Do a business analysis is not a piece of cake as it requires heavy amount of research and study. According to a large number of researchers, business analysis wants that the analyst must put his head in the analytical process to get the desired result. The main prospective of this study is to do a business analysis of a selected company. It is pre-requisite of the assignment to analyze a company whose financial statement has been made on the principles of General Accepted Accounting Principles (GAAP). The entity which we have chosen on which this entire study will be based on is Wall-Mart, a United States (US) bases retail store, which is also the biggest store of US.

Wal-Mart is the largest public corporation in the world. It has its headquarters in Bentonville in Arkansas State in the United States. It was started by Sam Walton in 1962 and incorporated in 1969 (Duke, 2010, pg. 77). Its main operations are merchandizing of household goods and groceries. The company has a chain of departmental stores across the United States and in 15 other countries in different continents. Its total number of stores is 8500 (Duke, 2010, pg. 88). Being the biggest store in the retail sector in The United States, Wal-Mart accounts for over 50% of the groceries sales in the country. It is also the greatest private employer in the entire world. The family of Sam Walton ranks among the top 10 billionaires in the world in the Forbes List with various members of the family ranking differently (Reuters, 2010, pg. 14).

Wal-Mart sells a wide range of items ranging from electronics, clothing, footwear, groceries, toys, jewelry and pharmaceutical products to food stuff. The company is a major importer and exporter of these goods. It specializes in sourcing goods at the cheapest prices in the market and supplying the same at affordable prices. It is the availability of all the goods that customers need under one roof and the quality of the goods in the Wal-Mart stores that keeps customers coming back (Duke, 2010, pg. 44).

The major source of revenue for the Wal-Mart stores is the retail income. The company channels most of its efforts into serving as many customers as possible from a certain area of residence. It locates its stores locally to ensure they are the most convenience stores in the location. In addition to retailing, Wal-Mart also offers retail services that include distribution and transport (Carvin, 2010). The company has a fleet of trucks that traverse the entire American continent distributing retail goods to various retail stores. This distribution service also counts for a percentage of the income that Wal-Mart receives (Duke, 2010, pg. 104). 

The current price of the Wal-Mart stock is 53.69. The stock has been fluctuating frequently within this range. The lowest price that it has hit in the past 12 months is 47.77, while the highest has been 56.27 (Marketwatch, 2010, pg. 11). This is a stable stock and the low that it hit was at a time when Wall Street was recuperating from the recession that hit the stock markets hardest. However, Wal-Mart stock still survived this turmoil and with a market capitalization of $194.81 billion, and an average 11.26 million, the company has guaranteed perpetuity at least in the United States (Marketwatch, 2010, pg. 07).
Wal-Mart is a bulk purchaser mostly getting its own goods from the source and this eliminates the middleman and reduces other incremental costs that are involved in the procurement process (Wikiinvest, 2010). It takes advantage of quantity discounts when it buys in large quantities. This is the reason why most of the goods in its departmental stores are sold at discounted prices. The global supply chain enables Wal-Mart management to collect information about the cheapest sources of their goods (Carvin, 2010, pg. 21).  The company has a great success story as the Net Income for year (FY) 2009 was US$ 14.33 billion with total assets of approx US$ 171 billion. The company has a great and gigantic amount of workforce comprises on 2,100,000 employees worldwide.

Profitability Ratios

An order of financial metrics that are used to assess an industry's ability to engender return as compared to its expenses and other important outlay during an aspect and span of time. For most of these ratios, having an upper quantity relative to a competitor's ratio or the same ratio from a previous spot is indicative that the circle is liability well

Profit margin is very effective when comparing companies in analogous industries. An advanced profit margin shows more profitable ratios that has better monitor over its costs compared to its competitors. The NPM of Wall Mart which we have computed is mentioned below,

Year

Net Profit

Revenue

Net Profit Margin

in Millions $

in Millions $

NPM %

2005

          10,267

         285,222

3.60

2006

          11,231

         312,427

3.59

2007

          11,284

         344,992

3.27

2008

          12,731

         374,526

3.40

2009

          13,400

         401,244

3.34

The consistency and revenue recognition of Wall Mart can be gauge from the above analytical table and chart easily. Wall Mart’s Net Profit Margin (hereafter NPM) has been consistent throughout the period from 2005 to 2009, which is indeed a positive sign either for the company or for the investors who intends to put their money in the company’s stocks. A marginal decrease of 32 basis points had been envisaged For Year (FY) 2007 because the company was only able to earned net income which is only 0.47% higher than the previous period. This type of marginal fluctuations can be neglect, but the consistency the company maintained in its NPM throughout this five year period is marvelous which certainly helps the organization to achieve their desired objective soon.

The assets of the company are composed of the debt and equity. Both of these types of financing are worn to deposit the operations of the guests. The ROA table gives investors an idea of how effectively the guests are converting the money it has to invest into net proceeds. The advanced the ROA number, the better, because the company is earning more money on minus investment. ROA figures apprise the investors that how the assets of the company doing in generating revenues. This particular measure is very important before a number of analysts. The computation along with chart of ROA of Wall Mart is mentioned below,

Year

Net Profit

Total Assets

Return on Assets

in Millions $

in Millions $

ROA %

2005

          10,267

         120,154

8.54

2006

          11,231

         138,187

8.13

2007

          11,284

         151,587

7.44

2008

          12,731

         163,514

7.79

2009

          13,400

         163,429

8.20

The Return on Asset (ROA) figures of Wall Mart is little bit volatile throughout the selected period. A minimal decrease of 0.41% and 0.69% has been envisaged in the years 2006 and 2007 respectively. The Net Profit (NP) of the company only grew by 0.47% in the year 2007 which decreased the figure of ROA as well. A heavy increase of 12.35% in NP was envisaged in the year 2008 as compared to the same period of last year which increased the ROA figure by 35 basis points or 0.35% in the year 2008. The company did not effect by the brutality of the current economic crisis and the NP of Wall Mart increased by 5.25% FY 2009 and increased the ROA figure as well by 0.41% as compared with the same period of last year, indicating that the company is operating efficiently and utilizing its assets wonderfully well.

Shareholders are much more worried with the profitability of the visitors and simply stress on ROE. The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The calculated figure’s table of ROE along with detail chart is mentioned below,

Year

Net Profit

Equity

ROE

in Millions $

in Millions $

 %

2005

          10,267

           49,396

20.79

2006

          11,231

           53,171

21.12

2007

          11,284

           61,573

18.33

2008

          12,731

           64,608

19.70

2009

          13,400

           65,285

20.53

Return on Equity (ROE) is one of the most widely used tools used by the analysts to value the company. ROE graph shows that the company is enjoying profit year on year (YOY). ROE increased by 0.33% in the year 2006 because the Net Profit of Wall Mart had increased by 9.39% in the same year as compared to the same period of last year. A Sharp decrease of 2.79% envisaged in the year 2007 because of the decrease of shareholder’s equity of 10.87%. That deceleration was due to the fact that people bought back their money from the company’s stocks. After year 2007, a YOY increase has been envisaged by Wall Mart as in the year 2008 and 2009 as the ROE of the company increased by 1.37% and 0.83% respectively. That acceleration was due to the surge of 12.82% in NP in the year 2008. From this analysis, one can say that the company is efficiently operated with their equity investment.

Current ratio is a liquidity ratio which measures the ability of a company to pay its short term obligations with the help of its short term assets like cash, inventory and receivables (Cinnamon, R & Larsen, B.H, pp. 20-44). Table along with chart is mentioned below,

Year

Current Assets

Current Liabilities

Current Ratio

in Millions $

in Millions $

 %

2005

                38,854

                   43,182

0.90

2006

                43,824

                   48,826

0.90

2007

                46,982

                   52,148

0.90

2008

                47,585

                   58,454

0.81

2009

                48,949

                   55,390

0.

The current ratio (CR) of the company is not supportive for the organization. Throughout the chosen period, the CR of the company is below than 1 which means that the company has to sell some part of their assets to meet its short term obligations. The CR is the same for three consecutive years depicting a figure of 0.90 and then decrease by 0.9% in the year 2008 just because of the severity of the financial crisis, which induced the company to sell some part of their current assets to meet with their short term financial obligations.

Debt to Equity (D/E) is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It is one of the most widely used ratios especially by the banks and creditors to evaluate the credit worthiness of the counter person. The computation of D/E ratio along with its chart is mentioned below,

Years

Total Debt

Total Equity

D/E

Millions $

(In Million $)

%

2005

70,758

49,396

1.43

2006

85,016

53,171

1.60

2007

90,014

61,573

1.46

2008

98,906

64,608

1.53

2009

98,144

65,285

1.50

           

The D/E of Wall Mart is somewhat in a chaos. A D/E of more than 1 indicates that the company often uses debt to meet with their financial promises. A sharp increase of 23 basis points or 0.23% was envisaged in the year 2006, but then it came on an acceptable level. However the company has to reduce its D/E ratio and increased their current ratio to sustain in the long run in front of their competitors.

In this section we have to calculate the intrinsic value (IV) of Wall mart. There can be a number of methods to compute the IV of a company like NPV Geo Model, Pricing Models but the model which we have chosen is Dividend Discount Model (DDM) made by an American Gold Medalist Gordon Grown. That is why DDM is also known with the name of Gordon Grown Method (GGM).

The actual price on which Wall Mart’s share is trading on the New York Stock Exchange (NYSE) is $ 53.95; it means the stock is undervalued. So investors have to buy the shares of Wall Mart because the intrinsic value is way above the actual market price of the company’s stock.

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