WMT Balance Sheet
a) The most recent balance sheet for Wal-Mart comes from the company’s 8-K for the year ended January 31, 2011. The short-term liabilities for Wal-Mart were $58.484 billion. The long-term liabilities were $53.637 billion. Long-term debt is a component of the long-term liabilities and is listed at $43.482 billion.
b) At that point in time, the number of shares outstanding was 3.561 billion. The most recent price per share is $51.96. The market value of the equity in the company therefore is $185.03 billion.
The debt ratio is the total liabilities divided by the total liabilities + equity (aka total assets). This is $112.121 / $180.663 = 62%.
The debt-to-equity ratio is the total liabilities divided by the equity. This is $112.121 / $68.542 = 1.64
I consider these values to be within the acceptable range. They are closer to being too large, however. The company is highly leveraged, which implies a growth model. Wal-Mart’s revenue, however, indicates that the company is not growing rapidly. Revenues have only increased by 4.2% in the past two years. Given the company’s size, it is likely entering a state of maturity, particularly in the core U.S. market. Given that, Wal-Mart should be expected to carry less debt on its balance sheet.
I believe at this point that Wal-Mart should take steps to pay off its debt. The company is likely to face rising costs of its goods in the coming years, as China has stated that it needs to cool its economy. This will come via allowing the yuan to increase, which will increase the cost of Chinese goods in the U.S. These increased costs will place competitive pressure on Wal-Mart in particular, because of the company’s dependence on the Chinese market. If Wal-Mart’s margins are squeezed, its debt level will become a greater drain on its free cash flow that it is at present.
3. Two other companies in the same industry are Target and Costco. The debt-to-equity ratio for Target is 28.218 / 15.487 = 1.82.
The debt-to-equity ratio for Costco is 12.986 / 10.829 = 1.20.
Of the three companies, Target has the highest debt-to-equity ratio. Costco has the lowest debt-to-equity ratio. I believe that Costco has chosen to have the lowest ratio of these major discount retailers as a means of reducing debt costs. The company can expect to have lower interest payments as a result of its lower debt levels. In addition, lower debt levels are more closely associated with a mature business.
MSN Moneycentral: Wal-Mart Stores, Inc. (2011). Retrieved March 7, 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Balance&Symbol=U.S.%3aWMT&stmtView=Ann
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