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Submitted by hpace on January 22, 2006
Category: Business
Words: 2360 | Pages: 10
Views: 278
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For the fourth year in a row, Wal-Mart is number one on Fortune magazine’s annual list. Holding the top spot on the Fortune 500 is a distinction that many companies strive to obtain. However, does size equal financial growth and stability? This paper will research Wal-Mart’s financial situation through analyzing its many different financial ratios.
Methodology
For the purpose of this research, all ratios, and pertaining data was retrieved from Mergent Online. The industry used for comparison was obtained by the North American Industry Classification System (NAICS), which replaced the U.S. Standard Industrial Classification (SIC). (http://www.census.gov/epcd/www/naics.html) This peer group reported by NAICS via Mergent includes 25 companies (including Wal-Mart and its subsidiary Costco); other companies on the list are BJ’s Wholesale Club Inc., Hills Stores Co., and Target Corp. This group does not include every retailer in the world nor in the U.S. However, it shall serve as a proportional segment of the total industry, which will operate as an unbiased point of reference to be considered the industry average.
Profitability
Wal-Mart continues to grow in virtually every category. In 2000, Wal-Mart recorded $156.2 billion in net sales; this number has steadily increased each year to the $256.3 billion reported in the 2004 annual report. Over $100 billion increase in net sales in only 5 years. However, an increase in net sales means absolutely nothing if it does not manifest into a profit for the company.
In Figure 1, you can see Wal-Mart’s profit margin ratio trend for the past 5 years.
Figure 1
As seen in Figure 1, Wal-Mart’s profit has stayed around 3.25 over the period. In layperson’s terms, this means the net income is approximately 3.25 times more than the net sales. This level is exceptional when compared to the industry average. Over the period, Wal-Mart’s profit margin has been...
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