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

The below ratios pertain to the year 2018 as mentioned in the question.

= $10523/495761

= 0.021 or 2.1%

= 10523/[(204522+198825)/2]

= 0.052 or 5.2%

= 10523/77869

= 0.135 or 13.5%

= 495761/[(204522+198825)/2]

= 2.4 times

= 204522/77869

= 2.6 times

= 30045+6780+8354 / 204522

= 0.22

= 20437/2178

= 9.3

= 59664/78521

= 0.75

= 59664-43783/78521

= 0.2

Earnings per share= Net Income-Preferred Dividends/Weighted average shares outstanding

(Note-Dividends on common shares mentioned not preferred dividends)

= 10523/ 2995+3010

= 1.75

Price earnings ratio = 95/1.75

= 54.29

Book value per share=Total Shareholders’ Equity/ Outstanding Shares

= 77869/2995+3010

= 12.9

Price to book = 95/12.9

= 7.3

= 2.04/95

= 0.021 or 2.1%

Hope this was helpful :)

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