• The company that has been chosen is Walmart and it operates
in the retail industry. It is a well-known U.S.-based multinational
retail business that has a chain of hypermarkets, grocery stores
and departmental stores.
• The weighted average cost of capital (WACC) of Walmart as of
December 2022 is 7.09 %. The weighted average cost of capital
refers to a firm’s average after-tax cost of capital from all of its
financial sources. It encompasses a diverse range of elements
such as stock, bonds, preferred stock and other types of debts.
WACC refers to the average rate that a business entity is
expected to pay for the purpose of financing its assets.
In the context of the Walmart business, the WACC is 7.09 % which
implies that the retail company has to pay at the specific rate so that
it will be able to finance the assets that are used in the organization
(Valueinvesting.io - Crunchbase Company Profile & Funding.
Crunchbase, 2021).
• In current times companies, as well as industries, are facing a
plethora of risks in the prevailing economic and political
environment that have the potential to adversely impact the
WACC component. One of the chief factors that exist in the
economic setting is the high tax rate. High taxation can increase
the finial burden for the Walmart organization and adversely
affect its financial aspects. Since it has to pay taxes based on the
changes in the tax rate, the cost that it has to incur to arrive at
the weighted average cost of capital is expected to increase,
thereby increasing its financial burden (Giles & Strauss, 2022).
Inflationary pressure that exists in the external market setting
may also play an instrumental role in impacting the WACC of
Walmart and its operational industry. The inflationary pressures
encompass the elements or causes that contribute to inflation in
the economy. They can lead to changes in the dynamics of the
economy as a result of a change in demand and supply. It can
act as a major risk factor that can impact the financial
components of the business, such as the cost of equity or the
cost of debt.
A key risk that the Walmart company and the retail industry are
facing in the prevailing political setting revolves around the Covid 19
pandemic. The policies and stringent measures that have been
introduced due to the pandemic have increased the level of
uncertainty in terms of the demand in the market setting. Such a risk
can have an adverse impact on its profitability and the financial
burden that may arise due to the payment of the weighted average
cost of capital to finance the assets of the business undertaking. After
the pandemic, the changes that have taken place relating to the fiscal
spending have been attributed to the U.S. inflation (Hubbard, 2022).
The U.S. government has been introducing a number of policies that
is playing a cardinal role to fuel the demand in the market setting and
shape the profitability trajectory of businesses as well as industries
(Hubbard, 2022). It is a key political factor that has increased the
uncertainty risk for Walmart.
References
Giles, C., & Strauss, D. (2022, November 18). 'new era' of higher taxes
beckons for UK, warn think-tanks. Subscribe to read | Financial Times.
Retrieved December 7, 2022, from
https://www.ft.com/content/635fa3d7-c00b-4a3c-85a0-
d4360802e5c6
Hubbard, G. (2022, November 14). Post-pandemic fiscal spending bears
much of the blame for us inflation. Subscribe to read | Financial Times.
Retrieved December 7, 2022, from
https://www.ft.com/content/48d41445-544d-41e9-891f-
3b50a2f1a3eb
Valueinvesting.io - Crunchbase Company Profile & Funding. Crunchbase.
(2021). Retrieved December 7, 2022, from
https://www.crunchbase.com/organization/valueinvesting-io
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