Course Hero Logo

Reward lets look at the pm of the industry average

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 17 - 20 out of 30 pages.

reward.)- Let's look at the PM of the industry average, what we see is a uniform andstable number, so the fact that Walmart has such a low PM does not mean thatthere is something wrong with the supermarket chain industry, it is becauseWalmart's BOM has changed its financial policies to reflect its vision of thefuture, accepting past weak metrics to enable strong future metrics.- Note too that while a high return on sales is good, we must also be concernedwith turnover. If a firm sets a very high price on its products, it may earn a highreturn on each sale but fail to make many sales. It might generate a high profit
margin but realize low sales, and hence experience a low net income. We willsee shortly how, through the use of the DuPont equation, profit margins, the useof debt, and turnover ratios interact to affect overall stockholder returns.We continue to compare Walmart's PM with its competitor, Costco- This index of Costco has increased uniformly, which proves their ability tomanage cost very well. Looking at their balance sheets we see that clearly. Onthe other hand, they do not use debt as high as Walmart so their Net income isnot low, which is the main reason for their higher PM than Walmart.4. Basic earning power (BEP) ratio:- This ratio shows the raw earning power of the firm’s assets before theinfluence of taxes and debt, and it is useful when comparing firms with differentdebt and tax situations (because it removes the effects of taxes and financialleverage).- Formula: BEP =??𝐼?????? ??????31/01/201731/01/201831/01/201931/01/202031/01/2021Walmart Inc.10.2789%10.7357%9.3791%9.5342%10.2742%CostcoWholesaleCorp.11.3104%10.9723%10.4339%9.7829%11.3180%Ind.11.3208%11.0273%10.5675%10.2733%11.2789%
Comparing to itself overtime:- Because of its low turnover ratios and poor profit margin on sales in 3 year2018, 2019 and 2020, Walmart has a low BEP ratio in these years. However, wehave a good signal here when in 2021, Walmart came back to have an improvedfigure ( even though it’s still lower than the industry average ).Comparing to industry average:-As noted above, because Walmart's PMs and inventory turnovers were quitelow in 2018-2020, Walmart's BEP is below the industry average. On the otherhand, in 2021, although the number has improved but is still lower than theindustry average, Walmart should have some policies to strengthen pricemanagement and continue to effectively use financial leverage to increase theindex PM, thereby increasing the BEP index.- Though Walmart’s BEP is lower than industry average, it’s proved to us that ithas an effective financial leverage use policy → There is definitely room forimprovement in the future.Comparing to Costco:-It is easy from the graph that we can see that over the past 5 years, Costco'sBEP has completely outperformed Walmart's. This is a result of Costco'sinventory turnover outperforming Walmart's. On the other hand, due to highnon-debt utilization, Costco's PM is also higher than Walmart's. These add upand give us an outstanding Costco BEP.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 30 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
N/A
Tags
Financial Ratio

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture