Walmart's Capital Stucture

October 4, 2011

Unit 5 – Project

Walmart’s Capital Structure Analysis

Kaplan University

Graduate School of Business and Management

GB550 Financial Management

Abstract

This study is attempting to analyze some financial ratios and policies adopted by Walmart to help discern whether the company represents a good investment opportunity. In particular, Walmart’s capital structure is reviewed along with their liquidity, solvency, and profitability ratios. There are two main sources of financing for a business: debt and equity. The choice of debt and equity which is the capital structure decision is one of the most important financial policy decisions, and one of the most researched topics in finance. This study reviews capital structure theory, its issues, risks, and criticisms, Walmart’s capital structure, and presents arguments as to why Walmart’s is optimal.

Table of Contents

Walmart Financial Overview 4

Capital Structure Theory 4

Business and Financial Considerations Related to Capital Structure 5

Capital Structure Evidence and Implications 6

Walmart’s Capital Structure review 7

Appendix 12

References 19

Walmart Financial Overview

Sam Walton’s vision was to save people money to help them live better. This vision drives everything Walmart does including improving shareholder value. Walmart has focused on growth, leverage, and returns to achieve this goal over the past year. Growth relates to sales through comparable store sales and unit square feet growth; leverage covers the company’s objective to increase its operating income at a faster rate than the growth in net sales by growing its operating expenses at a slower rate than the growth of its sales; and returns focuses on how efficiently Walmart employs its assets as measured by its return on investment (ROI) and how effectively they manage working capital as measured by its free cash flow (www.walmartstores.com).

For fiscal year 2011, Walmart had a solid financial...