Walmart's Liquidity Ratios

Walmart was founded by businessman Sam Walton in 1950. He started off with Walton’s 5&10 in Bentonville, Arkansas. In 1962, Sam opened the first Walmart in Rodgers, Arkansas (Walmart Inc , 2018). The company was incorporated on 31st October 1969 and went public in 1970. The IPO helped financed the rapid and steady growth of the company. The company growth was also attributed to Sam’s principle of offering lower costs than its competitors and better services to their customers.

Today the company has grown into a multi-national company retail and wholesale business operating 11,700 today. Walmart has three main segments: The Walmart U.S., Walmart International, and Sam’s Club (Company Overview of Walmart Inc, 2018). The Walmart US segment consists of retail stores spread across the United States and digital platforms under the Walmart brand. This segment also offers financial services to its US customers through money orders, wire transfers, and other related services. Walmart International comprise the company’s international operations which range from retail, wholesale and e-commerce (Walmart Inc , 2018). The Sam’s club segment is a members-only club which offers subscribers an assortment of products in the company warehouses or through samsclub.com. this segment offers personalized and specialty services to its members.

Currently, the company has a market capitalization of $255.2 billion dollars with 51.70% of its shareholders being individual stakeholders, 16.07% institutional shareholders and 14.05% being mutual fund holders. With steep competition from Costco, Target, Dollar general and e-commerce companies like Amazon, eBay, and Ali Baba, the company needs to ensure it keeps us with the industrial changes and remains ahead of the pack in offering superior goods, and lower costs and better services to its clients.

Liquidity Ratios

These are ratios which show the company’s ability to pay off their debts using their current assets (Kuprina). In the case of Walmart, we are going to calculate the current ratio, quick ratio and cash ratio from 2015 to 2017.

Current Ratio Formulae=

Current Assets/Current Liabilities

2017

2016

2015

Total Current Assets

63278000

61185000

59940000

Total Current Liabilities

65,272,000

69,345,000

72,014,000

0.97

0.88

o.83

The current ratio will measure Walmart’s ability to pay off obligations due in a year using its current assets. Its current ratio rose from 0.83 in 2015 to 0.97 in 2017. This means the company is taking active measures to improve its liquidity. This means the company has more liabilities due within in year compared to the current assets it holds. This can be attributed to the industry Walmart operates in where it has to borrow large sums to finance its large inventories.

Quick Ratio Formulae=

(Current Assets- Inventories)/Current Liabilities

2017

2016

2015

Total Current Assets

63278000

61185000

59940000

Inventory

45141000

44858000

43803000

(TCA-Inventory)

18,137,000

16,327,000

16,137,000

Total Current Liabilities

65272000

69345000

72014000

28%

24%

22%

This ratio measures the company’s ability to meet current obligation using currents assets with the exception of inventories. The company’s quick ratio rose from 22% in 2015, 24% in 2016 to 28% in 2017. This is lower than the current ratio in the same year meaning Walmart relies heavily on inventory to settle its current financial obligations.

Cash Ratio Formulae=

Cash and cash equivalents/Current Liabilities

2017

2016

2015

Cash and Cash Equivalents

9,135,000

7,281,000

7,781,000

Total Current Liabilities

65,272,000

69,345,000

72,014,000

14%

10%

11%

Cash ratio measures the Walmart’s ability to settle obligations due within the year using cash and cash equivalents only. The ratios stood at 11% in 2015, 10% in 2016 and rose to 14% in 2017. This means the company needs more than just its cash reserves to be able to finance its debts within the year.

References

Company Overview of Walmart Inc. (2018, August 27). Retrieved from Bloomberg: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=313055

Kuprina, N. 2.-5. (n.d.).

Our History. (n.d.). Retrieved from Walmart: https://corporate.walmart.com/our-story/our-history

Walmart Inc . (2018, August 28). Retrieved from CNN Money: https://money.cnn.com/quote/profile/profile.html?symb=WMT