Walmart pro forma financial statements

Pro-Forma and Business Cycle Research Paper

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Pro-Forma and Business Cycle Research Paper

In this paper we will research the businesses of Wal-Mart and Starbucks to compare and contrast the current financial statements of these companies. We will describe the financial viability of these businesses using ratio analyses and summarize a typical business cycle for the businesses and identify where the companies are in the cycle.

Every business will experience various stages of the business cycle. Each stage, such as growth or contraction, has its own challenges that require different approaches to be successful. The typical business cycle will encounter trends including slowdown, bottom, growth, and peak (Bowlin, 2014). As a company goes through a normal period of expansion they may see the slowdown occur where sales begin to fall off and a decision must be made about moving toward the expansion stage or exiting. During the slowdown there is still fierce competition and with negative cash flow the company will eventually hit the bottom. If moving toward expansion, efforts to gain market share are aggressive in order to find new profit channels. Business will begin to see a peak as the company enters new markets or adds new products to existing markets and the cycle begins again.

Walmart and Starbucks are two large companies with long-standing competitive advantages. Each has seen significant profits that have resulted in a relatively stable cash flow. In the business cycle Walmart and Starbucks are mature companies because they've achieved stability and their revenue growth is in line with the growth of the economy. Additionally, mature businesses tend to build up cash balances which can then be passed onto investors as dividends. Walmart has returned over 2 billion to its shareholders in dividends and share repurchases ("Walmart Reports Fy", 2014). Starbucks returned a record $1.2 billion to its shareholders (Starbucks Corporation Fiscal 2013 Annual Report, 2013).

Comparison of Wal-Mart and Starbucks current financial statements

Wal-Mart Stores Inc. operates retail stores in many parts of the world.

Starbucks Corp. deals in the manufacture and sale of coffee and tea. It operates through its Americas, Europe, Middle East, and Africa segments.

Ratios

Wal-Mart

Starbucks

Valuation

P/E Current

15.52

7,396.00

P/E Ratio (with extraordinary items)

15.54

368.40

P/E Ratio (without extraordinary items)

15.30

7,733.00

Price to Sales Ratio

0.51

3.89

Price to Book Ratio

3.17

13.00

Price to Cash Flow Ratio

10.54

20.27

Enterprise Value to EBITDA

8.34

18.93

Enterprise Value to Sales

0.62

3.50

Total Debt to Enterprise Value

0.19

0.02

Efficiency

Revenue/Employee

216,497.00

81,825.00

Income Per Employee

7,217.00

46.00

Receivables Turnover

70.85

28.44

Total Asset Turnover

2.34

1.51

Liquidity

Current Ratio

0.88

1.02

Quick Ratio

0.24

0.81

Cash Ratio

0.10

0.60

Profitability

Gross margin

24.82

21.32

Operating Margin

5.64

15.02

Pretax Margin

5.18

-1.54

Net Margin

3.33

0.06

Return on Assets

7.79

0.08

Return on Equity

20.81

0.17

Return on Total Capital

12.06

0.15

Return on Invested Capital

13.31

0.15

Capital Structure

Total Debt to Total Equity

74.28

29.00

Total Debt to Total Assets

42.62

11.28

Long-Term Debt to Equity

58.43

29.00

Long-Term Debt to Total Capital

33.53

22.48

Market Capitalization

As of the 12 months ending Apr 30, 2014 Wal-Mart has a market capitalization of $242.5 billion compared to Starbucks’s $55.68 billion. Wal-Mart has a higher market capitalization than Starbucks. This difference points out that investment in Wal-Mart are more stable and thus viable and exposed to lower risks than in Starbucks.

Return on Investment (ROI)

With respective Returns on investments of 13.3% and 0.15% for Wal-Mart and Starbucks for the year ending 31 December, 2013, Wal-Mart promises far higher return on capital invested than Starbucks. It is more profitable to invest capital in Wal-Mart than in Starbucks.

Pay-Back Period Analysis

Going by the ROI to analyze how fast it would take to recover the invested capital, it can be seen that the invested capital can be recovered faster at Wal-Mart than at Starbucks.

The income statement is basically the first financial statement that will be presented in an annual report or quarterly Securities and Exchange Commission (SEC) filing. It will contain the numbers most often discussed when a company announces its results, such as revenue, earnings and earnings per share. The income statement shows how much money the company generated (revenue), how much the company spent (expenses) and the difference between the two (profit) over a certain time period.

Starbucks

The best way for a company to improve profitability is by increasing sales. Starbucks has aggressive long-term sales growth goals that include a distribution system of 20,000 stores worldwide. It has been Starbucks consistent sales growth that has increased their profitability. Profit must equal to total revenue minus total expenses.

Period Ending: 9/29/2013 VS. 9/30/2012

Total Revenue: $14,892,200 $13,299,500

Cost Revenue: $6,382,300 $5,813,300

Gross Profit: $8,509,900 $7,486,200

Wal-Mart

Wal-Mart income statement presents information on the financial results of a company’s business activities over a period of time. The income statement communicates how much revenue the company generated during a period and what cost it incurred in connection with generating that revenue.

Period Ending: Jan 31, 2014 VS. Jan 31, 2013

Total Revenue: $473,076 $466,114

Cost Revenue: ($358,069) ($352,488)

Gross Profit: $115,007 $113,626 (USD $ in Millions)

Wal-Mart stores have increased net sales from 2012-2014. However, Wal-Mart operating income has also increased from 2012-2013, with a slight decline from 2013 to 2014. It also declined from income continuing operations before income taxes from 2013-2014. Income from continuing operations declined from 2013-2014, and consolidated net income attributed to Wal-Mart declined from 2013-2014.

Wal-Mart, though a very profitable company, did face challenges which brought a decline on the income statement versus Starbucks. Increasing sales offers the first sign of strong fundamentals. Rising margins will indicate increasing efficiency and profitability, with both companies it is noted that Wal-Mart had a change in the company’s profitability.

References

http://stock.walmart.com/financial-reporting/unit-counts-square-footage.

http://stock.starbucks.com/financial-reporting/unit-counts-square-footage.

Writer, S. (2014). . "Wal-Mart Plans to Close 48 Bud's Discount City Stores." New York Times. July 23, 1997. Retrieved on June 14, 2014.

Bowlin, K. (2014). What is a business cycle & why is it important?. Retrieved from http://smallbusiness.chron.com/business-cycle-important-21827.html

Starbucks Corporation fiscal 2013 annual report. (2013). Retrieved from http://file:///C:/Users/Zakiya/Downloads/Starbucks%20Fiscal%202013%20Annual%20 Report %20-%20FINAL.PDF

Walmart reports FY 15 Q1 EPS of $1.10; weather impacted EPS approximately $0.03. (2014). Retrieved from http://news.walmart.com/newsarchive/investors/2014/05/15/walmart-reports-fy- 15-q1-eps-of-110-weather-impacted-eps-approximately-003