From this ratio analysis please explain the condition for Wa

From this ratio analysis please explain the condition for Walmart Company. (Explain each ratio for Walmart Company)

Financial Ratios | 2016 | 2017 Y-o-Y Change 2018 Y-o-Y Change Liquidity Ratios: Current Ratio Quick Ratio Cash Conversion Cycle (CCO) 0.86 -0.075370718 0.22 -0.103499049 6.01-0.416555878 0.76-0.118461305 0.20 -0.075578987 1.84-0.694280009 0.93 0.240 10.316 Asset Management Ratios: Inventory Turnover Ratio Days Inventory Outstanding (DIO) 44.96 Days Sales Outstanding (DSo) TotalAsset Turnover TAT) 11.43 0.012447116 42.80-0.015947832 4.10 -0.065699706 2.45 0.001096683 10.84 11.29 0.041077768 43.49 -0.032728655 4.38 0.029525098 4.26 2.42 2.44 0.011595324

Solution

From this ratio analysis we can compare the performance of Wal-Mart Company on year to year basis as no industry data is given to compare it with industry average.

The current ratio and quick ratio are Liquidity ratios of the company and it measures Company’s ability to generate cash to meet the short-term financial commitments. As both ratios are less than 1 and decreasing year by year therefore it is not a good sign for Wal-Mart Company and they can face liquidly crunch.

Cash conversion cycle = Days Inventory Outstanding + Days Receivables Outstanding – Days Payable Outstanding

= (No. of days / Inventory turnover) + (No. of days / Receivables turnover) - (No. of days / Payable turnover)

The cash conversion cycle indicates that how effectively a company manages its cash flow. Lower Cash conversion cycle is good for company but for Wal-Mart year by year it’s reducing too fast therefore a detail analysis is required.

It indicates that how effectively a company generates sales by using its inventory.

For Wal-Mart inventory turnover ratio is increasing year by year which shows its reduced efficiency is generating sales from inventory.

Days inventory outstanding indicates how many days on average a company turns its inventory into sales. Reducing day’s inventory outstanding indicates that a company is able to more quickly turn its inventory into sales.

Days sales outstanding shows that how fast a company can collect cash from its customers as this number is reduced for years 2108 it shows Wal-Mart’s efficiency has increased.

The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are generated from each dollar of company’s assets. On this metric Wal-Mart is almost stable with little variation.