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This is a Collaborative Learning Community (CLC) assignment.
With your CLC, select a publicly traded company to analyze. You must clear the company with your
instructor, as no two groups may examine the same company.
Analyze the strengths and weaknesses of the company using ratio analysis, and present your findings in
a paper of 1,500-2,000 words.
Include all calculations used in an appendix to the paper.
Prepare this assignment according to the APA guidelines found in the APA Style Guide, located in the
Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become
familiar with the expectations for successful completion.
You are required to submit this assignment to LopesWrite. Please refer to the directions in the Student
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CLC – Ratio Analysis
2
1
3
Less than
Unsatisfactory
Satisfactory
Satisfactory
0.00%
75.00%
65.00%
85.0 %Content
20.0 %Analysis
of Strengths and
Weaknesses and
Conclusion
4
Good
85.00%
5
Excellent
100.00%
Analysis of
Analysis of
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strengths and strengths and strengths
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strengths and
weaknesses
weaknesses
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is not present. is present, but and
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inaccurate.
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Research used
Some of the thorough. is scholarly,
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Research
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questionable scholarly,
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dated.
65.0 %Appendix Appendix is Appendix
Calculations Calculations Calculations
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calculations adequately thoroughly appendix are
but is
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assignment
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15.0 %Mechanics
and Formatting
5.0 %Mechanics Surface errors Frequent and Some
Prose is
Writer is
of Writing
are pervasive repetitive
mechanical largely free clearly in
(includes
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5.0 %Paper
Template is not Appropriate Appropriate Appropriate All format
Format (use of used
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5.0
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%Documentation documented. of sources is documented, documented, completely and
of Sources
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100 %Total
Weightage
RATIO ANALYSIS
1
CLC Assignment- Ratio Analysis
Green Group:
Althea Larose, Christopher Smith, Dawn Amato, Kevin Judd, Tiffany Pressler
Grand Canyon University: AMP-415
10/21/2018
Dr. Jeff Brynsaas
RATIO ANALYSIS
2
Ratio Analysis and the Walmart Empire
Starting a business can be a daunting task. Keeping the business alive and profitable is
even more of a challenge and every business owner must be diligent in their financial accounting
to ensure that their organization is profitable. There are many instruments available to business
analysts and they must be used in harmony with one another to best guide an organization in the
right direction. Successful businesses scrutinize financial statements and rely upon ratio analysis,
such as liquidity ratios, solvency ratios, and profitability ratios, as a beginning point to making
money related decisions (GCU, 2011).
Walmart
Considered by some to be the most successful retail conglomerate in the history of retail,
Walmart is the posterchild of financial success. Born in 1918, Sam Walton started his working
career by enlisting in the military. After completion of his enlistment, Sam began working in
retail and a short time later, opened his own small five and dime retail establishment in the tiny
town of Bentonville, Arkansas. Years later, Sam Walton realized that through service, he had
brought value and opportunity to his customers (Walmart, 2018) and made the decision to
expand and opened his first Walmart in Rogers, Arkansas. Sam’s vision was to give the excellent
products and service that customers deserved at value pricing, which would encourage shoppers
to keep coming back. He had his critics, but his gamble paid off. Not only did Sam have a loyal
customer base, he had loyal employees as well. Sam stated, “If we work together, we’ll lower the
cost of living for everyone…..we’ll give the world an opportunity to see what it’s like to save and
have a better life” (Walmart, 2011 pg. 2).
Usually, “saving people money so they can live better” (Walmart, 2018 pg. 2) does not
go hand in hand with profit, but with stock prices in the $95-dollar range (Yahoo Finance, 2018),
RATIO ANALYSIS
3
investors seem confident in Walmart’s ability to manage their finances and to make money. Even
if every section of Walmart’s financials is profitable, investors and managers still want
information on which segment is most and least lucrative (Brewer, Garrison, & Noreen, 2017).
With this information, if constraints arise, concessions may be made so the company continues to
operate as a profitable entity. Ratio analysis, the most commonly used method of analyzing
financial statements, is the examining of relationships between segments of financial records
(GCU, 2011). For the purpose of this paper, ratio analysis will be used to examine Walmart’s
financial records to reveal aspects of the organization’s financial success and failures.
Liquidity Ratios
Beneficial to short-term creditors and management, liquidity ratios are used to calculate a
company’s ability to pay short-term debt and to have cash available if emergency arises (GCU,
2011). This information is important because it tells how fast a company can transform assets
into cash to satisfy liabilities. The current ratio is a measure of liquidity and uses the formula
total assets divided by total liabilities (assets/liabilities). Using the recent balance sheet,
Walmart’s total assets are $204,522,000 and their total liabilities are $123,700,000, which
equates to 1.7. An ideal ratio, one considered to be a comfortable level of liquidity, is 2.1 or
higher (Investopedia, 2018). Walmart’s current ratio of 1.7 means that for every 1.7 dollars in
assets, they have 1 dollar of debt.
The quick ratio, or acid test, is similar to the current ratio but is a much harsher measure
of a company’s ability to pay short-term debt (Investopedia, 2018). To calculate quick ratio, an
analyst must take cash plus marketable securities divided by current liabilities (cash +
marketable securities/current liabilities). Walmart’s cash and marketable securities from the
current balance sheet is $127,483,000 and the total liabilities are $123,700,000. Dividing
RATIO ANALYSIS
$127,483,000 by 123,700,00 equals a 1.0 quick ratio. A 1.5 quick ratio is considered good by
most analysts and Walmart might have a hard time paying off short-term debt if an emergency
does happen.
4
RATIO ANALYSIS
5
References
Brewer, P., Garrison, R., & Noreen, E. (2017). Managerial accounting for managers (4th ed.).
McGraw-Education. New York, NY
GCU. (2011). Ratio analysis. AMP-415 Module 3 Lecture. Grand Canyon University. Phoenix,
AZ
Investopedia. (2018). Liquidity ratios. Investopedia. Retrieved online @
https://www.investopedia.com/terms/l/liquidityratios.asp
Walmart. (2018). Our history, our success. Walmart. Bentonville, AR. Retrieved online @
https://corporate.walmart.com/our-story/our-history, Bentonville, AR
Yahoo Finance. (2018). Walmart incorporated. Yahoo Finance. Retrieved online from
https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=fin-srch
Profitability ratios review the company’s ability to generate profits from its operations (Walmart
Inc.(WMT), 2017). We used the net profit margin, return on assets and return on equity. What
we discovered is t Wal Mart had a 1.4 % net profit margin, a 3.3% return on assets, and a 9.2%
return on equity. A net profit margin is the ratio of net profits to revenues (Walmart Inc.(WMT),
2017). Net Profit may be seen or reviewed as a company’s bottom line, net earnings or net
income. Net profit is one of the most popular numbers in determining the financial health of a
company. It plays a critical role in assessing the financial well-being of the company because
shareholders look at it closely since it is, “The source of compensation to shareholders of the
company, and if a company cannot generate enough profit to compensate owners, the value of
shares will plummet. Conversely, if a company is healthy and growing, higher stock prices will
reflect the increase availability of profits” (Investing Answers, 2017). To find Wal Marts net
profit we had to subtract their total expenses for the year from their total revenue. We then
compared our findings with the three years evaluated to find their net profit margin. To break it
down further, we determined Wal Mart’s net income by subtracting all the company’s expenses,
operating costs, material costs and tax costs from its total revenue. Profit margins are expressed
in percentages that measure for every dollar of sales. With Wal Mart having a 1.7% profit margin
in 2017 that means Wal Mart’s net income was $13,643,000.00 of total revenue earned. And
income revenue for Wal Mart was higher in 2016. The company made $14,694,000 in net profit
margin. This is a great indication that Wal Mart’s financial health is flourishing. Profitability
ratios are used to evaluate a firm’s ability to generate income compared to their expenses.
http://x-fin.com/analysis/WMT
Performance management occurs for enhancement of companies to achieve goals, make
improvement, facilitate requirements, plan and implement current and future elements for their
business. Performance management promotes efficiency externally and internally adding to the
financial growth and success of any company. The purpose of performance management is to
utilize company resource to collectively combine to one optimal goal or purpose. It also provides
understanding among employers the driving factors that aid employees in performing higher,
increasing morale, better decision making, and team work. Performance Management will be
analyzed using the system of Wal-Mart using both formal and informal feedback used, and steps
put in place to reduce litigation and law suits. Wal-Mart performance management foundation is
based on team work and collaboration where they evenly share responsibilities, work towards
specific goals, set standards and accountability, which aids in both accountability and financial
performance results (Wright., P.M., McMahan, G.C. 2010).
Wal-Mart employs over two million employees, nine thousand establishments, twenty
countries, utilized fifty-five different languages and names, and serve over a billion customers
(Wal-Mart, 2018). Wal-Mart was founded in 1962, by Sam Walton, who died in 1992, with a
simple pattern of offering the lowest price possible. Wal-Mart mission of reducing burdens of
families by offering products at reduce price to families of all income level. Wal-Mart surrounds
its performance management with its Human Resource capability, ability, supports, and global
network system. As Wal-Mart increases, the HR needs, specific abilities, skills, and abilities of
both domestic and international workforce increases as well. Wal-Mart training program is
designed to ensure daily job task, adjust to emergency situations, ad well as the instabilities that
occurs with any retail industry (Huselid, M. Becker, B. 2010).
Wal-Mart performance planning is based on three dimensions related to its gigantic retail
company. The three dimensions are customer service orientation, decision making and result
orientation, and analysis and problem solving. Wal-Mart customer service orientations address
human resource as it relates to retail. Wal-Mart utilize performance planning for customer
satisfaction (Chuang, et.al, 2010, 174-179)..The decision making, and result orientation is used
for orientation in all position both administrative and non-administrative staff. However, the
orientation is also streamlined for supervisory. Wal-Mart utilize the decision making and result
orientation as a training to increase resiliency through effective decision making. Wal-Mart use
different obstacle trainings for each position. Each hierarchy of the department will also train the
new hire (Alfes, et. al, 2013, pp. 333-336). They will also go through a six-month probation
where they will do a series of twelve to fifteen trainings on certain areas. Each model will
contain different chapters and department guide base on that specific position with what if
situations to ensure that resiliency of Wal-Mart expectations and standards is streamline,
understood, and adopted with the notion that the new hire will know what is expected of them
(Huselid, M. Becker, B. 2010). Lastly in analysis and problem solving is used by managers for
performance planning. In managerial positions, Wal-Mart expects and train managers to analyze
and solve problems in the workplace. During weekly meeting, Wal-Mart supervisors will use
these scenarios as training tools and ways to bring forth awareness of situations, implementing
new ways for problem solving tactics and procedures. The managers conduct performance
appraisals at the company and use these results for planning new dimensions for adequate
workforce performance (Huselid, M. Becker, B. 2010).
The measurement and standards for performance management is different for all types of
jobs, each of the position’s standards have different levels of the organization structure. The
organizational structure of a warehouse, and hourly personnel would be salesmanship and
customer service, whereas, decision making, problem solving, planning, and financial
performance standards would be in managerial. However, despite there detailed organization
structure, Wal-Mart experiences performance problems such as loss of productivity due to
absence and lateness, inaccurate recording or reporting due to errors or theft, and negative work
environment due to hostility both internally or externally (Jiang, et.al, 2017, pp.75-83).
Tardiness and absenteeism Wal-Mart use strict reoccurrence guidelines for termination.
Recording and reporting inaccurate date can lead to a bullwhip issue, however human resources
provide training to identify and reduce errors or inaccurate data (Chuang, et.al, 2010, 174-179).
Wal-Mart also re-shift its orders, process, and procedures with contractors to reduce errors and
inaccuracies. In negative customer relation both externally and internally, Wal-Mart is a big
advocate in community partnerships, encourage employee activities, sponsors many families
gathering, contest, rewards, and compensations to increase teamwork and performance (Alfes, et.
al, 2013, pp. 336-339). The Human Resource at Wal-Mart is one of the sole foundations to
ensuring the performance management tool is effective, as its always finding ways to resolve
other performance issues through training, compensation, rewards, procedures, and planning to
reduce issues both internally or externally, impacting the overall mission and values of the WalMart corporation (Jiang, et.al, 2017, pp.75-83).
References
Alfes, K., Shantz, A. D., Truss, C., & Soane, E. C. (2013). The link between perceived human
resource management practices, engagement and employee behavior: a moderated
mediation model. The international journal of human resource management, 24(2), 330351.
Chuang, C. H., & Liao, H. U. I. (2010). Strategic human resource management in service
context: Taking care of business by taking care of employees and customers. Personnel
Psychology, 63(1), 153-196.
Huselid, M. A., & Becker, B. E. (2010). Bridging micro and macro domains: Workforce
differentiation and strategic human resource
Jiang, K., Lepak, D. P., Han, K., Hong, Y., Kim, A., & Winkler, A. L. (2012). Clarifying the
construct of human resource systems: Relating human resource management to employee
performance. Human Resource Management Review, 22(2), 73-85.
Wal-Mart Stores, Inc. (2018). Walmart’s Official E-commerce Website.
Wright, P. M., McMahan, G. C. (2011). Exploring human capital: putting ‘human’ back into
strategic human resource management. Human Resource Management Journal, 21(2),
93-104.
Solvency Ratios
Solvency ratio is a key metric used to measure a comapnies ability to meet its debt and other
obligations. A solvency ratio measures the size of a company’s profitability and compares it to its
obligations. By interpreting a solvency ratio, an analyst can use the ratios to determine the probability of
a companies abilty to meet all of its debt obligations. A higher ratio represents a companies stability
and financial strength. In contrast, a lower ratio, represents a possibility of a companies potential
financial struggles in the future. In order for an analyst to get a complete picture of the companies
stability they must take in conideration all ratios and relevant information such as but not limited to
market benchmarks. It’s also important to realize that solvency ratios aren’t the same as liquidity ratios.
Liquidity ratios refer to a companies ability to handle short-term liabilities, solvency gauges the ability to
pay long-term debts.
Solvency ratios represents a company’s financial stabilty in relation to its debt. There are a number of
different ways to gauge a companies financial stability.
Debt to equity is a representation of the amount of leverage a company is using.ADebt to equity is
solvency ratio calculated as total debt divided by total shareholders’ equity. Debt typically refers to longterm debt, Equity refers to shareholders’ equity. Wal-Mart Inc.’s debt to equity ratios as of January 2018
was 0.60 which is slighty decreased from 2017 . However, when compared to market benchmark
numbers they are still competitive.
Debt to assets is a measurement that also helps an analyst gauge leverage on the balance sheet. A
debt to asset solvency ratio is calculated as total debt divided by total debt plus shareholders’ equity.
Wal-Mart inc’s debt to asset as of January 2018 was 0.37 which also decreased slight from 2017. The
benchmark numbers were still competitive with market standards.
More complicated solvency ratios include times interest earned, which represents a company’s ability
to pay its debt obligations. A interest coverage solvency ratio is calculated as a company’s earnings
before interest and taxes (EBIT) divided by interest payments. Wal-Mart Inc’s interest coverage ratio
for January 2018 was 7.49 which is a slight decrease from 2017. Again their numbers are competitive
with the markets benchmark.
Wal-Mart Inc’s solvency rates indicate a prosperous future with stability and longevity. The company’s
ability to grow only ensures this position. The greatest strength of the company is providing significant
savings to its customers. Typically , this would not equal a stable financial company, but there abilty of
bulk buying to lower cost affords their reasonable sales prices and continue profitability.
Walmart Inc. Long-term Debt and Solvency Analysis retrieved at https://www.stock-analysison.net/NYSE/Company/Walmart-Inc/Ratios/Long-term-Debt-and-Solvency#Ratios-Summary
Analyzing Investments With Solvency Ratios | Investopedia
https://www.investopedia.com/articles/investing/101613/analyzing-investments-solvencyratios.asp#ixzz5UPGbT8mo

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