Walmart analysis profit margin analysis and comparison between walmart and competitors

Profit Margin Analysis and Comparison between Walmart and competitors .... Return on Assets Analysis and Comparison between Walmart and competitor .... Financial Leverage Analysis and Co

ACC101 Group Assignment Walmart Analysis

Bao cao tai chinh (ACC101)

FPT University

WALMART ANALYSIS

Lecturer: Le Minh Viet Course: ACC101- Principles of Accounting

1 Võ Th Th o Nhi ị ả - SS170658

2 H Thái Uyên ồ - SS170424

3 Bùi Lê Minh Thư - SS170067

4 Phạm Minh Thư - SS170398

Table of Contents

1 Company's activities 2

2 Profit Margin Analysis and Comparison between Walmart and competitors 4

3 Return on Assets Analysis and Comparison between Walmart and competitor 5

4 Financial Leverage Analysis and Comparison between Walmart and competitors 7

5 Analyze its Return on Equity within the last 5 years and compare it with 2 other competitors 9

6 Prediction about future performance & advice to potential investors: Do not invest 12

Profit Margin 12

Return on Assets 12

Return on Equity 12

Inflation 13

1.Company's activities

a General

According to its Annual Report, Walmart Inc helps people all over the globe save money and live better lives - anytime and everywhere - by providing them to shop in both retail stores and online, as well as access to its other service offerings It seeks to consistently develop a customer-centric experience by seamlessly integrating its eCommerce and retail shops in an omni-channel solution that saves time for its consumers via innovation Every week, it serves about 230 million consumers who visit more than 10,500 shops and many eCommerce websites in 24 countries under 46 banners Its headquarters are located in Bentonville, Arkansas The New York Stock Exchange markets its common stock under the ticker "WMT" (WALMART INC., 2021)

Its objective is to make busy families' lives simpler, operate with discipline, refine its culture, become more digital, and make trust a competitive advantage Making life simpler for busy families involves the company's dedication to price leadership, which has been and will continue to be a cornerstone of its business, as well as enhancing convenience to save customers' time It gains its consumers' confidence every day by providing a diverse range of high-quality goods and services at daily cheap rates ("EDLP") EDLP is its pricing philosophy, according to which it offers things at a low price every day so that buyers can trust that its prices will not change despite frequent promotional activities Everyday low cost ("EDLC") is its commitment to keeping expenditures under control so that cost savings may be passed on

to consumers (WALMART INC., 2021)

Walmart U.S., Walmart International, and Sam's Club are its three reportable segments Its fiscal year for its activities in the United States ("U.S.") and Canada ends on January 31 It consolidates all other activities on a calendar year basis with a one-month lag Its discussion is for the fiscal years ending January 31, 2022 ("fiscal 2022"), January 31, 2021 ("fiscal 2021"), and January 31, 2020 ("fiscal 2020") ("fiscal 2020") It produced total revenues

of $572.8 billion in fiscal 2022, mostly from net sales of $567.8 billion (WALMART INC., 2021)

b Development of the business

The brief summary of the development of the business:

● In 1945, Sam M Walton opened a franchise Ben Franklin variety store in Newport, Arkansas;

● In 1946, his brother, James L Walton, opened a similar store in Versailles, Missouri;

● Until 1962, its founders' business was devoted entirely to the operation of variety stores;

● In 1983, Walmart opened its first Sam's Club, and in 1988, it opened its first supercenter;

● In 1998, the first Walmart Neighborhood Market was opened;

● In 1991, Walmart's first foreign endeavour started when it entered into a joint venture in Mexico;

● In 2000, it began its first eCommerce initiative by creating both walmart.com

and samsclub.com, the eCommerce presence of Walmart has continued to grow;

● In 2007, leveraging the physical stores, walmart.com launched its Site to Store

service, enabling customers to make a purchase online and pick up merchandise in stores;

● Over time, it has over 8,000 pickup sites and over 6,000 delivery locations throughout the world;

● January 31, 2022, Walmart International has operations in 23 countries;

● In recent years, it has heavily invested in omni-channel and eCommerce innovation, as well as made several eCommerce acquisitions to better serve its customers (WALMART INC., 2021)21)

c The segments of Walmart

It conducts international retail, wholesale, and other operations, as well as eCommerce, in the United States, Africa, Canada, Central America, Chile, China, India, and Mexico It also operated in Argentina before the sale of Walmart Argentina in fiscal 2021, and

in the United Kingdom and Japan before the sale of those businesses in the first quarter of fiscal 2022 Walmart U.S., Walmart International, and Sam's Club are its three reportable segments Each section contributes differently to the Company's operational performance In recent years, each segment has maintained a stable contribution rate to the Company's net sales and operating income, except for modest swings in the Walmart International segment's contribution rate owing to foreign exchange rate movements (WALMART INC., 2021)

d Products and Services

The majority of Walmart's income comes from retail sales, which include items distributed under its own brand or other national and international brands Additionally, a minor portion of Walmart's earnings comes from services These are the services:

○ Financial: money orders and wire transfers, check cashing, payment of bills, and prepaid cards;

○ VUDU Movie Streaming: A subscription-based on-demand streaming service for viewing movies and television programmes;

○ Clinical: Some preventative and regular health examinations that do not need urgent or emergency treatment;

○ Health insurance (WALMART INC., 2021)

Walmart’s competitors in the industry of retail sales include Costco, Amazon, Target, Rakuten and Sears Holdings Corporation (Walmart Competitors, n.d.)

In the analysis below, we will analyse and make comparisons between Walmart and its two competitors: Costco and Target

2 Profit Margin Analysis and Comparison between Walmart and competitors

a Walmart’s profit margin analysis

Figure 2.1 Walmart’s Profit Margin in the period of 2017-2021

The data in Figure 2.1 is collected from Walmart's annual reports in the years 2017,

2018, 2019, 2020, and 2021

Profit margin is one of the regularly used profitability measures for determining the extent to which a firm or business activity generates revenue It indicates the proportion of sales that have resulted in profits Simply put, the percentage reflects the amount of profit made per dollar of sales (Segal, 2021)

During the period from 2017 to 2021, Walmart's profit margin declined by 0.39 percent and saw several adjustments

From 2017 to 2019, Walmart's profit margin decreased by 1.51 percent, from 2.81 percent to 1.30 percent This dramatic decline in profit margin might be caused by the effect

of a continuing trade war with China and tariffs imposed by the Trump administration on the company's operations (Thomas, 2018) Particularly, because of the trade war with China and tariffs making the goods more expensive, expenses were rising more quickly than revenues throughout this time

When Walmart realised in 2020 that customer traffic was shifting from online and pickup channels to in-store purchasing, it used its store base and technical investments, which enabled it to sell and fulfil fluidly across channels (Unglesbee, 2021) Being able to utilise its infrastructure, the expense of Walmart in this year increased slightly With a 2.84 percent profit margin in 2020, the company's finances are on the rise

In 2021, the profit margin declined by 0.42 percentage The expense of Walmart increased more rapidly than the revenue There are several causes for this reduction in profit margin such as declining margins and ongoing inflationary pressures (Souza, 2021)

b Comparisons between Walmart and its competitors: Target and Costco

Figure 2.2 Profit Margin of Walmart, Costco, and Target in the period 2017-2021

The data in Figure 2.2 is collected from annual reports of Walmart, Costco, and Target

in the years 2017, 2018, 2019, 2020, and 2021

It can be interpreted that Target had the largest profit margin and the greatest rise - from 4.01 percent in 2017 to 6.55 percent in 2021, despite a slight reduction of 0.11 percent

in 2018 Following in second place is Costco, whose Profit Margin had steadily improved over the last five years from 2.08 percent in 2017 to 2.56 percent in 2021 Walmart had the lowest profit margin of the three during the last 5 years Its profit margin declined from 2.81 percent

in 2017 to 2.42 percent in 2021 In 2018 and 2019, its profit margin decreased by a total of 1.51 percent, and its growth is not as consistent as the other two Overall, Target maintained the highest profit margin during the last five years while Walmart has had the lowest profit margin, indicating that the retail store industry in the United States is increasingly competitive

3 Return on Assets Analysis and Comparison between Walmart and competitor

a) Return on Assets Analysis

The dollars in earnings or Net Income generated by a corporation per dollar of assets are represented as return on assets ROA is commonly used to assess a company's and its management's efficiency in allocating capital to create income for shareholders In general, a greater return on assets indicates that management is making good use of the asset base

• For the fiscal years ending in January 2017 through 2021, Walmart's return on assets averaged 5.264 %

• Walmart's return on assets peaked in January 2017 at 6.86% when looking back over the previous five years

• Walmart's return on assets decreased to 3.04 percent in January 2019, which was a five-year low

• Walmart's return on assets declined in 2018 (4.82 %), 2019 (3.04 %), 2021 (5.35 %), but climbed in 2020 (6.29 %)

From 2017 to 2019, the decreases in ROA were principally caused by our fall in operating income over these time periods ROA was 6.29 percent in fiscal 2020 and 3.04 percent in fiscal 2019 The sudden decrease in ROA is due to an increase in Assets, while income stays the same means that the company has purchased more assets The rise in ROA was largely attributable to an increase in consolidated net income, principally owing to a change

in the fair value of the investment in JD.com, and somewhat offset by the $4.5 billion net loss recorded in fiscal 2019 relating to the sale of the majority share in Walmart Brazil

(WALMART INC., 2020) A declining ROA suggests that the corporation may have over-invested in assets that have failed to generate revenue growth, indicating that the company

is in peril The advantages of Walmart's business strategy should help to restrain inflation

No, the business is not immune to rising costs or economic downturns Although the

company's management has a number of development-oriented initiatives, the retailer's immense scale is a tremendous barrier to significant revenue growth In addition, the

demographics of the typical Walmart customer may make them more vulnerable to the effects of inflation than some customers of its competitors (Macroaxis, 2022)

In his update, CEO Doug McMillon enumerated the factors that contributed to the company's disappointing quarterly report "Bottom line results were unexpected and reflect the unusual environment U.S inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than expected.” (Walston, 2022)

b) Comparison

It can be interpreted that Target had the largest return on assets and the greatest rise

- from 7.50 percent in 2017 to 13.20 percent in 2021, despite a slight reduction of 0.3

percent in 2018 but climbed up 7.80 percent in 2019

Following in second place is Costco, whose return on assets had steadily improved over the last five years from 7.80 percent in 2017 to 8.80 percent in 2021, but a reduction of 0.6 percent in 2020

Walmart had the lowest ROA of the three during the last 5 years Its ROA declined from 6.86 percent in 2017 to 5.35 percent in 2021 In 2019, its ROA decreased even to 3.04 percent, and its growth is not as consistent as the other two

Overall, Target maintained the highest ROA during the last five years while Walmart has had the lowest ROA, indicating that Walmart had lower the ROA, the worse it is because the company is making less money on more investment

4 Financial Leverage Analysis and Comparison between Walmart and competitors

a) Financial Leverage Analysis

Financial leverage occurs when a corporation uses borrowed cash as a funding source while investing to increase its asset base and create returns on risk capital Leverage is an investing technique that involves utilizing borrowed money to boost the possible return on an investment

• Walmart's financial leverage ratio decreased from 2020 to 2021, slight decrease of 1%

• Walmart's financial leverage peaked in 2020 at 289% when looking back over the previous five years

• Walmart's financial leverage decreased to 288 percent in 2021

• Walmart's financial leverage steadily and strongly increasing over the years

• Walmart Debt Current is currently very constant as compared to the previous year In

2021, Walmart reported a debt current of 5.4 billion Long-Term Debt to Equity is expected to increase to 0.58 in 2022, while Issuance Repayment of Debt Securities

is expected to decrease (3.7 B) in 2022

Walmart bought more assets, resulting in a sudden increase in financial leverage This is most likely owing to a growth in cash and short-term investments, which are the only sources of revenue for Walmart, which may be doubtful A higher figure is generally

preferred since it indicates that a firm is utilising its assets efficiently to produce money, and Walmart has a high asset turnover ratio Walmart may want to reconsider its inventory management strategy and invest in finding a means to expand sales quicker than

inventories Over the last five years, both sales revenue and total assets have both risen Walmart may also choose to explore reinvesting excess cash in fixed assets in order to increase its total asset turnover ratio This could potentially provide a higher return for its shareholders (Walmart's Financial Leverage, 2022)

b) Comparison: