FINANCIAL RATIO ANALYSIS 2
FINANCIAL RATIO ANALYSIS 1
Financial Ratio Analysis
Sarai Cortes
SNHU
July 25, 2021
Key ratios have been applied to finance the performance of Walmart company. The key ratios are categorized as liquidity, profitability, operating performance, debt, investment valuation, and cash flow.
Profitability
Formula
2021
2020
2019
Profit Margin
Net Profit/Revenue
2.42%
2.84%
1.30%
Return on Assets
Net Profit/Total assets
5.35%
6.29%
3.04%
Return on Equity
Net profit/Equity
16.69%
19.93%
9.20%
Return on capital
Net profit/Capital
11.06%
12.57%
5.75%
Profit margin is the ratio of net profit and sales. It is used in determining whether a firm has enough sales to pay the expenses. The above table indicates a positive profit margin which is an indication of profit made during the period. There is a rise in 2020 but a slight decline in 2021. Return on assets shows whether a company manages the assets well to generate profit. It is positive and hence profit is generated (Easton, 2018). There is an increase in 2020 and a decline in 2021. The year 2021 performs poorly in terms of profitability. Return on equity is used to determine whether equity is enough to generate profit. The company performance posts a rise in 2020 but declines in 2021. Return on capital illustrates the efficiency in the utilization of capital to generate net earnings. The company performs well in profitability. However, the year 2021 indicates poor performance due to a decline
Liquidity
Formula
2021
2020
2019
Current Ratio
Current Asset/Current Liabilities
0.97
0.79
0.80
Quick Ratio
Quick Assets/Current Liabilities
0.49
0.22
0.23
Cash Ratio
Cash/Current Liabilities
0.19
0.12
0.10
The liquidity of Walmart is assessed through the use of cash, quick, and current ratio. The current ratio is used to indicate whether Walmart has sufficient current assets to pay the current obligations. The current ratio is less than 1 which is an indication that current assets are not sufficient to clear the current obligations of the company. Quick ratio shows whether quick assets are sufficient to clear the current liabilities. The cash ratio is used to indicate whether cash is enough to pay the current liabilities. These ratios indicate that the liquidity of Walmart company is low during the three years. However, there has been an improvement in the liquidity ability of Walmart.
Debt
Formula
2021
2020
2019
Debt ratio
Debt/Assets
67.95%
68.43%
66.94%
Debt to Equity
Debt/Equity
212.01%
216.72%
202.49%
Interest Coverage
EBIT/Interest
9.74
7.91
9.36
The ratios above are used to measure the long-term solvency of Walmart. The debt ratio shows that the amount of assets is more than the debt in the firm which is a good indication of long-term solvency (Monahan, 2018). Debt to equity ratios indicates that Walmart uses more debt than equity in the capital structure. The interest coverage ratio shows the sufficiency of the company to pay interest expenses through the use of more operating income. The year ended 2021 register the best performance in terms of solvency.
Operating Performance
Formula
2021
2020
2019
Fixed-Asset Turnover
Revenue/Fixed Assets
3.44
3.00
3.27
The fixed asset turnover ratio is 3.27 in 2019, 3.00 in 2020, and 3.44 in 2021. There is a decline in the efficiency of the company to utilize fixed assets to generate revenue in 2020. However, the year ended 2021 post a rise.
Cash flow
Formula
2021
2020
2019
Dividend Payout Ratio
DPS/EPS
46.12%
41.38%
92.98%
The year ended 2019 shows the highest dividend payment. This however significantly decline in 2020 but slightly increase in 2021. Walmart rewards the shareholders through dividends.
Investment Valuations
Formula
2021
2020
2019
Price/book value
Price/Book Vale
4.72
3.88
4.13
Price/Earnings
Price/Total Earnings
32.97
21.52
22.82
Price/Sale
Price/Total Sale
0.72
0.61
0.53
Dividend yield
Dividend/Market price
1.54%
1.46%
1.77%
The above are investment valuation ratios for Walmart. The rations are favourable which is an indication of the high valuation of Walmart company. There is favourable performance especially in the year ended 2021. They indicate that Walmart investors significantly value the firm.
Based on all the ratios, the company shares should be bought as the company is having strong financial health. The profitability ratios show that investors will gain dividends as a result of their investments. Investment valuation shows a strong position in the market operating performance shows high efficiency.
References
Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. J. (2018). Financial statement analysis & valuation. Boston, MA: Cambridge Business Publishers.
Monahan, S. J. (2018). Financial statement analysis and earnings forecasting. Foundations and Trends® in Accounting, 12(2), 105-215.
The post FINANCIAL RATIO ANALYSIS 2 FINANCIAL RATIO ANALYSIS 1 Financial Ratio Analysis Sarai appeared first on PapersSpot.
