Walmart Financial Statement and Financial Ratios Analysis

In this book, Walmart's financial ratios were analyzed.  Some of the ratios assessed were liquidity ratios, such as current ratio and quick ratio, asset utilization ratios, such as total asset turnover, and inventory turnover, profitability ratios, which included return on assets and returned on equity. Then there were long-term debt ratios, which included debt ratio, and at times interest earned. 

Through analyzing Walmart’s financial ratios from 2015 to 2019, some interesting findings were noted in the book below.  To illustrate, the organization has continually decreased its return on assets ratio.  In 2015, Walmart was enjoying in 8.39% return on assets.  However, over the next five years, this ratio would fall to 3.04%.  This indicates that the company is utilizing more assets to generate less revenues.  For more information and analysis, check out our book below.

Current Ratio:  Walmart’s current ratio ended 2015 on an excellent note, which was .97.  Almost par for most industries.  However, this ratio has fallen over the last several years to a .8 in 2019.  In most industries, this moderate decline would be worrisome for investors.  However, in the retail industry, a .8 current ratio is actually a little high.  In other words, Walmart could probably optimize their current assets at a .6 or .7 current ratio.  From this perspective, Walmart looks to be solvent for the short to moderate term.

Total Asset Turnover:  In 2018, the company had a total asset turnover of 2.48.  In 2019, this ratio fell to 2.35.  This means that the company utilized more assets to generate the same or less sales.  In the current retail environment, too much assets for retailers, especially fixed assets, can jeopardize the sustainability of a business due to the slim profit margins received for competitors.  Fortunately, the company is doing better than their main competitor, which is Amazon.com.  Amazon had a 1.43 total asset turnover.  If the total asset turnover continues to fall, then the firm needs to possibly liquidate assets AND pay down debt to ensure sustainability.

Return on Equity:  At the end of 2015, Walmart had a healthy return on equity of approximately 21%.  Unfortunately, the company’s return on equity fell drastically over the next five years to 8.38% in 2019.  The substantial decline should be alarming for investors.  However, the organization is utilizing more debt in their capital structure.  In doing this, the company should be able to improve their return on equity over time.

Debt Ratio:  In the last two years, Walmart has increased their long-term debt ratio from 18% to almost 23%.  If the company continues this trend, then what they are declaring to investors is a shift in capital structure strategy to rely more upon debt as compared to equity.  A benefit to this strategy is that the company will be generating revenues on borrowed funds.  This will inevitably drive up the company’s return on equity.  A definite plus for investors.  On the downside, Walmart does rely upon slim profit margins.  If the firm experiences a slowdown in revenues, then affording their debt payments may be difficult.