For a while now, Wal-Mart Stores Inc.’s financial performance across several measures, especially in the United States, has not been up to the expectations of stock analysts — or the retailer’s own senior executives.
Consider these recent headlines:
“Walmart Slashes More Jobs at Headquarters” (February 2016, Fortune)
“Walmart Closing 269 Stores Due to Financial Performance, Shift Focus to E-Commerce” (January 2016, Washington Free Beacon)
“For Walmart, No Easy Fixes for Some Big Problems” (October 2015, CBS Money Watch)
“Walmart’s Disappointing Sales and Earnings Forecasts Spell Doom for the Industry” (October 2015, Forbes)
BUT, let’s take a look at another important aspect of the retailer’s performance: its debt ratios. In a February 2016 article for Investopedia, Greg DePersio writes about “Analyzing Wal-Mart’s Debt Ratios in 2016.” Here a few highlights:
“By evaluating a company’s debt ratios, you can determine if it is using debt responsibly to grow its business, or if it is relying excessively on debt to meet core obligations and thus could have trouble looming in the near future. Certain debt ratios should be compared to certain benchmarks, while others are more subjective, meaning you should compare your target company’s figures to its industry peers and to the broader market.”
“For a large retailer such as Walmart, the most reliable debt ratios are the debt-to-equity ratio, that compares the percentage of a company’s assets financed by debt to the percentage financed by equity; the interest coverage ratio, which measures how many times a company can pay the interest on its outstanding debt with its current earnings; and the cash flow-to-debt ratio, which measures the percentage of a company’s total debt it can pay with its current cash flow.”
“Walmart’s D/E ratio for the third quarter of 2015 was 0.56. This is a healthy figure that has remained quite steady over the past decade. Walmart’s interest coverage ratio for the 12-month period ending in October 2015 was [a very healthy] 9.79. Walmart’s cash flow-to-debt ratio as of October 2015 was 0.22, meaning its current cash flow could pay 22% of its debt. Many analysts consider a double-digit percentage to be a healthy sign.”
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