M1 A3 Spreadsheet

1. Liquidity ratio

2. Asset turnover ratio

3. Financial leverage ratio

4. Profitability Ratio

5. Dividend Policy Ratio

Liquidity Ratio

We are going to look at the current ratio-The current ratio is used to measure the ability of a firm to transform its products or services into cash. It is used by the company's management to give them the clear picture of whether a company is able to meet its short-term Liabilities with the use of available cash (short-term assets). It is an essential tool for measuring the financial health of a company.

current ratio = Current Assets/Current Liabilities = 59644/78521 = 0.76

Interpretation

The current ratio for Wal-Mart Inc Company as at Jan 2018 is 0.76, this indicates that the company is faced with difficulty in meeting its current obligations. A low current value signifies a greater problem for a company. Since the company has a nice reputation in the market, it is more likely to secure a loan in order to meet its short-term debt obligations.

Asset turnover ratio

The asset turnover ratio is defined as an efficiency ratio that is used to measure the ability of a firm to generate sales from the existing assets; it tends to compare the net sales of a company with the average total assets. In other words, the ratio is used by a company to measure how a company can efficiently use its assets in generating more sales. It is calculated as Revenue divided by the Total assets of a company.

Asset Turnover Ratio = Revenue/ Total Assets

For the year ended the Asset turnover for Wal-Mart was -500343/201673.5 =2.48

Like most ratios, the asset turnover ratio is based on the industry standards. It can be observed that some industries in the market use assets better as compared to others. The Asset Turnover ratio for Wal-Mart shows that the company been using its assets very well as compared to others in the whole industry.

Financial leverage ratio

In the financial leverage, I going to focus on the Debt to Equity ratio-This is a ratio that is used by firms to measure the level of debt to equity shareholding of a firm ("Walmart Inc (WMT) Stock Analysis - GuruFocus.com," n.d.).

Debt to Equity Ratio = Total Debts of a Company/ Total Equity holdings

For Wal-Mart Inc

For Wal-Mart Inc Debt to Equity for the year ended January = (Current Portion of long-term debt+ Long-Term Debts &Capital Lease) / Total equity

(9662+36825)/77869 = 0.6

Interpretation

The high debt to equity ratio shows that Wal-Mart Inc Company has been aggressive in financing its growth through the use of debt capital. This in the long run can result in volatile earnings as a result of additional interest expense. As of Jan 2018, the debt to equity ratio for the company was 0.6

Profitability Ratio

Profitability ratios are financial metrics which are used by business in measuring and evaluating the ability of a firm to generate income (Profit) relative to revenue. In this section, we are going to use calculate the Return on Asset Ratio. This is a ratio which is used by a company to measure firm’s ability to generate profits.

Return on Assets = Net Income/ Total Assets

For the year ended Jan 2018, the ROA for Wal-Mart is calculated as follow;

Net Income / (Total asset as Jan 2017+ Total assets as 2018)

9862/ (198825+204522) = 0.489 = 4.89%

Interpretation

A higher ratio for a company is good as it shows that the company is in a position to manage its assets effectively. The ratio for Wal-Mart shows that It has been in a position to manage its resources /Assets effectively.

Dividend Policy Ratio

The dividend policies are ratios which are used to give a better insight on dividend payments to the shareholders relative to the net income of a company ("Walmart Dividend Payout Ratio (WMT)," n.d.).

For Wal-Mart company, we are going to calculate dividend payout = Dividend Per Share/ Earning Per share

Dividend pay ratio = 2.04/3.28

=0.62

A low ratio for the company shows that it still has a room for an increase in the dividend payment.

References