powerpoint slides for financial analysis

1. Profitability

The net profit margin for Walmart between 2016 and 2019 was; 3%, 3%, 2% and 1% respectively.

The net profit margin for JC Penney between 2015 and 2018 was; -4%, 0%, 0% and 1% respectively.

Although in 2018 Walmart’s profit margin dropped while JC Penney’s increased by 1%, Walmart showed much better profit margins between the years 2016 and 2018. This shows that Walmart experienced higher profit margins in the three consecutive years (DeYoung, Distinguin, & Tarazi, 2018).

Walmart had much higher revenue between 2016 and 2018 as compared to JC Penney which had recorded dismal numbers in their revenue for the three years. In terms of net income, Walmart also showed better performance during the three years compared to its counterpart JC Penney. The interest expenses to total sales value ratio for Walmart was significantly low (0%) indicating a huge positive margin between its expenses and the level of sales obtained by the company. The ratio of cumulative selling, general and administrative costs to total revenue attained for Walmart was much lower than that of JC Penney. This proves to be the reason as to why profit margins for Walmart were much higher than those of JC Penney (DeYoung, Distinguin, & Tarazi, 2018).

1. Inventory management

A day’s inventory on hand is used to show how many days a company takes to sell its inventory and therefore is an indication of performance of a company’s sales potential. For our two companies I would therefore conclude that Walmart did significantly much better than JC Penney in managing their inventory and therefore can say that Walmart does better in converting their inventory into sales than JC Penney (DeYoung, Distinguin, & Tarazi, 2018).

3 year trends for inventory DOH for Walmart is as follows; for year 2017= 44.21 days, for year 2018= 42.84 days, and for year 2019= 41.95 days. Between 2017 and 2019 there was improved inventory management by the company shown by the reducing number of days.

The trend for JC Penney was; 127 days for year 2016, 267 days for year 2017 and 113 days in 2018. The company shows inconsistency in its improvement of inventory management as there is improvement between 2016 and 2017 and then a setback in 2018 as inventory day on hand increased from 2017 (Hoitash, Kurt & Verdi, 2018).

The company can improve inventory management by; prioritizing inventory to know which ones to order more, regularly auditing inventory to ensure it adds up, doing an analysis of supplier performance to avoid cases of running out and adopting the 80/20 inventory rule by ensuring practices that bring 80% profit from 20% of the stock (Hoitash, Kurt & Verdi, 2018).

Analysis of net revenue and reinvestment

Walmart generated $27753 million in 2019 from operations while JC Penney generated $475 million in 2019. Walmart had a higher free cash flow than JC Penney. This is to show that Walmart had a better performance in generating cash from operation.

Over the years, Walmart has been spending more money in payments of its long term debts and in 2019 finally experienced a change in long term debt whereby the proceeds exceeded the payments. However for JC Penney, its level of payment of long term debt is still minimal and outweigh its proceeds. Walmart is increasingly spending more at reinvestment and therefore resulting in higher return on invested capital while JC Penney has since reduced its reinvestment seeing it have a lower return on investment over the years (Hoitash, Kurt & Verdi, 2018).

Liquidity

Walmart has lower current ratio compared to JC Penney. The trends for JC Penney from 2016 to 2018 show inconsistency in current ratios as they fluctuate between 1.5 and 1.7. For Walmart the trend for current ratios between 2016 and 2019 has been steady at around 0.8.

Walmart’s current ratio, which is below 1, is a negative indication that it might be unable to pay its short term obligations come the next year. If it does not get the funds in the limited time to pay its liabilities then it might go bankrupt (Zubaidah, 2019).

References

DeYoung, R., Distinguin, I., & Tarazi, A. (2018). The joint regulation of bank liquidity and bank capital. Journal of Financial Intermediation, 34, 32-46.

Zubaidah, S. (2019). PENGARUH NET PROFIT MARGIN, RETURN ON INVESTMENT, RETURN ON EQUITY, DAN EARNING PER SHARE TERHADAP STOCK PRICE PADA PERUSAHAAN SUB SEKTOR PROPERTY (Doctoral dissertation, Universitas Mercu Buana Jakarta)

Hoitash, R., Hoitash, U., Kurt, A. C., & Verdi, R. S. (2018). An input-based measure of financial statement comparability. Available at SSRN 3208928