1. course project week 3

Walmart

Pavel Garbuz

August 22nd, 2017

Rasmussen College

Walmart

Company’s Description

The Walmart was founded by Sam Walton in 1962. The company began to trade on the New York Stock Exchange in 1972 and turned into a public limited company. The Walmart now owns more than 11,695 stores in more than 28 countries in the world. The Walmart is considered the largest company in the world in terms of the revenue generation with almost US$ 480 billion of revenue generation in 2016. Walmart is also the biggest employer in the world and employs more than 2 million people all over the world working in 28 countries under 60 different banners. The company holds the most market value where 62% of the Walmart sales came from only the U.S. operations (Arnold, 2017).

The company announced the program to increase the energy efficiency in 2005. The main goal was to increase the spending to US$ 500 million per annum so that the energy efficiency is increased by 25% of the Walmart truck fleet over the three years along with reducing the greenhouse gas emissions by more than 20% in the next seven years. The company plans to reduce the solid waste by 25% in the coming three years. The Walmart intends to shift to the alternative energy sources and to reduce the waste and improve the efficiency level so that they are able to preserve the energy resources.

Even though, the company has undergone criticism at various levels, they have been able to implement various steps towards the positive direction, which includes becoming the world’s biggest seller of organic milk and the organic buyer of cotton in the world. The company has been efficiently able to reduce the packaging as well as the energy costs.

The Debt Financing

The Walmart is a blue chip company and the debt of the company is rated in the investment grade. This means, that the rating companies in the world believe that there is a high probability that the company will be able to meet the debt servicing commitment in the timely manner.

The long-term debt of the company is rated AA by the S&P or Standard & Poor has and is rated as Aa2 by Moody’s. This is almost two notches below the highest rating, which is awarded by these two rating agencies. The company has a strong cash flow and positive debt ratio with excellent product diversification, which helps in determining the rating of the company (Soni, 2015).

The company has a mix of debt and equity ratio in its capital structure. The short and long-term debt of the company is US$ 56.6 billion. The debt works out to be 69.6% and 27.7% as a percentage of the equity and total assets respectively (Soni, 2015).

The company has been performing well in order to keep the long-term debt of the company in control in these years. Since the overall return and profitability of the company has declined, the financing of the debt has become very expensive as a percentage of the operating income. Even though this is the situation, the company is still in a very strong position to be able to double the long-term debt of the company without any unnecessary pressure on the financial situation of the company. Since, the cash flow is in the strong position; the overall condition of the balance sheet is stable as well as compared to the last year’s performance (Arnold, 2017).

The company has benchmarked against other organizations at local and international level with good corporate governance. There have been issues with the suppliers in China and some other countries but the company has sought out most of the issues.

Form of business ownership

The Walton family founded the company more than 50 years ago. The company owned more than 50.86% of the Walmart stock in Dec 2015, even though the entity was called Walton Enterprises. The company now intends to sell the family shares from time to time to ensure that the stake of the company does not rise because of the stock repurchase program of the company and to finance the investment in the charity.

The Walton’s family believes that this is consistent with the balance of the non-family and family ownership that supports the main goal of the company and long-term business success of the firm. It was anticipated that the sale of the shares would take place over the period. The Walmart on the other hand announced in 2011, that it would repurchase US$ 15 billion worth of the company’s share. The company announced in 2015 that it would put the 6% of the retailer’s outstanding shares in the trust, which is newly formed for the sale to offset the expected rise in the stake due to the stock buybacks and to help the company fund the charitable institutions. The stock, which will go in the trust, is worth US$ 16 billion as of the current rate (Layn, 2015).

Conclusion

Overall, the company enjoys the strong market position both locally and internationally. The company has been able to expand and manage the long-term debt financing in a way that still makes it lucrative and positive in the future.

References

Arnold, J. (2017, June 09). Wal-Mart's Debt Balance And Its Implications. Retrieved Aug 18, 2017, from Seeking Alpha: https://seekingalpha.com/article/4080220-wal-marts-debt-balance-implications

Layn, N. (2015, Apr 10). The family that owns Wal-Mart may be selling $15.6 billion in shares. Retrieved Aug 19, 2017, from Business Insider: http://www.businessinsider.com/r-wal-mart-says-walton-family-to-sell-shares-to-keep-lid-on-stake--2015-4

Soni, P. (2015, Feb 18). Walmart’s Capital Structure – A Mix Of Debt And Equity. Retrieved Aug 19, 2017, from Market Realist: http://marketrealist.com/2015/02/walmarts-capital-structure-mix-debt-equity/