Building Blocks of Analysis (Liquidity, Solvency, and Profitability) Trend Analy

Question

    Building Blocks of Analysis (Liquidity, Solvency, and Profitability)

    Trend Analysis

    Common-Size Statements

Current ratio: January 31, 2014 January 31, 2013 $ 61,185/$ 69,345= 0.9 to 59,940/$ 71,818= 0.8 to Part 2 Wal-Mart Common-Size Comparative Income Statements For Years Ending January 2014, 2013, and 2012 2014 2013 2012 Revenues Sales Membership and Other Income Cost of Goods Sold Gross Profit Operating, Selling, General and Administrative Expenses 100.00% 0.68% 75.69% 24.31% 19.31% 5.68% 100.00% 0.65% 75.66% 24.34% 19.04% 5.95% 100.00% 0.70% 75.55% 24.45% 19.17% 5.97% Operating Income Interest Debt Capital Leases Interest Income Interest, Net Income Before Income Taxes and Minority Interests 0.44% 0.06% -0.03% 0.47% 5.21% 0.42% 0.06% -0.04% 0.44% 5.51% 0.46% 0.06% -0.04% 0.49% 5.49% Provision for Income Taxes Current Deferred Income from Continuing Operations Loss from Discontinued Operations, Net of Tax Consolidated Net Income Less Consolidated Net Income Attributable to Noncontrolling Interest Consolidated Bet Income Attributable to Walmart 1.82% -0.11% 3.50% 0.03% 3.53% -0.14% 3.39% 1.71% 0.00% 3.80% 0.01% 3.81% -0.16% 3.65% 1 , 5296 0.27% 3.70% 0.00% 3.70% -0.16% 3.54%

Explanation / Answer

Current Ratio of Walmart in 2013 end to 2014 end varies between 0.80 to 1. This is not a very good sign of the liquidity position. If we individually look into the current assets , there is a considerably slow turnover of inventory and average inventory holding is around 46 days. The current assets are having a huge amount of Inventory (102.41% of sales ) and prepaid expenses (123.08% of sales). Both these componenets are not liquid and this indicates a lower solvency for the company which is reflected in the low acid test ratio.

The current liabilities have huge amount of shortterm borrowings (112.71% of sales) which indicates that there is wprking capital shortage and that is met by the short term loans. Accrued Liabilities And Current Liabilities are also (99.92% and 98.25% of sales) almost equal which is quite unusual , and there should not be this much accrued liabilities in a normal situation.

Altogether, the current ratio does not indicate a good cuurent asset cover for cuurent liabilities and for liquidity , the situation is worse.

Walmart must put its effort to improve inventory turnover or reduce the inventory level and also review it prepaid expense details for further improvement in the ratio.

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