International, and Sam’s Club—posted record sales. The company generated an operating cash flow of $29 billion, also a new record for the company (Yahoo Finance 2015).
Wal-Mart utilizes its assets maximally as depicted by the best-in-the-industry average Inventory Turnover ratio of 5.7; average Fixed Asset Turnover ratio of 2.2; average Total Asset ratio 1.3 and Asset to Equity of 0.25. These values demonstrate that Wal-Mart assets are maximally utilized and the rate of turnover increases in each succeeding quarter (Yahoo Finance, 2015).
Apart from the average earnings per share ratio, which is a bit lower than the industry average, all other ratios indicate that Wal-Mart’s profitability increases along each quarter as shown in the average basic earning power ratio of 0.03; average profit margin ratio of 0.03; average Return on Equity ratio of 0.75 and average Return on Assets ratio of 0.06