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Good Investment in Wal-Mart
Invest into Wal-Mart?
Margaret Coleman
Instructor: Michael Higley
ACC323-O15-001-ON-Intermediate Accounting IV-4:2012
Final Project
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Good Investment in Wal-Mart
Is it a good decision to invest into Wal-Mart?
Wal-Mart has been a successful business from the moment that Sam Walton opened the first
store in 1962. The store has had many accomplishments both financially and in growth over
the 50 years they have been open. Holding the leading spot in retail, Target follows at the
number 3 seat. With the continuous growth in Wal-Mart and the constants improvement being
made to accommodate the consumers I would highly recommend anyone to invest into WalMart as it also has a larger return on the stockholders shares.
Wal-Mart History
Sam Walton was the founder of the Wal-Mart stores that we know today. The first
Wal-Mart was opened on July 2, 1962 and was called Wal-Mart Discount Store in Rogers,
Arkansas as you can read about on Wikipedia.com. Although Sam, his brothers and father-inlaw owned many successful stores, this was the first true Wal-Mart store opened. The store
was first incorporated as Wal-Mart inc on October 31, 1969. 1970 brought a lot of success, as
you can read on www.walmart.com, for the company as they opened up their first distribution
center and the home office in Bentonville Arkansas. In the 38 stores opened at this point in
Wal-Mart history there were 1500 employees and sales were up at 44.2 million. Stock in the
company was made available for sale to the public for the first time this year as well. In 1971
Wal-Marts stock took a 100 percent split giving it a market value of $47. Then in 1972 it
happened again bringing the stock value up to $47.50. 1978 brought about the opening of the
Wal-Mart pharmacy, Auto service center and jewelry department. Wal-Mart also acquired the
Hutcheson Shoe Company. In 1979 they reached a billion in sales becoming the only company
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Good Investment in Wal-Mart
to reach 1billion in sales in such a short time. By the end of the 1970 there were 278 Store
opened and operating, 21,000 employees, with 1.248 billion in sales over 11 states. The growth
of Wal-Mart did not stop but continued going as they had two more 100 percent stock splits,
the opening of the largest distribution center in Palestine Texas, they entered 4 more states
and bought out Kuhn’s Big K stores all in the early 1980s. In 1983 Forbes magazine gave WalMart the #1 ranking of all the general retailers for the eighth year in a row, they opened up
their first 1hour photo lab, bought out U.S. Woolco Stores and had their sixth 100 percent stock
split giving a value of $81.625. In 1987 was the celebration of 25 years in business with 1,198
stores, 200,000 employees and $15.9 billion in sales. A private satellite network was created
for Wal-Mart and was the biggest private satellite communication system in the United States.
In 1990 the company became the nation’s top retailer entering into six more states and taking
over McLane Company of Temple. 1990 also brought about the opening of the Wal-Mart
Visitor Center were Sam Walton’s original store, Walton’s 5-10 Store, was located. 1991 WalMart ventured across the border into Mexico City as well as they introduced the store brand
“Sam’s American Choice.” President George H.W. Bush presented Sam with the Medal of
Freedom, the highest civilian honor, in 1992 just a few weeks before Sam passed away at age
74. His son S. Robson Walton was elected to take over for Sam of the company that now
operated in 45 states in the United States. 1993 brought about a separate international
division of Wal-Mart and entry into 4 more states and in two more years one more to make 50
states. As of the end of 1994 the company had 123 stores in Canada and 86 in Mexico plus this
was the year that the Code Adam program was put in place in all the stores. With growth both
locally and internationally the company operated 239 supercenters, 433 Sams Clubs and 276
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Good Investment in Wal-Mart
international stores with 675,00o associates giving the company sales of $93.6 billion at the end
of 1995. Wal-Mart continues to grow and prosper all over the world now and remains the top
retail store of the nation. (Walmart.com, history timeline)
Target History
Wal-Mart is classified in the category of a department store along with Target and
Kmart. Target is number 3 in the top retailers with Kmart at number 2. Target was founded by
George Draper Dayton who owned a Loan and Investment company. His bank had to foreclose
on a retail store called Goodfellow Dry Goods Company as they were having financial
difficulties. Dayton re-opened the struggling retail store as Dayton Dry Goods which grew into a
large chain of department stores. Dayton died and his sons took over and followed in his
footsteps running the store as their father did. When they first opened the store was made
with wide isles, multiple checkout lanes, clearly marked displays and a clean and inviting
atmosphere. As target was still in the starting stages, the managers of Target consulted with
an upper class and fashionable store called Richway stores. Richway was planning on opening a
discount store in its home are so they felt like consulting together was beneficial. The two
companies did not view each other as competition and in 1989 the companies relationship
proved to benefit as it aided in their moving into the southeast. When Target had come to the
end of their beginning years they had 4 open and operating stores. 1966 brought about the
company venturing out of Minnesota to Colorado and four years later 17 stores in 4 states.
Come the end of the 1960s Target had sales of $100 thousand as 40% yearly growth.
Purchasing a chain of 16 retail stores in three states and the expansion of Targets made this
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Good Investment in Wal-Mart
part of Dayton’s empire most profitable. With Target being a part of the Dayton Empire, they
were able to get more from the higher end brand manufacturers as they had experience in
retailing as well as Target had an effect on changing the way people looked at discount
business. 1973 proved to be a year that didn’t show as much improvement in fact it showed
that they were in their second year of downfall in sales. Target made some changes in their
higher positions which helped to turn thing around in 1974 as well as a hold on opening up any
more stores. The store started to pick back up in sales and the store also started to pick up new
brands as well as the new look to the stores. Senior citizen and other various special shopping
events were created to show the concern for the community. In the years between 1977 and
1982 Target pushed its way to being the biggest retailer for Dayton Enterprise. Target
represented 26 % of Dayton’s profits and in 1982 the overall department store profits for all the
Dayton Empire dropped from 58% to 26%. Target by its self had actually increased to 33%
which was about the same as another Dayton owned retailer called Mervyn’s. In the 1980 the
company acquired many new store including a 40-outlet chain and 33 Fedmarts pushing them
into more states in the Us. They also started to offer liquor and groceries and by 1989 there
were 399 stores in 31 states with sales of $7.52 billion. Target took it upon itself to look into
the local interest; based on climate, local sports and so on; in order to draw in more customers
as well as they moved into smaller cities. 1995 was the year that two Supper Targets were
opened and they the following year six more were opened. This year also brought about the
gift registry, bridal registry and a target credit card. 736 stores were in operation at the end of
1996 with revenue of $17.85 billion. Targets Take Charge of Education program was a major hit
in 1997. This gave customers the opportunity to sign up a school of their choice to receive one
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Good Investment in Wal-Mart
percent of their guest card purchases. 300,000 schools were registered and had received a
total of $800,000 within the first two years the program was opened. One million dollars was
pledged, by target, to be given back to the community which started immediately as they
offered assistance to victims of two tornados that hit in Tennessee January of 1999.
Going
into the year 2000 Target became Target Corporation. (Target.com, history)
Retail Industry
Both of these retailers started off the same with only selling clothing and household
supplies and necessities. They each grew at their own pace and in their own ways to acquire
additional products and services. Wal-Marts now also provided little shops inside that are from
outside entities. Subway, nail salons ect… are examples and their competitor Target has started
doing the same but with fewer slots available. Target has Pizza Hut and Coffee shops inside as
Wal-Mart stores have that and more. This provides convenient to its customers by giving them
one store to buy all they need and then some. They set up displays of items that are in season
and hot sellers to make them more accessible to the consumers. Both companies are
constantly growing and changing to accommodate their surrounding communities through
product changes and remodeling.
In the toys side retail one of the new product lines is Monster High. The little girls enjoy
watching the shows while they play with the dolls that they can buy at Wal-Mart stores and
their competitors. At Valentine’s day the company advertised an exclusive doll called Cupid
that brought a lot of revenue to the store. In toys with every new cartoon or movie that the
kids have comes new toys to bring in new revenue. Along with the new toys you also see new
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Good Investment in Wal-Mart
cloths come out to have the new cartoons and movie on them. During the sports seasons they
get in sport cloths drawing in the fans. In the food department they keep up with the different
chips that come out, the new soups and other food that company make. To promote and draw
the interest of consumers the company sets up tasting for new food products to allow the
consumer to try the product prior to spending money one something they may not like. When
companies come out with new products Wal-mart usually will come out with their great value
version of the same for a cheaper version that is more affordable for those with a stricter
budget.
Finances
When comparing Wal-Mart’s return on Equity to Targets you see that Wal-Mart would
provided the better return on your investment at 5.73 while target is .19. Wal-Mart has a
larger profit to distribute amongst the shareholders allowing them to receive a larger return
then that of Target. When you take a look at the asset to equity ratio you see that Target (2.82)
owns more of its assets than financed and Wal-Mart (2.41) shows a slightly lower ration
meaning they have a little bit more financing than Target. (Mallory Ottis, 2011, par.3) This gives
Target a slight advantage as by owning the assets you are able to turn them into cash easier
than if you are paying on them. Debt to equity ratio looks better for Wal-Mart as they owe
$0.26 to creditors per shareholders dollar and Target owes $2 per shareholders dollar. This
seems odd as the ratios portray Wal-Mart as having more financing but this tells me that WalMart has more stockholders than Target spreading out the debt amongst the shareholders.
When you look at the current ratio you want to see a higher number to see that the companies
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Good Investment in Wal-Mart
assets are easier to liquidate (Joshua Kennon, 2012, par.2) Wal-Mart is considered to be in the
negative as they are sitting below 1 at .87 while Target is looking ok at 1.71 giving them a better
liquidity of their assets. Wal-Mart has done a lot of remodeling and updating their stores over
the past few years which cost money meaning that they may have financed their remodeling.
Although this might not seem reassuring, Wal-Mart is still the better choice as their
numbers have steadily been going up over the past three years where as Targets have
decreased and then increased again. Wal-Mart shows constant growth in their sales and net
income despite the bad economy. From the beginning Wal-Mart has proven year after year to
have a lot of success, honors and accomplishments.
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Good Investment in Wal-Mart
Appendix:
Walmart:
Return on equity (net income/ stockholder equity)
Return on sales (net income/ sales)
Asset turnover (sales/ total assets)
Assets-to-equity ratio (Toatal assets/ stockholder equity)
Efficiency:
Accounts receivable turnover (Sales/Average accounts recievable)
Average collection period (Average Accounts Recieveable/
Average daily sales)
Inventory turnover (Cost of goods sold/ average Inventory)
Number of days’sales in inventory (Average inventory/
Average daily cost of goods sold)
Fixed asset turnover (sales/ average fixed assets)
Leverage:
Debt ratio (Total Liabilities/ Total Assets)
Debt-to-equity ratio Total Liabilities/ Total Stockholder Equity)
Times interest earned (earnings before interest and
taxes/Interest expense)
Other:
Return on assets (Net income/ Total assets)
Current ratio (Current Assets/ Current Liabilities)
Cash flow adequacy ratio (cash flow from
operations/(Purchases of long-term assets+ Repayments of
long-term debt +Cash dividend payments)
Earnings per share (Net Income/Weighted # shares outstanding)
Dividend payout ratio (Cash Dividents/Net income)
Price-earnings ratio (Market price per share/earnings per share)
Book-to-market ratio (Stockholders equity/ market value of
shares outstanding
Perecent of Change
Net Income
Sales
Gross Margin
Cash Balance
Net Income
Sales
Gross Margin
Cash Balance
References:
2010 Target:
5.73
1.27
2.37
2.41
405046000/
2010
0.19
0.44
1.53
2.82
66,786,000/
2
45,725,000/
405,046,000/
66,786,000/
0.11
0.26
0.65
2
7
3.00
0.87
0.07
1.71
12.23
/513,000,000
/1.09
0.002
70,749,000/
Walmart:
2010
7.0%
1.0%
24.8%
13%
Target:
17.4%
3.7%
30.5%
-10%
2009
5.3%
7.3%
24.2%
12%
12.4%
0.9%
30.5%
33%
15,487,000/
2008
12.8%
8.4%
24.0%
3%
-22.3%
2.3%
29.8%
7%
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Good Investment in Wal-Mart
Joshua Kennon. (2012). “The Current Ratio”. www.about.com
Mallory Ottis. (2011). “Asset-to-Equity Ratio Analyses” www.ehow.com
NNDB. (2012). “George Draper Dayton”. Retrieved on April 21, 2012. From
http://www.nndb.com/people/571/000167070/
References for Business. (2012). “Target Stores - Company Profile, Information, Business
Description, History, Background Information on Target Stores”. Retrieved on April 21, 2012.
From http://www.referenceforbusiness.com/history2/50/Target-Stores.html
Target. (n.d.) “Financial Reports” Retrieved on May 2, 2012. From www.Target.com
Wal-Mart. (n.d.) “History Timeline”. Retrieved on April 21, 2012. From
http://www.walmart.com
Wal-Mart. (n.d.) “Financial Reports”. Retrieved on May 2, 2012. From
http://www.walmartstores.com/AboutUs/7603.aspx
Wikipedia. (2012). “Sam Walton”. Retrieved on April 21, 2012. From
http://en.wikipedia.org/wiki/Sam_Walton