Financial Analysis of

Part I. Walmart

Analysis of Financial Performance

History

Visionary and business man, Sam Walton, first launched Wal-

Mart in 1962 in Rogers, Arkansas. With the idea that this company

and brand would be dedicated to making a difference in the lives

of their customers, Wal-Mart has become one of the top retail

chains in the country. Sam Walton brought about a retail

revolution in which is strategy was to build a solid foundation

of the lowest prices anytime, and anywhere. In 2010, the company

laughed a global commitment to sustainable agriculture which was

aimed at strengthening local farmers and economies while

providing their customers with the most affordable, high quality

food. According to the company website, as of 2014 Walmart

operates over 11,000 retail units under 71 banners in 27

countries and e-commerce websites in 10 countries (Walmart,

2014). They have 3 different division in which they operate;

Walmart U.S., Walmart International, and Sam’s Club. Walmart U.S.

is the largest segment accounting for approximately 58.89% of the

total sales in FY 2013. The international segment of Walmart

account for 29% of the sales and Sam’s club accounted for 12.11%

of the sales based on 2013. They currently employ 2.2 million

associates around the world with 1.3 million in the U.S. alone.

Walmart has great growth pattern and it is making a difference in

its approaches comparatively to its competitors. Walmart it’s

widely known for its “Roll back savings”, which most likely has

attributed to its continued revenue growth. In fact, according to

the company’s 2014 Annual Report, they hit $68B in net sales

growth over the last 5 years (Walmart, 2014).

Balance Sheet

Comparison of 2010 - 2014

Looking at Walmart’s consolidated Balance Sheets from 2010

to 2014, which include all segments of its operations; the

company continues to have a solid balance sheet with continued

growth in shareholders’ equity year over year. The total assets

increased slightly from 2013 to 2014 at 1% but have increased 20%

from 2010. This increase in current assets is most visible in

inventories levels and most likely attributable to lower than

anticipated sales for Walmart. The company lost $3 billion in

2014 sales due to out of stock merchandise while its inventory

grew at a faster rate than its sales (Walmart, 2014). While the assets of both current and long-term assets have increased

between 2010 and 2014, the percentage ratio has remained pretty

consistent with short term making up 30% of total assets and long

term making up 70%. Equipment/Property/Plant increased 8% from

2010 to 2014 and makes up a total of more than half of the total

assets which is a sign of growth. Walmart’s growth has allowed

the company to open new stores in all three segments of its

operations causing an increase in their equipment/property/plant

year over year.

In recent years Walmart has become more reliant on debt to

carry its operations thus its leverage has increased from a debt

to equity ratio of 1.38 in 2010 to 1.60 in 2014. This increase is

most notably seen in both short-term and long-term debt of its

liabilities, which made up 34% and 10% respectively in 2014. Any

increase in long term debt should be red flagged and reviewed as

this can be an early indication of potential uncertainty with

shareholder confidence. Walmart’s short term debt has increase

almost 70% from 2010 while the company’s long term debt has

increased roughly 25% from 2010 to 2014. One reason for this

might be a lower risk inherent in shorter term debt which may not

be as risky or impair the firms’ return much like long term debt

would.

W M T Balance Sheets (FY 2014) (FY 2013) (FY 2012) (FY 2011) (FY 2010)(Annual Report, GAAP in millions $) (Jan. 31, 2014) (Jan. 31, 2013) (Jan. 31, 2012) (Jan. 31, 2011) (Jan. 31, 2010)

  Cash & cash equivalent 7,281.00 7,781.00 6,550.00 7,395.00 7,907.00 Cash & Shortterm Investm ents 7,281.00 7,781.00 6,550.00 7,395.00 7,907.00  Accounts receivable 6,677.00 6,768.00 5,937.00 5,089.00 4,144.00  Inventories 44,858.00 43,803.00 40,714.00 36,318.00 33,160.00  Discontinued operations 460 0 89 131 140  Prepaid expenses 1,909.00 1,588.00 1,685.00 2,960.00 2,980.00 Subtotal 53,904.00 52,159.00 48,425.00 44,498.00 40,424.00 Total Current Assets 61,185.00 59,940.00 54,975.00 51,893.00 48,331.00  Equipm ent/Property/Plant Net 117,907.00 116,681.00 112,324.00 107,878.00 102,307.00  Goodwill net 19,510.00 20,497.00 20,651.00 16,763.00 16,126.00  Other Assets 6,149.00 5,987.00 5,456.00 4,129.00 3,942.00 Subtotal 143,566.00 143,165.00 138,431.00 128,770.00 122,375.00Total Assets 204,751.00 203,105.00 193,406.00 180,663.00 170,706.00

  Accounts payable 37,415.00 38,080.00 36,608.00 33,557.00 30,451.00  Accrued liabilities 18,793.00 18,808.00 18,154.00 18,701.00 18,734.00  Short Term debt 12,082.00 12,719.00 6,348.00 6,022.00 4,919.00  Incom e & other taxes 966 2,211.00 1,164.00 157 1,365.00  Discontinued operations 89 - 26 47 92Total Current Liabilities 69,345.00 71,818.00 62,300.00 58,484.00 55,561.00  Long-term debt 41,771.00 38,394.00 44,070.00 40,692.00 33,231.00  Capital lease obligations 2,788.00 3,023.00 3,009.00 3,150.00 3,170.00 Total Long-term Debt 44,559.00 41,417.00 47,079.00 43,842.00 36,401.00  Deferred incom e taxes 8,017.00 7,613.00 7,862.00 6,682.00 5,508.00 Subtotal 8,017.00 7,613.00 7,862.00 6,682.00 5,508.00Total Liabilities 121,921.00 120,848.00 117,241.00 109,008.00 97,470.00  Noncontrolling interests & other 6,575.00 5,914.00 4,850.00 3,113.00 2,487.00

Total Stockholder's Equity 76,255.00 76,343.00 71,315.00 68,542.00 70,749.00Liabilities & Stockholder's Equity 204,751.00 203,105.00 193,406.00 180,663.00 170,706.00

ASSETS

LIABILITIES

SHAREHOLDER'S EQUITY

Debt to Equity Ratio 1.60 1.58 1.64 1.59 1.38

Obtained from: http://csimarket.com/stocks/balance.php?code=WMT&annual

Income Statement

Walmart’s revenue continues to increase year or year but not

at a rate that the company had expected. Net sales have increased

at an average of 4.47% year over year from 2010 to 2013 but 2014

showed a slight decline compared to this average. Net sales had

only increased 1.47%. While sales in the Walmart U.S. and Sam’s

Club had increased in 2014, International Walmart sales had come

in lower than projected and that was reflected in inventory

levels previously mentioned. The company is losing sales because

its inventory is growing at a faster pace than its sales. This is

indicative of an inventory management problem. Net income had

also decreased slightly from 2013 to 2014 by 6.36%. However, the

increase in total costs and expenses went from $443M in 2013 to

$451M in 2014. Although net income decreased in 2014, overall net

income in comparison to revenue has remained relatively flat at

an average of 3.75% year over year from 2010 to 2014. In 2010 net

income totaled $14.8M and in 2014 net income was $16.7M which

reflects the increased dividends paid per share of $1.09 in 2014

to $1.88 per share in 2014. This was a 58% increase of dividends

compared to 2010. The cost of revenue has increased as with the

other variables on Walmart Income statement.

INCOM E STATEM ENT (FY 2014) (FY 2013) (FY 2012) (FY 2011) (FY 2010)

(Annual Report GAAP In millions $) (Jan. 31, 2014) (Jan. 31, 2013) (Jan. 31, 2012) (Jan. 31, 2011) (Jan. 31, 2010)

   Net sales 473,076 466,114 443,854 418,952 405,046   Other Revenues 3,218 3,048 3,096 2,897 3,168TOTAL REVENUES 476,294 469,162 446,950 421,849 408,214   Cost of Revenues 358,069 352,488 335,127 315,287 304,657GROSS PROFIT 118,225 116,674 111,823 106,562 103,557   Selling, Administration, Marketing 91,353 88,873 85,265 81,020 79,607 Total operating costs 449,422 441,361 420,392 396,307 384,264

OPERATING INCOM E/-LOSS 26,872 27,801 26,558 25,542 23,950   Interest expense 2,335 2,251 2,322 2,205 2,065   Interest income 119 187 162 201 181   Net interest expense/-incom e 2,216 2,064 2,160 2,004 1,884  Total non-operating expense 2,216 2,064 2,160 2,004 1,884 TOTAL COSTS & EXPENSES 451,638 443,425 422,552 398,311 386,148INCOM E /-LOSS BEFORE INCOM E TAXES 24,656 25,737 24,398 23,538 22,066   Incom e taxes expenses/-benefit 8,105 7,981 7,944 7,579 7,139INCOM E AFTER INCOM E TAXES 16,551 17,756 16,454 15,959 14,927INCOM E/-LOSS FROM CONT. OPS. 16,551 17,756 16,454 15,959 14,927   Discontinued operations 144 0 -67 1,034 -79NET INCOM E/-LOSS 16,695 17,756 16,387 16,993 14,848INCOM E/-LOSS TO SHAREHOLDER 16,695 17,756 16,387 16,993 14,848   EBIT 26,872 27,801 26,558 25,542 23,950   EBITD 35,742 36,302 34,688 33,183 31,107   EBITDA 35,742 36,302 34,688 33,183 31,107

3.53% 3.81% 3.69% 4.06% 3.67%

(FY 2014) (FY 2013) (FY 2012) (FY 2011) (FY 2010)

(Jan. 31, 2014) (Jan. 31, 2013) (Jan. 31, 2012) (Jan. 31, 2011) (Jan. 31, 2010)

Basic EPS (excl. extra item s) 4.9 5.04 4.56 4.2 3.73   Extraordinary item s - - -0.02 - -BASIC NET EPS 4.9 5.04 4.54 4.2 3.73Basic shares outstanding (Mill. of Units) 3,269 3,374 3,460 3,656 3,866   EPS other shares - - - - -DILUTED NET EPS 4.88 5.02 4.52 4.18 3.72Diluted average shares (Mill. of Units) 3,283 3,389 3,474 3,670 3,877Dividend per share 1.87 1.58 1.45 1.21 1.09

Per Share (GAAP Annual R eport, in $)

Obtained from: http://csimarket.com/stocks/income.php?code=WMT&annual

Cash flow Statem ent (Jan. 31, 2014) (Jan. 31, 2013) (Jan. 31, 2012) (Jan. 31, 2011) (Jan. 31, 2010)(Annual Report, GAAP in millions $) 12 M onths 12 M onths 12 M onths 12 M onths 12 M onths

  Incom e 16,695.00 17,756.00 16,387.00 16,993.00 14,848.00  Depreciation & am ortization 8,870.00 8,501.00 8,130.00 7,641.00 7,157.00  Inventories -1,667.00 -2,759.00 -3,727.00 -3,086.00 2,265.00  Incom e taxes -1,503.00 848 1,050.00 651 -  Accounts receivable -566 -614 -796 -733 -297  Accounts payable 531 1,061.00 2,687.00 2,557.00 1,052.00  Accrued liabilities 103 271 59 -433 1,348.00  Other net 938 527 398 1,087.00 -203  Discontinued operations -144 - 67 -1,034.00 79Net Cashflow from Operating Activities 23,257.00 25,591.00 24,255.00 23,643.00 26,249.00  Capital Expenditures -13,115.00 -12,898.00 -13,510.00 -12,699.00 -12,184.00  Sale of Capital Item s - - 580 489 1,002.00  Acquisition net of cash acquired -15 -316 -3,548.00 - -  Other 105 71 -131 17 -438Net Cashflow from Investing Activities -12,298.00 -12,611.00 -16,609.00 -12,193.00 -11,620.00  Short-term debt Net 911 2,754.00 3,019.00 503 -1,033.00  Long-term debt - borrowings 7,072.00 211 5,050.00 11,396.00 5,546.00  Long-term debt - repaym ents -4,968.00 -1,478.00 -4,939.00 -4,080.00 -6,033.00  Noncontrolling interest -722 - - - -436  Issuances/ -repurchases of Com m . Stock -6,683.00 -7,600.00 -6,298.00 -14,776.00 -7,276.00  Other financing activities net -488 -498 -242 -634 -742  Dividends paid -6,139.00 -5,361.00 -5,048.00 -4,437.00 -4,217.00Net Cashflow from Financing Activities -11,017.00 -11,972.00 -8,458.00 -12,028.00 -14,191.00  Effect of exchange rate on cashflow -442 223 -33 66 194Free Cash Flow 10,142.00 12,693.00 11,325.00 11,433.00 15,067.00Total Cash Flow -500 1,231.00 -845 -512 632Cash & cash equiv. at beg. of the Year 7,781.00 6,550.00 7,395.00 7,907.00 7,275.00Cash & cash equivalents at end of period 7,281.00 7,781.00 6,550.00 7,395.00 7,907.00

Obtained from: http://csimarket.com/stocks/cashflow.php?code=WMT&annual

Ratio Analysis for Walmart:

Liquidity 2010 (%) 2014(%)Current Ratio 0.87 0.88Quick Ratio 0.27 0.24

W orking Capital/LeverageTotal Asset Turnover 2.39 2.33Equity Multiplier 2.41 2.69Debt Ratio 0.57 0.60Debt to Equity Ratio 1.38 1.60

ProfitabilityNet Profit Margin 0.036 0.035Return on Assets 0.09 0.08Return on Equity 0.21 0.22

Liquidity

How easily accessible money is in the form of cash and

equivalents is the measure of liquidity. Walmart’s current ratio

from 2010 was 87% and remained pretty constant over the last 5

years and was 88% in 2014. There really wasn’t a significant

increase from 2010, only 1%. This ratio compared the current

assets to current liabilities. This means that Walmart could only

pay 87% of its short term liabilities with its current assets in

2010. Another measure of liquidity is the quick ratio which uses

current assets (excluding inventory) and compares them to the

current liabilities. Because Walmart has relatively larger and

fast growing inventory levels, the quick ratio compared to the

current ratio is much smaller. In 2010 the quick ratio of Walmart

was 27% and actually decreased to 24% in 2014, which correlates

with the increase in Walmart’s inventories levels in 2014. The

quick ratio increased year over year due to larger amounts of

current assets being held in mostly inventories but also combined

with the move from current liabilities which could be a problem

looking at Walmart’s cash flow to long term debt.

Leverage / Asset Management

Most companies use debt to finance operations and Walmart is

no different. By doing so Walmart increases its leverage because

it can invest in business operations without increase equity. A

good measure is the firm’s debt ratio and debt to equity ratio as

they tell an investor how much debt and equity a firm uses to

finance its operations. Walmart is a company that uses more debt

than equity and the ratio has increased from 1.38 in 2010 to 1.60

in 2014. Also, 57% of the company’s assets were financed by debt

in 2010 compared to 60% in 2014 which is a small increase of 3%

in the last five years. Another measure of leverage is the asset

turnover ratio, which takes total sales and divides by total

assets. Walmart’s asset turnover ratio decreased from 2.39 in

2010 to 2.33 in 2014. This is likely due to the increase in cash

and short-term investments upon which Walmart earns any revenue

on, which may be unlikely. Generally a higher number is

preferable because it suggests that a company is using its assets

efficiently to make money and in this case Walmart has a large

asset turnover ratio. Walmart may want to review the inventory

management system and invest in finding a way to increase sales

at a faster pace than its inventory. Over the years the total

sales revenue and total assets, though decreasing as a percentage

compared to 2010, has increased as a whole over the past 5 years.

Walmart may also want to consider investing excess cash into

fixed assets to improve the overall asset turnover ratio. This

could potentially provide a higher return for its shareholders.

Profitability

Profitability analysis and ratio provide insight into the

financial health and performance of a firm from different angles

but still incorporate the sales, assets, and equity. Net profit

margin, return on assets, and return on equity are all good

measures of the company individual performance especially for a

company like Walmart that operates in the retail industry.

Walmart has seen slight increases/decreases in all three ratios

of +/- 1% between 2010 and 2014. It would be smart to take a look

at asset quality and inventory levels in the future to bring

these ratios higher. It was mentioned in the 2014 Annual Report

that sales did not meet targets in the International Sector of

Walmart that left inventories level high. It seems as those this

has been the trend for Walmart. The return on equity (ROE) ratio

is the amount of net income returned as a percentage of

shareholders equity. Walmart’s ROE increased 1% from 2010 to

2014. This could be an indication that costs have somewhat

decreased slightly driving up net income marginally. It is such a

small increase to really say what the driving force is. As

mentioned previously, Walmart needs to review its inventory

levels which make up 73% of its current assets and 58% of its

total assets in 2014. As previously mentioned, Walmart has an

inventory management issue as it loses sales because items are

out of stock. A lot of times Walmart has items out of stock

before it’s paid its distributors for the items. Return on assets

(ROA) gives an idea as to how efficient management is using its

assets to generate earnings. Walmart’s ROA declined 1% from 2010

to 2014 and is currently .08. These decrease could mean that

Walmart material costs, cost of revenue have decreased its profit

margin despite the sales and asset values remaining the same or

increasing marginally. Many economic issues could cause increases

in the cost of materials / products.

The last ratio that helps to evaluate Walmart’s financial

profitability is the net margin ratio which divides net income by

its sales. Walmart’s net profit margin has remained the same at

4% in both 2010 to 2014. A higher profit margin indicates a

company that has control over its costs compared to its

competitors. It’s clear that the company has maintained its

control with neither a decrease/increase. This ratio means that

the company has a net income of $.04 for each dollar of its

sales. By looking at Walmart’s cost structure it could

potentially lower costs in its sales and administrative segment

or other areas to achieve a higher profit margin.

Competitor Analysis

Numbers in billions(Based on FY 2013) W alm art % Costco % Target %Revenue $469.16 73% $103.13 16% $73.30 11%EDBITDA $36.30 76% $3.87 8% $7.51 16%Net Incom e $17.00 77% $1.96 9% $3.00 14%Enterprise Value $251.51 74% $46.17 14% $44.16 13%Earnings Per Share 5.01 42% 4.47 38% 2.37 20%P/E Ratio 16.02 23% 28.78 41% 26.05 37%

Direct Com petitors

Industry S tatisticsM arket Capitalization: 3,526BPrice / Earnings: 17.4Price / Book: 4.5Net Profit M argin (m rq): 3.30%Price To Free Cash Flow (m rq): 56.3Return on Equity: 20.60%Total Debt / Equity: 56.5Dividend Yield: 2.30%

*Yahoo Finance

Competition in the discount retail space is very brutal, but

Walmart remains the leader in terms of market share of percentage

of its earnings, revenue, net income, and market capitalization.

Costco is the first company that Walmart competes with and

specifically within the Sam’s Club division of Walmart and is a

large discount wholesaler. Costco attracts a customer with a

higher average income than the average Sam’s club customer and

this strategy has given Costco strong financials. Walmart has

two other segments within its company, Walmart U.S. and Walmart

International that continue to make it the market leader in this

segment versus Costco. Another direct competitor within the

discount retail industry is Target. Target is very similar to

Walmart and poses the biggest threat to the company market share.

Like Walmart, Target has recently begun to add the Super store,

although not named differently like Walmart Supercenters, which

contains grocery items. Many retail stores claim to match any

competitor’s prices, Walmart being one of them, and now Target

has joined this campaign to increase sales.

A review of financial information against the industry

average reveal that Walmart is the leader, however Target and

Costco have strong financial performance that needs to be

monitored. When looking at the industry, a good measure of

comparison is the P/E Ratio because it looks at the current share

price compared to the earnings per share to see the valuation of

the company. The industry average for the P/E Ratio is 17.4.

Surprisingly, Walmart has the lowest P/E ratio compared to both

Costco and Target at 16.02. This is also lower than the P/E Ratio

of the industry. However, P/E Ratios tend to be a little higher

in industries that project high growth. Every industry varies. By

looking at the revenue and net income of Walmart compared to its

competitors you see that they own most of the market share and

are the industry leader and because their P/E Ratio is close to

the industry average, this may mean that investors have a stable

or good investment with Walmart.

Summary

After a review of Walmart’s financial information in 2014

compared to that of 2010, it’s clear that Walmart continues to be

successful. Overall Walmart’s net income continues to increase

year over year. The company continues to increase its dividend to

shareholders year over year as well. This continues to attract

investors and maintain investors’ confidence in the company.

Walmart continues to grow and open up new retail spaces in all

three of its segments. However, Walmart will need to find ways to

its lower its operating expenses as they continue to open up

these stores as this could impact the bottom line. Not only could

this impact the bottom line but opening up new stores could also

take away sales from other retail spaces. While Walmart continues

to increase its dividends paid each year, the company will need

to focus on maintaining their performance to keep shareholder’s

equity and confidence strong. One of Walmart’s growing issues

that needs to be addressed sooner rather than later is it

inventory management. The company is losing sales dollars due to

out of stock merchandise while its inventory is growing at a

faster rate than its sales. Stagnant inventory is getting marked

down very low prices likely driving sales at lower margins that

projected. These changes will increase sales, which in turn,

could increase its return on equity and the overall value of the

firm.

Part II. - Walmart

Determine the WACC for the Firm:

In order to find the weighted average cost of capital for Walmart

one must determine the cost of debt (rD) and the cost of equity.

a.) Walmart has an AA bond rating so to determine the

expected yield on a bond rating for an AA bond I went to the

WSJ.com and obtained the current yield to maturity of

corporate bonds. I used this to determine the cost of debt.

AA Bonds generally have a lower cost of debt compared to B

or C rated bonds. The cost of debt for Walmart was 2.27%. A

company like Walmart will use various bonds, loans and other

forms of debt, so this measure is useful for giving an idea

as to the overall rate being paid by the company to use debt

financing. I also looked at the debt to market value ratio

and that was 17% meaning that 17% of Walmart’s total value

is debt. Because Walmart is less risky (Beta of .37) they

are able to increase their dividends annual and repurchase

shares for investment and growth.

b.) I used the capital asset pricing model (CAPM) to

determine the cost of equity. I first found the beta of

Walmart (Yahoo Finance) and very low at .37. I then found

analyst data on the market risk premium from Yahoo finance

and experts estimated that at 4.61%. I multiplied the market

risk premium by the beta and then added the risk free rate

of 2.32 that I obtained from U.S. Department of Treasury 10

Yr. Yield. After this calculation Walmart’s cost of equity

was 4.03%. As previously discussed, the Beta of Walmart is

relatively low, meaning that there is less risk in investing

in Walmart if there were to be a market shift the company

wouldn’t be as affected as others that are a little more

risky.

c.) Both the cost of debt and cost of equity are all part

of the capital structure of Walmart. The components of the

capital structure also include looking at the market value

of debt and equity which is 83% equity and 17% debt. By

taking the number of shares outstanding (from Yahoo Finance)

of $3.22B and multiplying by the current stock price of

$77.86 per share the market value of equity totaled $250.1

billion. I then added the total debt of Walmart of $51.21B

to the market value of equity to get the total value. The

total debt to equity ratio was 20%. Walmart relies on more

equity at 80% for financing which can mean less risk.

Walmart is able to reinvest and repurchase shares of stock

because of its cash flow situation and reliance on equity.

d.) Weight average cost of capital is a measure that gives

an investor the average of the costs of debt or equity

financing. By taking a weighted average, we can see how much

interest Walmart has to pay for every dollar it finances.

Many times the WACC is used by financial managers to

determine a project feasibility of expansion or potential

mergers or acquisitions. The unlevered cost of capital or

pretax WACC of Walmart was 3.73%. A low WACC also means that

Walmart has room to potentially grow and invest into the

company. As mentioned earlier, this measure is used

internally to make investment decisions and in this case

Walmart would want to invest in a project that has a higher

rate of return than 3.73%. The leveraged WACC is 3.60%,

which is a very small difference and tells me that Walmart

has lower leverage between its debt and that using tax

shield that are available with a higher debt ratio.

Appendix

W alm art Calculations Part II.Source

Current Stock Price 77.86 Yahoo Finance# Shares Outstanding 3,220,000,000 Yahoo FinanceM arket Value (Equity) 250,090,000,000

Total Debt (m rq) 51,210,000,000 Yahoo Finance

Capital Structure:Total Value (Debt + Equity) 301,300,000,000 Equity 0.83 Debt 0.17 D/E Ratio 0.20

rf (risk free rate) 2.32% based on 10 yr Treasury Bondm arket risk prem ium 4.61% based on analysts from Yahoo Financerd (cost of debt) 2.27% based on AA bond rating yield from W SJ.comBeta 0.37 Yahoo Finance

CAPM 4.03%

Tax Rate 33% Based on 2014 Annual ReportW ACC (Pre-tax) 3.73%W ACC 3.60%

Beta & Stock Price Information:

Wal-Mart Stores Inc. (WMT) -NYSE  Watchlist

77.86   0.38(0.49%) 4:00PM EDTAfter Hours : 77.86 0.00 (0.00%) 5:47PM EDTPrev Close: 78.24

Open: 78.11

Bid: 77.42 x 100

Ask: 77.85 x 400

1y Target Est: 79.95

Beta: 0.37

Next Earnings Date:

13-Nov-14

Day's Range: 77.66 - 78.83

52wk Range: 71.69 - 81.37

Volume: 7,009,245

Avg Vol (3m): 5,634,450

Market Cap: 250.90B

P/E (ttm): 15.97

EPS (ttm): 4.87

Div & Yield: 1.92 (2.50%)

Obtained from: http://finance.yahoo.com/q?s=WMT

YTM for Corporate AA Bond:

Department of Treasury US Bonds:

US Treasury BondsM aturity Yield Yesterday Last W eek Last M onth3 Month 0 0 0.01 0.016 Month 0.03 0.03 0.04 0.042 Year 0.43 0.45 0.52 0.563 Year 0.9 0.87 0.98 1.035 Year 1.56 1.55 1.69 1.7610 Year 2.32 2.32 2.43 2.530 Year 3.05 3.06 3.14 3.23Obtained from: http://finance.yahoo.com/bonds/composite_bond_rates

Part III. – Walmart

Determine the Value of Walmart’s Equity:

Estimate the firm’s stock price using the Dividend-Discount Model:

a.) As an investment source, I used

http://finance.yahoo.com/ to gather the following

information:

i. Current Dividend (Do) was $1.82.

ii. I calculated the growth rate by multiplying the

retention by the return on equity and came up with

a growth rate of 13.36%. I thought that this was a

little aggressive compared to the past 5 years

growth rate from Yahoo Finance of 7.57%. Instead I

used the S&P 500 Industry average growth rate for

the next five years of 10.05%.

iii. The cost of equity in the WACC for Walmart was

4.03%.

b.) Using the Dividend-Discount Model with the information

from above and the formula (Po = Div1 / rE – g) the current

market price of Walmart would be $-36.13. Based on the

information above and the growth rate for Walmart and the

discount retail industry, its evident that the discount

model is sensitive to large growth rates. The dividend-

discount model cannot be considered in this case because the

estimate is negative. After plugging in several different

growth rates into the DDM, a 1% growth rate (just used as an

example) gave Walmart a market price of $71.93. While this

market price may be a little more realistic and comparable

to the current market price of $77.86, the growth rate

certainly isn’t. Looking at historical growth rates for

Walmart, the last 5 years the company had a growth rate of

7.57%. Using this figure as the growth further negates the

current market price of Walmart to $-61.41. A larger growth

rate is expected in a company like Walmart who owns most of

the market share of its industry and is the market leader.

They continue to grow in size and are expanding operations

in Walmart International. Nevertheless, Walmart has

continued to increase its annual dividends since it started

operating as a company. By doing so Walmart has assured its

shareholders that the company is of less risk and has a

future of strong growth.

Appendix

W am art Calculations Part III.

Dividend Discount Model Source

Current Dividend (Do) 1.92 Yahoo FinanceDiv1 = Do(1+g) 2.18rE 4.03%Dividend Payout 39% Yahoo FinanceRetention Rate (1-dividend payout) 61%ROE 21.9%g = (ROE x Retention Rate) 13.36%Analyst Growth Rate 6.77% Yahoo FinanceS&P 500 Industry Growth Rate 10.05% Yahoo Finance

Po= Div1 / rE - g -36.13

W al-M art Stores Inc. (W M T) -NYQ  W atchlist

77.86 

 0.38(0.49% ) 4:00PM EDTAfter Hours : 77.86 0.00 (0.00% ) 5:47PM EDTPrev Close: 78.24Open: 78.11Bid: 75.95 x 500Ask: 78.40 x 12001y Target Est: 79.95Beta: 0.37Next Earnings Date: 13-Nov-14Day's Range: 77.66 - 78.8352wk Range: 71.69 - 81.37Volum e: 7,072,744Avg Vol (3m ): 5,647,420Market Cap: 250.90BP/E (ttm ): 15.97EPS (ttm ): 4.87Div & Yield: 1.92 (2.50%)

Obtained from: http://finance.yahoo.com/q/ks?s=WMT+Key+Statistics

Grow th Est W MT Industry Sector S&P 500Current Qtr. -0.90% 33.70% 87.60% 13.70%Next Qtr. -0.60% 55.60% 44.20% 23.50%This Year -1.40% 10.90% 32.90% 7.50%Next Year 8.10% 22.70% 21.20% 12.90%Past 5 Years (per annum ) 7.57% N/A N/A N/ANext 5 Years (per annum ) 6.77% 16.06% 16.34% 10.05%Price/Earnings (avg. for com parison categories) 15.52 -13.65 9.43 13.31

PEG Ratio (avg. for com parison categories) 2.29 -0.58 -0.89 1.18

Obtained from: http://finance.yahoo.com/q/ae?s=WMT+Analyst+Estimates

Forward Annual Dividend Rate4: 1.92Forward Annual Dividend Yield4: 2.50%Trailing Annual Dividend Yield3: 1.91Trailing Annual Dividend Yield3: 2.40%5 Year Average Dividend Yield4: 2.30%Payout Ratio4: 39.00%Dividend Date3: 5-Jan-15Ex-Dividend Date4: 3-Dec-14Last Split Factor (new per old)2: 2:01Last Split Date3: 20-Apr-99

Dividends & Splits

Obtained from: http://finance.yahoo.com/q/ks?s=WMT+Key+Statistics

Works Cited

"Company Overview." Http://finance.yahoo.com/q?s=WMT&ql=0. Yahoo Finance, n.d. Web. Oct. 2014. <http%3A%2F%2Ffinance.yahoo.com%2FWMT>.

"U.S. Department of Treasury Bond Yields." The Wall Street Journal. DowJones & Company, n.d. Web. Oct. 2014. <http://online.wsj.com/mdc/public/page/2_3022-bondbnchmrk.html>.

Walmart - 2014 Annual Report. Annual Report 2014. N.p., n.d. Web. Oct.2014. <http://stock.walmart.com/annual-reports>.

"Walmart Corporate: Our Story." Walmart Corporate: Our Story. N.p., n.d. Web. Oct. 2014. <http://corporate.walmart.com/our-story/>.

"WAL-MART STORES, INC." Wal-mart Stores (WMT) Earnings Report, Financial Results, Financial Analysis. CSI Market, n.d. Web. Oct. 2014. <http://csimarket.com/stocks/financials_glance.php?code=WMT>.

"Yahoo Finance - Business Finance, Stock Market, Quotes, News." Yahoo Finance - WMT Walmart Stores, Inc. N.p., n.d. Web. Oct. 2014. <http://finance.yahoo.com/>.