Evaluating_Financial_Health

EVALUATING FINANCIAL HEALTH Evaluating Financial Health Brian Moriarity Axia College Evaluating Financial Health Wal-Mart Incorporated operates chain of retail stores in USA as well as outside the USA. The first Wal-Mart store was opened by Sam Walton in Arkansas in USA in 1962. Within a span of five years; he opened more stores and the number increased to 24 stores across Arkansas. The incorporation of Wal-Mart Stores Incorporated was done in 1969. Wal-Mart grew in the United States of America by opening of more stores in to the country. The company not only opened the stores across Arkansas but also across the United States of America (Wal-Mart Corporate, 2010). Wal-Mart was opposed by the unorganized retail business holders in the USA as their business was affected by opening Wal-Mart stores. The company also opened its first store outside the USA in South America in 1995. Wal-Mart wanted to spread itself not only to the USA, but in other countries as well. In 2006, the company was having 3800 stores in USA and more than 2980 stores outside USA making it one of the largest retail chains in the world. This corporation was also having a vision to establish itself in to a global entity. Wal-Mart was one of the first companies to operate in the organized retail sector (Fishman, 2006). The modes of entry used by the company were different for different countries. Wal-Mart used the mode of entry in to various countries according to the rules and regulations prevailing in to that country (Wal-Mart Stores Inc: Financial Statement, 2010). The sales of the company for the financial year ending in January 2010 are 419.24 billion dollars. The quarterly sales growth for the company has been 2.60%, while the industry average is 8.60 %. The five-year annual growth in the sales of the company has been recorded at 7.50 % while five year annual growth of income is 6.58 %. By analyzing the financial statements of Wal–Mart Incorporated, we find that debt to equity ratio of Wal-Mart is 0.87 on 31st January 2010, which is 0.78 for the industry. It means the proportion of debt of the company in its capital structure is lesser than the equity. The company is less leveraged so the interest burden on the company is minimal. (Wal-Mart Stores Inc: Financial Statement, 2010). The total revenues received by the organization in the year ending January 2010 were $408.2 billion whereas revenues in the year ending January 2009 were $404.3 billion dollars. The revenues in the year ending January 2008 stood at $377 billion dollars. Thus, it can be easily analyzed that the total revenues of the organization has grown over the years steadily. This has also impacted the net income of the organization and thus, increments could also be seen in the net income of the organization. Net Income, which stood in the year ending 2008 at $12.7 billion, increased to $13.4 billion for the year ending 2009 and again increased to $14.3 billion in the year ending 2010 (Wal-Mart Stores Inc: Financial Statement, 2010). Again if cash flow statement of the organization is analyzed it can easily be viewed that the cash flow from operating activities have always increased from the last three years. The cash flow from operating activities stood at $20.34 billion in the year ending 2008 has increased to $23.14 billion for the year ending 2009 and too further increased to $26.24 billion for the year ending 2010. But the cash flow from investing and financing activities has seen positive and negative fluctuations both. Here where net cash outflow from investing activities has decreased first and increased later again. For the year ending 2008, it stood at $15.67 billion which decreased to $10.74 billion but again increased to $11.62 billion. Again the net cash outflow from financing activities increased constantly since at the end of year 2008, it stood at $7.13 billion which further for the year ending 2009 increased to $9.91 billion and further increased to $14.19 billion for the year ending 2010 (Wal-Mart Stores Inc (WMT), 2010). Wal-Mart’s current assets level has shown stability in the last three years for the company, which shows the lesser investment in current assets for the company even with the increased sales. In 2008 the cash and marketable securities available with the company was 48020 million dollars, which increased to 48949 million dollars in 2009 and then decreased to 48331 million dollars in 2010. Wal-Mart’s current stock price is 54.08 dollars. The stock has gone up as high as 56.27 dollars, and as low as 47.77 dollars in the last year. The earnings per share of the company which was 3.16 dollars per share in 2008, was increased to 3.35 dollars in 2009. Earnings per share further increased to 4.04 dollars in 2010. The analysis shows the improvement in the earnings of the company in the last three year. The current price earnings ratio of the company is 13.44 which is less than the industry average of P/E ratio of 15 times (Wal-Mart Stores Inc (WMT), 2010). Analyzing the stock of the company from the investment point of view, we can estimate that the fundamentals of the company are very strong. As a result, Wal-Mart stock is recommended for investment. References Wal-Mart Corporate. (2010). History. Retrieved January 09, 2011 from http://walmartstores.com/AboutUs/297.aspx Wal-Mart Stores Inc: Financial Statement (2010). Retrieved January 09, 2011, from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx'Symbol=WMT Wal-Mart Stores Inc. (WMT) (2010). Retrieved November 05, 2010, from http://finance.yahoo.com/q/co's=WMT+Competitors