There are several aspects that are used to asses the financial position of a company, Wal-Mart has been doing well and these are some of the financial data available. Operating margin otherwise known as operating profit margin gauges the effectiveness of business’ management strategy. It gives a comparison of the business’ performances and those of the competitors (Stickney & Weil 2004). Operating profit margin is defined by dividing the operating profit of that specific period by the revenue for the same duration and this is a determination of how the company has managed to control the costs and expenses in the usual operations, (Hooke 1998)
If a business is able to attain very high operating margin than the average industry’s operation, it will have low fixed costs with god gross margins which may enable the management to be more flexible in pricing. Flexible pricing is a very important aspect in the current economic times for the survival of any business (Ingram & Baldwin 2001). The operating income for Wal-Mart remained at 5% of the total sales over the past three years since during this time; the sales were constantly reducing at an average of about 9% per year. The operating income was therefore constant.
This implies that the management of Wal-Mart has been very efficient, and being efficient gives them a competitive advantage making it to stay in the lead for so long (Fabozzi et al 2003). Liquidity of Wal-Mart Liquidity is described as the capability of a business venture to meet its short term financial responsibilities and it is normally indicated by calculating the current ratio which represents working capital (Peterson et al 1999). This is a show of whether the company has enough resources to meet its responsibilities or not.
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Current Ratio = Current Assets Current Liabilities; To interpret the result, is as follows; if the result id less than 1, the company will not be able to fulfill it s short term responsibilities. On the other hand if the result is greater than 1, it implies that the company has enough resources to meet its responsibilities (Peterson et al 1999). To clearly analyze the liquidity of Wal-Mart Inc, its good to consider the three financial ratios; Coverage ratio, current ratio and quick ratio; these ratios are very important to the investor as they expose the insights of any dangers that might be encountered. Read also Walmart Financial Analysis paper
Wal-Mart Inc being the largest retailer in the world has enough resources and free cash flow that helps it to meet the yearly financial responsibilities like debts (Diamond et al 1999). The ratios determine the liquidity; current ratios is derived by taking the current assets then divide by the current liabilities while Quick Ratio is given by the addition of Cash and Cash equivalent plus Accounts Receivable the divide by the Current Liabilities. (Stickney & Weil 2004).
The current ratio was 0. 90 over 2006 t0 2007 while the quick ration on the other hand was 0. 19 and 0. 18 over 2006 and 2007 respectively (Jablonsky & Barsky 2008). Though the ratios are not very safe for Wal-Mart, it does not present any solvency or liquidity risk. By maintaining low liquidity ratios, Wal-Mart Inc is able to operate with cash flow efficiency and give a chance to squander cash on investments hence reducing the return on equity (ROE) (Fridson & Alverez 2002).
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