Problems portion of the Exam - Please use the 2018 Walmart Financial Statements

Question

Problems portion of the Exam - Please use the 2018 Walmart Financial Statements (attached to this week's tab under the heading Walmart Financials) to calculate the following and place your answers in the spaces below: Profitability Ratios these ratios tell the reader the abilitv of management to differentiate product (charge a higher price or to charge a lower price (and still make a profit because of unique efficiencies or other cost advantages) these ratios are very important to managers because bonuses and stock prices tend run off of these ratios: 1. Profit Margin-Net Income /Sales (top of the income statement/bottom of the income statement) 2. Retum on Assets Net income /Assets (bottom of the income statement / bottom of the balance sheet) 3. Return on Equity Net Income Stockholders equity (bottom of the income statement / stockholder monies which have been reinvested in the past kept in the firm by management) Asset Utilization or Efficiency Ratios this ratio tells the reader the ability of management to generate sales from a given level of investments in assets (to those who are given more assets -more is expected in sales). These ratios are most important to management. Management is responsible for keeping the investor's money in “right" projects or assets in an efficient manner-capacity and inventory decisions are important: 4. Total asset tumover -Sales/ Assets (top of the income statement/bottom of the balance sheet) Debt Ratiosthese ratios tell the reader two things: the ability of management to pay longer term debts from collateral and the ability to pay fixed obligations from income or cash flows. Both groups of ratios are very important to long term creditors. Banks look first at your ability to pay from cash flows - coverage and secondly at your ability to pay from collateral or asset sales. Managers like to use new debt and cash from projects to finance new projects because it is cheapest form of financing. But remember additional debt brings financial risk and too much debt brings bankruptcy: 5. Equity Multiplier -total assets total stockholder's equity 6. Debt to total assets-total long term debt total assets 7. Times interest camed- carnings before interest and taxes /total interest expense

Explanation / Answer

Profit Margin = Net Income/ Sales = 9862/495761 = 0.0198 or 1.98%

Return on Assets = Net Income/ Assets = 9862/204522 = 0.0482

Return on Equity = Net Income/ Stockholders Equity

Stockholders Equity = Company's Assets - Liabilities

Stockholders Equity for 2018 = 204522 - 78521 = 126001

Stockholders Equity for 2018 = 198825 - 66928 = 131897

Average Stockolders Equity = (126001+131897)/2 = 128949

Therefore, ROE = 9862/128949 = 0.076

Total Asset Turnover Ratio = Sales/ Average Total Assets

Average Total Assets = (204522+198825)/2 = 201673.5

Therefore, Asset Turnover Ratio = 495761/201673.5 = 2.458

Equity Multiplier = Total Asset/ Shareholder Equity = 204522/128949 = 1.586

Debt to Total Assets = Long Term Debt/ Total Assets = 1978/201673.5 = 0.0098

Times Interest Earned = Earning Before Interest & Tax/ Total Interest Expense = (15123+152)/ ((152+100)/2)) = 121.23

Current Ratio = Current Assets/ Current Liabilities : Current Assets = (59664+57689)/2 = 58676.5

Current Liabilities = (78521+66928)/2 = 72724.5

Therefore, Current Ratio = 58676.5/72724.5 = 0.806

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses)/ Current Liabilities

= (12370+12702)/2 = 12536

Therefore, Quick Ratio = 12536/72724.5 = 0.172

Price to Earning = 54.24

Price to Book = 3.92

Dividend Yield = 2.18%

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