Does Wal-Mart Have a Liquidity Problem? SWOT Analysis Example

According to Walmart’s 2015 annual report, the company is currently performing better than it has in the previous years (Walmart, 2015). Its enhanced influx of profit is due to the continued expansion that the company engages in. In the last several years, Walmart has opened new stores in the United States and expanded its reach into Europe by implementing several subsidiary brands to appeal to the European public. At present time, the corporation is present to some extent in six out of the seven continents. The 2015 annual report boasts the company’s ability to continue providing an enhanced customer experience, meet customer needs in terms of product delivery and focus on offering a variety of high quality goods and services.

Walmart is not concerned with its need to continually invest large sums of money into its company in order to ensure future stability and continued development. According to the 2015 annual report, the company recently invested $1 billion for U.S. hourly associates to provide them with better wages and training. Walmart plans to use this investment opportunity to instill a sense of community within its employees so that their customer service performance will inherently increase. Furthermore, the report claims that Walmart supported more than 260 million customers each week and that its total net sales for 2015 was $486 billion. The company stated its intention to perform even better during the next fiscal year.

The precise amount of financial investment as it pertains to store development and establishment of infrastructure was not reported. Furthermore, the organization stated its intention to invest in order to support enhanced technology in both the warehouses and stores to ensure that products are transferred more efficiently, allowing customers to get their products more quickly. Based on previously released reports regarding these investments, it would appear that this investment is an excess of $1 billion, in addition to the funds currently being used for employee training. It appears that the company does not want the shareholders to be aware of this exact price because it would make Walmart stock appear to be less of a sound investment. The company profits mainly based on its ability to continue its reach to new locations. As such, it must continue to engage in this practice in order to ensure financial growth.

According to an external website that provides information to stock holders, Walmart’s debt to equity ratio is currently 0.62 (Stock Analysis on Net, 2015). This number has been improving, indicating that Walmart’s financial strength is improving. Even though the company invests large sums of money, these investments have been more profitable than they have in the past. For example, the debt to equity ratio was 0.58 in 2010. The current debt to capital ratio supports this concept. As of 2015, this value was 0.38, but it was as high as 0.43 in 2012. Walmart’s current liquidity ratio is 0.97 as of 2015. This value was as low as 0.87 in 2010. According to a recent article, it would appear that Walmart’s liquidity past indicates that the company is in trouble (Hargreaves, 2013). However, he argues that the meaning of these numbers should be considered in terms of industry specificity. With this consideration, it is possible for Walmart to continue to be the leader of this industry despite the low liquidity numbers seen in previous years.

The store’s major competitors include Target, Kohl’s, Sears, and other wholesale stores and supermarkets. However, even though many stores are listed as competitors due to the sheer variety of products that Walmart sells, Target is its main pursuant. Despite this, Walmart remains ahead of Target in terms of popularity because it has more stores and is able to charge less expensive prices for its products. As such, Walmart is currently ranked number one in its industry. If Walmart continues these business practices, it is likely to remain in this position.

One non-financial factor that suggests investing in this company is the widespread popularity of the store. Many people know individuals that shop at Walmart. Therefore, is apparent that the stores are popular and the stocks would likely show growth due to the frequency in which the average American chooses to visit the store and go shopping. This is an important consideration because the stores will always remain stable due to the number of shoppers it has. A second non-financial factor suggesting investment in this company is the broad array of products that it offers. Walmart shoppers are able to acquire all of the goods and services they need within the store, so it will continue to be profitable because it takes money away from many other competing businesses. The last non-financial factor that suggests investing in this company is that Walmart has a family friendly atmosphere and fun commercials that people all remember. Because of this culture that the store has created, Walmart will remain a family favorite for many years to come and is therefore a wise investment. Walmart stock is highly likely to increase in value over the next several years, so it is beneficial to buy at a lower price today.

References

Hargreaves R. (2013). Does Wal-Mart Have a Liquidity Problem? Retrieved from http://www.fool.com/investing/general/2013/11/30/does-wal-mart-have-a-liquidity-problem.aspx

Stock Analysis on Net. (2015). Walmart. Retrieved from https://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Ratios/Long-term-Debt-and-Solvency

Walmart. (2015). Annual Report. Retrieved from http://stock.walmart.com/files/doc_financials/2015/annual/2015-annual-report.pdf