BA4006 Understanding Business

Information
50% Individual Coursework
Spring 2020

Student Name:
College ID:
London Met ID:
Assignment Due Date:
Assignment Submission Date:
Word Count:

I confirm that I understand my coursework needs to be submitted online via Google Classroom under the relevant
module page before the deadline in order for my assignment to be accepted and marked. I am fully aware that late
submissions will be treated as non-submission and a mark of zero will be awarded.
Table of Contents
Part One: Analysis of Profitability, Liquidity
and Financial Ratios
1. Introduction to Wall Mart Inc.
Walmart Inc. is an American Multinational retail corporation that operates a chain of
hypermarkets, discount department stores and it headquarter lies in Bentonville,
Arkansas. The organization was established by Sam Walton in 1962 and merged on
October 31, 1969. It additionally owns and works with Sam's Club retail stockrooms. It is
the world's biggest organization by income, with $514.405 billion, as per report by the
Fortune Global 500 listing in 2019. It is additionally it has the largest private employee in
the globe with 2.2 million workers. (87 words)

2. Financial Ratios
Financial ratios of a company are the essential tools that that provide meaningful
information to analyses and compare companies’ financial information and it’s
background to its investors and for interpreting financial achievement. In the report
financial ratios of Walmart and Amazon are accumulated from Macrotrends.net and
data for retain industries are collected from Readyratios.com (54 Words)
Financial Ratios of Walmart Inc.
Years 2016 2017 2018
Profitability Ratios      
Net Profit Margin 3.05 2.81% 1.97%
Return on Assets 7.29% 6.85% 4.89%
Return on Capital Employed 12.51% 11.97% 9.17%
Liquidity Ratios      
Current Ratio 0.93 0.86 0.76
Quick Ratio 0.22 0.19 0.16
Inventory Turnover 8.06 8.26 8.6
Financial Structure      
Gearing Ratio 2.48 2.56 2.63
Table 1.1: Table for ratio analysis

3. Profitability Ratio
A Profitability ratio is the way of measuring productivity that is used to measure the
company’s overall functioning. Normally profitability ratios are used to measure the
profit of company which include net profit margin, return on assets, return on capital
employed etc. (42 words)

3.1 Net Profit Margin (NPM)

(introduction and formula are written in appendix)

Net Profit Margin

Year 2016 2017 2018
Walmart Inc. 3.05 2.81 1.97
Retail Industry 1.9 2.2 2.2
Amazon (Competitor) 1.74 1.71 4.33

Table 1.2: Net Profit Margin

 5 Net Profit Margin
Net Profit Margin (%)
4.5
4.33
4
3.5
3.05 2.81
3
2.5 2.2 2.2
1.9
2
1.74 1.97
1.5 1.71
1
0.5
0
2016 2017 2018

Years
Wallmart inc. Retail Industry Amazon (Competitor)

Fig 1.1: Line graph for net profit margin

Analysis:
The net profit margin of Walmart was 3.05% in 2016 which was highest and started
declining in 2017 and 2018 with lowest rate of 1.97% in 2018, which shows the
decreasing profitability. Similarly, the NPM of retail industry was 1.9% in 2016 and
remained constant in 2017 and 2018 i.e.,2.2%. Talking about Amazon it’s NPV was
lowest in 2016 and increased by almost 0.25% in 2017 and reached at peak in 2018 as
4.33%. (74 words)

3.2 Return on assets (ROA)

(introduction and formula are written in appendix)

Return on Assets
201 201 201
Year 6 7 8
Walmart Inc. 7.29 6.85 4.89
Retail Industry 2.8 3.7 3.5
Amazon (Competitor) 2.84 2.3 6.1
 Table 1.3: Return on assets

Return on Assets
8
7.29 6.85
7

6 6.1
Return on Assets (%)

5 4.89
3.7
4
2.8 3.5
3

2 2.84 2.3

0
2016 2017 2018

Years

Wallmart inc. Retail Industry Amazon (Competitor)

Fig 1.2:Line graph for Return on assets

Analysis:
ROA of wall mart was highest in 2016 as 7.29% and was also decreased in 2017 as
6.85 and was reached to 4.89%. In 2016, ROA of retail industry was 2.8 and was
increased by almost 1% in 2017 and remained almost constant in 2018 i.e,3.5%.
Likewise, return on assets of amazon was also 2.8% in 2016 and it was decreased in
2017 as 2.3% and reached at peak by 2018 as 6.1%. Overall, the after 2017 ROA of
Walmart and Retail industry was decreased whereas Amazon’s ROA was increased
drastically. (91 words)
3.3 Return on Capital Employed (ROCE)
(introduction and formula
are written Return on Capital Employment in appendix)
Year 2016 2017 2018
Walmart Inc. 12.51 11.97 9.17
Retail Industry N/A N/A N/A
Amazon (Competitor) 8.42 7.09 14.7

Table 1.4: Return on capital employed

Return on Capital Employment

Return on capital employment

16
14.7
14
12.51 11.97
12
10
9.17
8 8.42
6 7.09
4
2
0
2016 2017 2018
Years

Wallmart inc. Amazon (Competitor)

Fig 1.3: Line graph for Return on Capital employment

Analysis:
The ROCE of Walmart Inc was in a declining order from the year 2016 to 2018. As seen
in the graph the ROCE of wall mart was12.52% in the year 2016, 11.97% in the year
2017 and finally 9.17% in the year 2018. So, it is clear that the ROCE of Walmart was
declined in between 2016-2018 unlike its competitors Amazon which was decreased
from 8.42% to 7.49 in 2017 and got hiked to 9.17% in the year 2018. (79 words)

3.4 Factor affecting Profitability Ratios

Walmart’s profitability ratio has shown a downward operating trend from 2016 to 2018.
This trend shows that the business benefits are reducing. Higher interest rate is the
major economic factor affecting the profitability ratio of Walmart. This company is
affected financially with the increased interest rates due to this company is making less
profit. (54 words)
4. Liquidity Ratios
Liquidity ratios are the ability to look at the short-term liability of a business which may
fall (Carey, et al., 2011). (17 words)

4.1 Current Ratios (CR)

(introduction and formula are written in appendix)

Current Ratios
Year 2016 2017 2018
Walmart Inc. 0.93 0.86 0.76
Retail Industry 1.23 1.25 1.21
Amazon (Competitor) 1.05 1.04 1.1
Table 1.5: Current Ratios
 Current Rati os
1.4 1.25
1.2 1.23 1.21
1.05 1.04
1 1.1
0.93
current ratios

0.8 0.76
0.86
0.6
0.4
0.2
0
2016 2017 2018
Years

Wallmart inc. Retail Industry Amazon (Competitor)

Fig 1.4: Line graph for Current Ratios

Analysis:
From the graph we can analyses that CR of Walmart is declining and is less than 1
whereas retail industry and Amazon has CR greater than 1 between 2016 to 2018.In
2016 CR of retail industry was 1.23 which was increased by 0.2 in 2017 and was
decreased in 2018 as 1.21. Similarly, CR of Amazon was almost similar in 2016 and
2017 (i.e., 1.05 and 1.04) and in 2018 it was increased by 0.7 (75 words)
4.2 Quick Ratio (QR)
(introduction and formula are written in appendix)

Quick Ratio
Year 2016 2017 2018
Walmart inc. 0.22 0.19 0.16
Retail Industry 0.5 0.49 0.44
Amazon (Competitor) 0.78 0.76 0.84
Table 1.6: Quick Ratio

Quick Ratio
0.9
0.84
0.8 0.78
0.7
0.76
0.6
Quick Ratio

0.5 0.5
0.49 0.44
0.4
0.3
0.2 0.22
0.16
0.1 0.19
0
2016 2017 2018
Axis Title

Wallmart inc. Retail Industry Amazon (Competitor)

Fig 1.5: Line graph for Quick Ratio

Analysis:

The QR of Walmart was 0.22 in 2016 and was decreased in 2017 by 0.3 and it was
again increased in 2018 as 0.16. QR of retail industry remained almost constant in the
years 2016 and 2017 (0.5 and 0.49) and declined in the year 2018. Similarly, quick ratio
of Amazon, remained same in the years 2016 and 2017 and was slightly increased in
2018 as 0.87. (67 words)
4.3 Inventory Turnover Times
(introduction and formula are written in appendix)

Inventory Turnover Times

Year 2016 2017 2018
Walmart inc. 8.06 8.26 8.6
Retail Industry 8.11 8.22 8.69
Amazon (Competitor) 9.78 9.97 10.43
Table 1.7: Inventory turnover times

Inventory Turnover Times

30
10.43
9.78
25 9.97
Inventory Turnover times

20
8.69
15 8.11 8.22

10
8.06 8.6
5 8.26

0
2016 2017 2018
Year

Wallmart inc. Retail Industry Amazon (Competitor)

Fig 1.6: Inventory turnover times

Analysis:
While analyzing the line graph, it is clearly seen that inventory turnover of times of
Walmart and Retail industry remained around 8 between 2016-2018 whereas the
inventory turnover of amazon was increasing trend. In inventory turnover times of
amazon was 9.78 in 2016 which was increased by 0.19 in 2017 reaching to its highest
point in 2018 (i.e., 10.43). (57 words)

4.4 Factors Affecting Liquidity Ratios

While interpreting the Liquidity trend of Walmart, it can be clearly observed that
Walmart’s current and quick ratio is less than one. Which shows Walmart may have
problems meeting its short-term obligations and cannot fully pay back its current
liabilities. But it has been able to run its operations smoothly despite Current and Quick
Ratio being less than 1. Walmart is directing a new training program for workers, with
plans to expand and this has helped the retailer do a better job of keeping items in
stock (Gustafson, 2020).

Some of the factors affecting liquidity ratios of Walmart are increasing Competitors, cost
of ecommerce and technological advancement. (107 words)

5. Financial Structures
Financial structure refers to the combination of debt and equity that a company uses
to finance its ventures (Young, 2019) (18 words)
5.1 Gearing Ratio (GR)
(introduction and formula are
Gearing Ratio
written in appendix)
Year 2016 2017 2018
Walmart inc. 2.48 2.56 2.63
Retail Industry N/A N/A N/A
Amazon (Competitor) 4.32 4.74 3.73

Table 1.8: Gearing Ratio

Gearing Rati o
5 4.74
4.5
4.32
4
3.73
gearing ratio

3.5
3 2.56
2.5 2.63
2.48
2
1.5
1
0.5
0
2016 2017 2018
Years

Wallmart inc. Amazon (Competitor)

Fig 1.7: Gearing Ratio

Analysis:
The gearing ratio of wall mart was 4.32 in 2016, 4.74 in 2017 and it was decreased by
almost 1 in 2018. Looking at gearing ratio of Walmart it was almost similar and was
increasing between 2016-2018 and remained around 2. (41 words)

5.2 Factor Affecting Financial Structure

The economic condition is one of the major factors affecting financial structure of a
company. The financial condition of a country can directly affect the financial structure
of a company. As Walmart is one of the world’s largest retail firm and has stable income
and a firm with large and stable incomes may gain more debt in its capital structure,
unlike the one that is unstable. (66 words)

6. Limitation of accounting Ratios of Walmart

There are some limitations of Walmart’s accounting ratios. Accounting ratios of
Walmart’s shows only the monetary aspects (quantitative) but not the qualitative
aspects. Walmart’s accounting ratios do not resolve any financial problems and it also
ignores the price level changes due to inflation. (43 words)

7. Conclusion
In conclusion, Wallmart should work to increase profitability ratios and should grow its
sales through various methods. First of all, by selecting the a well skilled and educated
staff who had enough knowledge about retail industry and who comes up with different
schemes and offers which would also help attract more customers, improving the
management inside the company and can contribute in increasing profit. The company
also needs to increase its shareholders in order to deal with all those liabilities.
Throughout the essay, we have discussed and analyzed financial ratios of Walmart
comparing with its competitor Amazon and retail industry, with the help of table and line
graph ratio and the external factors which have impacted the Walmart’s financial ratio.
(120 words)

(Total 1092 words not including words from heading, table, and figures)
APPENDIX

3.1 Net Profit Margin (NPM)

Net Profit Margin is the financial ratios used to analyze the level of benefit of an
organization obtained from its total income. Its formula is,
NPV = (Net profit / Net sale) * 100

3.2 Return on assets (ROA)

ROA is also a profitability Ratio that provides information about the profit generated
through the assets of a company. Formula to calculate ROA is, (23 words)
ROA = Net income / Total assets

3.3 Return on Capital Employed (ROCE)

ROCE is the key Profitability ratio that shows how efficiently management is using its
resources invested in the business to generate profits (Carey, et al., 2011). It is
calculated by,

ROCE = (Operating profit / Capital employed) * 100

4.1 Current Ratios (CR)

The current ratio is a liquidity ratio that measures whether a firm has enough resources
or not to pay short-term debts or dues within a year.

Formula: CR = Current Assets / Current Liabilities

4.2 Quick Ratio (QR)

Quick Ratio is a liquidity ratio indicates the company’s short-term liquidity position and
measures its capability to meet short-term obligation.

Formula: QR = Quick Assets / Quick Liabilities

4.3 Inventory Turnover Times

Inventory turnover times is the ratio that shows how many times a company has sold
and replaced inventory during a given period of time particularly a year.

Formula: Inventory Turnover = Cost of good sold / Average inventory

5.1 Gearing Ratio (GR)

The gearing ratio is a financial ratio that compares owner's equity to debt, or funds lent
by the company.

Formula: Gearing Ratio = Total Assets / Shareholder’s Equity