Walmart Inc. is an international corporation that operates in the retail sector, The Corporation was founded by Sam Walton and operates in many countries across the world. The headquarters are in Bentonville, in Arkansas and it operates in about 20 countries across the world. The company has opened about 11,000 stores and it uses these stores to reach out to its con summers across the globe (Corporate.walmart.com, 2018). It has several departments that include grocery, departmental stores, hypermarkets, and retail shops. The company is ranked among the most successful companies in the world and it has attained this position through high performance and effective satisfaction of the consumers (Walmart, 2018). The company is also one of the companies that generate the highest amount of revenue and it has about 2.3 million employees. Annually, the company collects revenue of about $500 million, which is higher than most of the retail companies in the same industry. Some of the products offered in the company include grocery, furniture electronics, and health products among many others. The main competitors are Target Corporation, Costco and Amazon. The use of e-commerce is one of the most attractive features of the company and it attracts a lot of attention to the consumers who are in need of e-commerce services.
Financial Leverage Ratios
The financial leverage ratios indicate the profitability if the company. The first one is the debt to assets ratio. The ratio is used as an indicator of the financial leverage of the company. It is an indication of the part of the company's assets that were financed using debts. The ratio is used to show the part of the assets that is financed using debts, liabilities, and borrowed money. In Wal-Mart, the ratio is 0.22% which means that 22% of the assets were bought using borrowed money. The other ratio is the debt to equity ratio, which is also known as the gearing or risk ratio. It shows the comparison between the total debt and the total assets of the company. By the end of October 2018, Wal-Mart had a ratio of 0.63. The ratio shows the company is performing as expected and that the debt level is low and manageable. The other ratio is the interest coverage ratio. It shows the ease with which a company can pay the interest on its debts. The ratio is at 8.77 as per the latest analysis by Guru Focus (2018). The above three theories indicate that Wal-Mart is a reliable company that investors can trust and that can be used as a good investment. The rations show that the company has a strong financial base and it has the potential to grow.
Analysis of the Ratios
The above ratios are used to indicate several things about the company. The first one is the way the company finances its assets. The rations show that the company uses borrowed money and its savings to buy its assets. The debt to asset ratio shows that only 22% of the assets are financed using borrowed money. Therefore, it is evident that the company does not rely heavily on borrowed finance to buy its assets. The ratio can be used by the investors to choose the best company to put their money in. It is also a reliable way through which the investors can compare its current performance with the performance of the past years and also with the performance of other companies in the same industry. The other one is the debt to equity ratio and it shows the part of the assets and the debt of the company. Wal-Mart has been in operation for many years and has invested in improving its debt rating. Therefore, it is clear from this ratio that most of its assets are financed not with debt money. Therefore, an invested willing to invest in the company can use this data to make a decision on the way to invest their money. A company that relied heavily on debts to buy assets is assumed to have high risks and also to be of a high risk. The interest coverage ratio shows the possibility of the company paying interest to the money borrowed. The ratio is also positive and it is clear that the company has a good management that makes the right decisions that support the good performance of the company in the market. The company is associated with low risk and this can be measured using the ratios above, when the ratios indicate that most of the assets are financed using borrowed money and that the company has a low chance of paying interest for the borrowed money, then it is correct to assume that the company has a high risk.
The bond performance of the company shows that it has a good performance trend in its bonds. The company borrowed $16 Billion through the sale of bonds this year, which was ranked as the second largest bond sale of the year. The company gave both floating and fixed rate notes in nine different parts and raised the amount that is meant to boost the investment in the Indian market (Smith, 2018). The company had fluctuating prices in the year as shown in the graph below:
The graph shows that the bond had different ratings across the year and that it lowered in value as time passed by. However, comparing the value to the rest of the market shows that Wal-Mart had a fairly good performance. The other analysis shows that the company is among the best-performing companies the sale of bonds. The company plans to use more resources to improve the sale of its bonds. For example, the graph below shows the plans that the company has to invest in the Flipchart deal.
The analysis shows that the company will possibly have a good bond performance in the future because it will have a diversified portfolio. The two quotations by the company are $148.00 and $145.47. The quotation is based on the targets that the company has to achieve in the near future. If the par value of the bond is calculated as follows: The interest paid is at 6.5% and or bond worth $1000, the interest paid is $65. The value of the bond is given by the number of years and the interest rate and since the years are 6, the current value of the bond is $810 (747.26 x 0.065)/6. The annual coupon interest for the bond is calculated as follows:
The annual coupon rate of a bond is calculated by dividing the sum of the security's annual coupon payments by the par value of the bond. The coupon rate for the Wal-Mart bonds is $1000 x 6.5% = 65.
The annual yield of the bond is the total interest earned from the bind. The earning is calculated to show the amount of money that the investor makes from the trade. It is calculated as follows:
Annual yield = (65/1000) x 100 = 6.5%.
Therefore, the coupon earns 6.5% of the par value which is equivalent to $6500.
Analysis of the Bonds
The company has a stable financial background and this makes it easy for it to achieve most of its financial obligations. The first thing to understand about the bonds is the yield to maturity (YTM). It refers to interest rate at which the value if the future coupons and the principle of the bond are equal to the current price if the bonds (Becker, & Ivashina, 2015). It is usually given as an annual percentage rate, In Wal-Mart, the best bond to buy would be the coupon bond because it has high earnings and low risks. The investor can rely on this bond to make high earnings and to reduce their risk. When making a purchase, I would buy the coupon bonds because their earnings are clear and high. The decision is based on the recommendation that the coupon bonds are less exposed to market risks and their earnings are high.
The company has high performance as compared to the rest of the companies in the industry. The P/E ratio of the company is the indication of what the market anticipates to gain in future. According to NASDAQ (2018), the P/E ratio is currently at 93.19% and this shows that the company has high performance and is likely to perform better in the future. It is estimated that the price-earnings ratio will be at 19.4 in 2021 as shown below:
The historical data on the stock prices show that the company has a reliable. Financial base and its performance are good. The company has fluctuating values as per the Yahoo finance (2018). The figures indicate that the company has the potential to grow in future and it could perform better in the future. The data below shows the historical stock prices;
By the use of Capital Asset Pricing Model between 1996 and 2914 shows that the company has a required return on the stock of 4% and the Gordon model shows that the value of the stock is higher than that of the competing companies.
The client and the management should understand that Walmart is among the companies that perform well in the retail industry. The analysis above shows the different features of the company that indicate its high performable. The investor should analyze the possible factors that can affect the company in the future and how they can diversify their investment. The management should use the data in the analysis to improve the performance of the company in the future. The leverage in the company is in support of the goal to maximize the wealth of the investors.
I have learned the need to analyze data and to use the right formulas to calculate different ratios and analyze the performance of the company. I have also increased my skills in analyzing the company and its bonds and its leverage. The skills learned are useful in my future career because they will help me to choose the company that offers the best investment solutions. Lastly, I have learned the importance of comparing the performance of a company to that of its competitors. The skills will help me to compare different investment options before making the final decision.
Becker, B., & Ivashina, V. (2015). Reaching for yield in the bond market. The Journal of Finance, 70(5), 1863-1902.
Guru Focus (2018). Wal-Mart Inc., retrieved on December 8, 2018, from www.gurufocus.com/term/interest_coverage/WMT/Interest%252BCoverage/Walmart%2BIncNASDAQ (2018). Walmart Inc. NASDAQ, retrieved on December 9, 2018, from https://www.nasdaq.com/symbol/wmt/pe-ratio
Smith, M. (2018). Walmart Borrows $16 Billion in Second-Largest Bond Sale of Year. Bloomberg, retrieved on December 9, 2018, from www.bloomberg.com/news/articles/2018-06-20/walmart-is-selling-bonds-to-finance-flipkart-group-acquisition
Yahoo Finance (2018). Walmart Inc. Retrieved on December 8, 2018, from ht...
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