Fin 410 Final Report

Ratio Analysis on Walmart and Valuation on

Olympic Industries Ltd
Course: Fin 410

Section: 04

Semester: Summer 2020

Submitted to:
Faculty: Taskin Shakib (TKS)
Date of Submission: 10.09.2020

Prepared by:
Jasia Nava Khan ID: 1712001030
Muhammad Shafayatul Islam- 1611179030
Mehzabin Alik Disha- 1711039030
Sabrin Nahar- 1610032030
Ratio Analysis on Walmart Inc.

We have conducted Ratio Analysis on Walmart Inc. to find out their financial position in three
consecutive years i.e. 2017, 2018 and 2019. We have found out various predicaments on their
sales, gross profit, operating, profit, net profit, current assets, fixed assets, total assets,
shareholders’ equity etc. Some ratios have also shown substantial improvements in the current
years. By looking at their ratios we have also conducted a trend analysis and commented on the
performance of the company over the years.

Profitability ratios
Gross profit margin:
2019 2018 2017

Gross profit 129104 126513 123888

Sales 514405 499909 485144

Gross profit 25.09% 25.30% 25.54%

gross profit
25.60%
25.40%
25.20%
25.00%
24.80%
24.60%
2019 2018 2017

gross profit
In the chart gross profit we can see Walmart in 2017 was 25.54%. 2018 25.30% and 2019
25.09%. Its decreasing cost of goods sold high. Which mean less available money for the
company, not doing well with the competitors.

Operating profit margin:

2019 2018 2017

EBIT 23157 21203 22035

Sales 514405 499909 485144

Operating profit 4.50 4.24 4.5

operating profit
455.00%
450.00%
445.00%
440.00%
435.00%
430.00%
425.00%
420.00%
415.00%
410.00%
2019 2018 2017

operating profit

In Walmart operating profit 2017 was 4.5 2018 4.28 and 2019 4.50. As we have listed in it is
calculated by dividing the company's operating profit by net sales. Without considering other
influencing factors, the higher the operating profit margin of the company, the better the business
situation for it. Therefore, we can observe that Walmart performed better in controlling operating
costs in performed poorly from 2017 to 2019.
Net profit margin:
2019 2018 2017

Net profit 6670 9862 13643

Sales 514405 499909 485144

Net profit margin 1.29 1.97 2.83

net profit margin

3
2.5
2
1.5
1
0.5
0
2019 2018 2017

net profit margin

2017 was 2.83 net profit margin, 2018 -1.97 and 2019 net profit is 1.29 the downward trend
between 2017 and 2018 is very significant. According to the formula of net profit margin, we can
easily find the reasons for this developing trend. Net profit has been declining year by year, and
total income has increased year by year, as a result finally causing a decline in net profit margin.
Walmart's ability to profit from income was the best in years. But in 2019, this was the worst. If
the company can't take measures to change the bad situation in time, whether the net profit rate
development trend will continue to decrease in the future or not
Return on asset (ROA)
2019 2018 2017

Operating income 21957 20437 22764

Total asset 219295 204522 198825

Return on assets 10.01 9.993 11.45

12

11.5

11

10.5

10

9.5

9
2019 2018 2017

ROA

In the chart we can see Return on assets Walmart 2017 was 11.45, 2018 is 9.993 and 2019 ROA
10.01. The higher the return on assets, the better the business situation for the company. Because
the company will profit more with less investment. , we can see that Walmart is the lowest profit
in these years is 2019
Return on equity

2019 2018 2017

Net income 7179 10523 14293

Total equity 79634 80822 80535

Return on equity 9.01 1.301 1.77

ROE
20

15

10

0
2019 2018 2017

ROE

ROE in the Walmart 2017 is 1.77, 2018 is 1.31 and 2019 is 9.01. The overall downward trend in
return on equity from 2017 to 2019 is due to the same direction of change in net income and total
equity, as a decline. Therefore, it is not difficult to understand why the data has shown a downward
trend in the past three years, we know that return on equity is a measure of how companies
effectively use shareholder funds to generate profits and make the company work well. Unlike the
other return ratios, ROE does not consider the rate of return from a company perspective but
instead stands on the investor's side
Earnings per share (EPS):

2019 2018 2017

Net profit 6670 9862 13643

Common share 2929 2995 3101

outstanding

EPS 2.28 3.29 4.40

Earnings per share

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2019 2018 2017

Earnings per share

In the chart we can see Walmart Earnings per share (EPS) 2017 is 4.40, 2018 is 3.29 and 2019 is
2.28. We can found that it decreasing which means investor bad impact .this is not good for
Walmart.
DuPont ROE

(Net income/sales) *(sales/total asset)*(total asset/shareholders equity)

2019= (1.29%*2.35%*2.75%)

=8.34%

2018= (1.97%*2.37%*2.53%)

=11.81%

2017= (2.83%*2.44%*2.47%)

=17.06%

2019 8.34%

2018 11.81%

2017 17.06%

DU PONT
20.00%
15.00%
10.00%
5.00%
0.00%
2019 2018 2017

DU PONT

We can observe that the results of the sum of gradual changes is equal to the absolute change of
ROE between 2017 and 2019. The ROE is the result of interleaving multiple factors, rather than
the specific result of a single left and right ROE for a certain factor.
Leverage ratios:

Debt ratio:

Year 2017 2018 2019

total debt 45938 46487 58033
total assets 198825 204522 219295
Debt ratio 0.231047 0.227296 0.264634
Walmart’s debt ratio has increased over the years, although it dropped a bit in 2018. This is because
their total assets have increased compared to their totl debt. As we can see from the average data
given above, the debt ratio has increased from 0.23 in 2017 to 0.26 in 2019. This is actually bad
for Walmart as increase in debt ratio indicates that they are taking more loans.

Financial Leverage:

Year 2017 2018 2019

total assets 198825 204522 219295
total equity 77798 77869 72496
Financial Leverage 2.56 2.63 3.02
From the given data above, we can see that Walmart’s financial has increased over the years, from
2.56 in 2017 to 3.02 in 2019. This indicates that they are taking more and more loans, which might
hamper the company in the later years as they are maintaining very minimum liquidity ratios, thus
greater chance of risk.
Market ratios:

P/E RATIO:

2019 2018 2017

Price 115.23 96.49 82.08

Earnings $5.01 $1.74 $3.76

p/e ratio 23.00 55.45 21.83

P/E RATIO
60

50

40

30

20

10

0
2019 2018 2017

P/E RATIO

In the chart we can see Walmart P/E RATIO 2017 is 21.83, 2018 is 55.45 and 2019 is 23.00. It’s
decreasing which means undervalued for the company. Their stock price are not lower to the
relatives.
M/B RATIO:

2019 2018 2017

Market value per 115.23 96.49 82.08

share

Book value per share $27.58 $27.29 $26.59

M/B ratio 4.28 3.54 3.09

M/B RATIO
4.4
4.2
4
3.8
3.6
3.4
3.2
3
2019 2018 2017

M/B RATIO

In the chart we can see Walmart M/B RATIO 2017 is 3.09, 2018 is 3.54 and 2019 is 4.18. Walmart
is totally overvalued in the market as we can clearly see that its M/B ratio increasing which means
this is not good.
Liquidity ratios:

liquidity ratios:
Year 2017 2018 2019
Current Assets 57,689 59,664 61,897
Current Liabilities 66,928 78,521 77,477

Current Ratio:
Year 2017 2018 2019
current ratio: 0.86 0.76 0.8

current ratio:
0.88
0.86
0.86
0.84
0.82
0.8
0.8
0.78
0.76
0.76
0.74
0.72
0.7
2017 2018 2019
current ratio: 0.86 0.76 0.8

From the given data, we can see that Walmart’s current ratio has slightly decreased from 0.86 in
2017 to 0.76 in 2018, although later it increased to 0.8 in 2019. In all three of the years, the ratios
were less than 1, this means that Walmart’s current liabilities are more than current assets, i.e. they
do not have enough current assets to meet its short term obligations. Moreover, it depends on the
quality and liquidity of current assets. If majority of the current assets consist of inventories, then
it may have significant impact in the liquidity position of Walmart.
Cash and Cash Equivalents (in millions 6,867 6,756 7,722
Net receivables( in millions) 5,835 5,614 6,283
Current Liabilities 66,928 78,521 77,477

Year 2017 2018 2019

Quick Ratio: 0.19 0.16 0.18

Quick Ratio:
0.195 0.19
0.19
0.185 0.18
0.18
0.175
0.17
0.165 0.16
0.16
0.155
0.15
0.145
2017 2018 2019
Quick Ratio: 0.19 0.16 0.18

Walmart’s quick ratio has slightly dropped from 0.19 in 2017 to 0.16 in 2018 and then again picked
up in 2019 to 0.18. Walmart’s quick ratio has been quite low in all three of the years, indicating
that its ability to pay off short term obligations using accounts receivable and cash & cash
equivalent is significantly poor. However, low quick ratio may not always mean liquidity issues
for the company. It is justifiable for a supermarket like Walmart to have a low quick ratio. These
type of businesses usually have no receivables and a huge pile of inventories.

Cash and cash equivalents 6,867 6,756 7,722

Current Liabilities 66,928 78,521 77,477

Year 2017 2018 2019

Cash Ratio 0.1 0.09 0.1
 Cash Ratio
0.102 0.1 0.1
0.1
0.098
0.096
0.094
0.092 0.09
0.09
0.088
0.086
0.084
2017 2018 2019
Cash Ratio 0.1 0.09 0.1

Walmart’s Cash ratio fell a bit in 2018 to 0.09 from 0.1 in 2017. The ideal figure for a cash ratio
is between 0.5 to 1. Looking at Walmart’s cash ratio, we can imply that they are in a difficult
position to payoff their current liabilities.

Efficiency Ratios:

Year 2019 2018 2017

Cost of sales 385301 373396 361256
Inventories 44269 43783 43036
Inventory Turnover 8.7 8.53 8.39
Average Inventory Processing period(days) 42 43 43

Inventory Turnover of Walmart has been increasing from 8.39 in 2017 to 8.7 in 2019. Moreover,
the number days in inventory processing has decreased by one day in the year 2019 from the last
two years. This means that that they are improving in terms of restoring their inventories in the
year.
Year 2019 2018 2017
Net Sales 510329 495761 481317
Receivables 6283 5614 5835
Receivables Turnover 81.22 88.31 82.49
Average Receavable Collection Period(days) 4 4 4

The receivables turnover for Walmart has significantly increased from 82.49 in 2017 to 88.31 in
2018 and then again significantly fell to 81.22 in 2019. However, we can see that they have
maintained a consistent receivable collection period at 4 days. This implies that they are good at
converting receivables into cash.

Year 2019 2018 2017

Cost of Sales 385301 373396 361256
Accounts Payable 47060 46092 41433
Payable turnover 8.19 8.1 8.72
Average Payable Collection Period(days) 45 45 42

Walmart’s payable turnover has been decreasing from 2017 to 2019, although it shows that average
payable period has been increasing from 42 days to 24 days from 2017 to 2019. This indicates that
they are better off in terms of liquidity position.

Year 2019 2018 2017

Cash Conversion Cycle 1 2 5

(n.a., n.a.)

Walmart’s cash conversion cycle is quite impressive if we notice it. It shows that it was 5 days in
2017 and gradually decreased to 1 day in 2019. This shows that the time that Walmart takes to
convert cash outflows into cash inflows is just 1 day which is quite great.
Valuation on Olympic Industries Ltd

Company Overview

Olympic Industries Limited is the largest biscuit manufacturer, distributor and marketer in
Bangladesh and is also among the 40 largest companies with the highest market capitalization. It
is one of the only 2 companies of Food and Allied industries that is listed on the CDSET Index,
taking the 29th position on the list of 40 companies. The company is a dominant player in the food
and allied industry where its share price surged year on year on the DSE index. Where most of the
companies in the COVID-19 pandemic made significant losses, Olympic Industries redeemed its
position by making steady profits. According to EBL Securities, the gross profit improved
noticeably as total sales volume has increased to some extent while the price of key raw materials
was comparatively lower in this 3M period of FY 20. Over the years, the company has consistently
increased its productive efficiency by introducing new product lines and enhancing capacity to
maintain its market position. It is one of the very few companies in the industry that have access
to state of the art research and development tools to carry out product innovation. On the other
hand, Olympic Industries also pays generous dividends to its shareholders every year. Therefore,
it would be safe to say that this company has major growth prospects and could be considered a
great valued investing for investors in the near future.

The last trading price of Olympic Industries Ltd was BDT 198 as of August 15, 2020. The
favorable share price indicates that their market performance as well as financial performance have
been reflected in the stock market. Olympic Industries Ltd kept its stockholders satisfied by not
just maintaining higher share price but also by enhancing the cash dividend from 30% to 50% over
the last 4 years. Revenues, net income and hence EPS has been growing significantly over the last
4 years as well, showing a 15.15% growth in earnings. The current P/E ratio using basic EPS is
21.25, which reflects that the company is expected to grow in the future. Its low debt-to-equity
ratio of 28.7% reduces risk for investors and thus produces more scope for expansion through
 fund-raising. A quick ratio of 1.76 clearly indicates the company’s strong financial position to
meet its short-term liabilities. Olympic’s long term assets (3.98 Billion Taka) exceed its long term
liabilities (446.92 Million Taka). All in all, Olympic Industries Ltd has continued to show
consistent and impressive financial performance.

Valuation

Forecasted Free Cash flows

The forecasted cash flows along with the original calculated FCFF of the year are given below:

Free Cash Flow (FCF)

Particulars 2021 2022 2023 2024 2025

EBIT 3287526716 3763178680 4307649793 4930897074 5644318159
(+)Depreciation 436785792.3 499981634.7 572320893.7 655126473.9 749912682.8
(-)Taxes 679,740,453 679,740,453 679,740,453 679,740,453 679,740,453
OCF 3,044,572,055 3,583,419,862 4,200,230,234 4,906,283,095 5,714,490,389
(-)Net CAPEX 564,131,536 645,752,249 739,182,159 846,129,866 968,551,178
(-)Changes in Net Working Capital 783,267,285 896,593,398 1,026,315,966 1,174,807,294 1,344,782,915
Free Cash Flow (FCF) 1,697,173,234 2,041,074,215 2,434,732,109 2,885,345,935 3,401,156,296
Terminal Value 71327225944
Total 1,697,173,234 2,041,074,215 2,434,732,109 2,885,345,935 74,728,382,240

ROE 26%
Dividend payout 51.3%
Retention Ratio 0.487
SGR 0.145
Depreciation Rate 8.55%
PGR 5%
WACC 10.01%
To calculate forecasted sales, we have taken SGR (Sustainable Growth Rate) to calculate the sales
growth. The SGR is calculated by considering the retention ratio of 0.487 and ROE of 25.9% in
2019. Therefore 14.5% is considered as revenue growth rate. SGR is the rate at which the company
can grow by taking the help of long term debt (leverage) along with the internal funds (R.E) but
no external equity. If we take SGR that would minimize the risk of taking other growth rates that
are directly related to market risk as well as macroeconomic conditions. For example, Historical
Growth Rate or even the Revenue Growth Rate. SGR minimizes standard deviation of errors and
makes forecasting more realistic and accurate.

Proforma Statements

To calculate the intrinsic value of Olympic, it is important to calculate the future cash flow from
the company. For that reason, pro forma financial statements for at least 5 years is required. For
the valuation of Olympic Industries Ltd, we considered to prepare pro forma income statement and
balance sheet from 2020 to 2025, keeping 2019 as our base year. To prepare the statements some
key assumption or rates are considered, as shown below-
BETA

Out systematic risk, Beta came out to be 0.84. Beta shows how volatile our stock is with the
changing market conditions. If it is less than 1, then our stock is less volatile. If it is greater than
one, then our stock is more volatile. Thus, we can safely say that the stock of Olympic, is less
volatile than the market.
WACC

To calculate the cost of equity, we used the CAPM model. We have assumed that the risk-free rate
of Bangladeshi Government Bonds is about 5.19%.The market return is assumed equal to the
prevailing average FDR rate in Bangladesh, i.e. 11%. It’s safer to assume the market return equal
to that of FDR rates since it is less risky and also viable and this is an average rate that all the banks
give out on deposits customer put in. Likewise, the cost of debt was found out using the total
interest expense of the company dividing by its total interest bearing debt of both long term and
short term. The weights were assigned to the equity by simple using the market capitalization by
its enterprise market value (98.4%) and the remainder was assigned to the debt (1.6%). Finally
WACC came out to be 10.01%.

Calculation of Current Share Price

Enterprise Value $53,414,671,482.02

Total Debt 559,242,514
Equity Value (Intrinsic Value) 52,855,428,968.02

Number of shares outstanding 199938886

Intrinsic Value of equity per share (BDT) 264.36
Share Price (Oct 5 2020) (BDT) 172.9

Undervalued by 52.90%

Investment Decision

As per the valuation technique, the valuation figures and the technical aspects play a very little
role on deciding how the stocks will perform in the future. It is the investor sentiments and their
combined decision that play major role in the market. The share market history backs the statement
as well. While any negative news, true or false, is dispersed into the market to create hype compels
most of the stockholders to immediately sell off the stocks. Moreover, they do not want to trade
against the flow of the market, as a result the stream of positive sentiments keep rising and rising
on the trot, while some facing a downward pressure of the price, irrespective of all the financial
performance and valuations.

For the investment decision as per our calculations suggest, Olympic is undervalued by almost
53%, with the enterprise market value being higher than the actual market price trading as of
recently. From the broader perspective, we can understand that the stocks of Olympic is worth
more than what it is actually trading in the market. Investing in Olympic would therefore lead to
valued investing and it would be better for investors to buy more shares of Olympic to make more
profits through capital appreciation and capital gain. This is because according to efficient market
hypothesis, the market will fall back to equilibrium and hence investors will eventually make
profits when Olympic’s fair value increases. All these add up, creating more trust and confidence
in the minds of the investors, compelling them to pay more for each stock. This makes the stock
more lucrative to be traded in the market.

Reference
1. Walmart’s Annual report. (2017-2019) [online]. Available on
https://stock.walmart.com/investors/financial-information/annual-reports-andproxies/default.aspx

2. The 40 companies that make up the new DSE large-cap index. (2019, December 30). Retrieved
August 15, 2020, from https://tbsnews.net/economy/stock/40-companies-make-new-dse-large-
cap-index

3. Biscuits and Confectioneries Industry of Bangladesh. (2019, May 21). Retrieved August 15,
2020, from https://databd.co/stories/biscuits-and-confectioneries-industry-competitive-landscape-
1659
4. Desk, S. (2015, March 07). Food industry in Bangladesh. Retrieved August 15, 2020, from
https://www.thedailystar.net/food-industry-in-bangladesh-6622

5. Report, S. (2020, February 16). Processed food market size hits $2.5b. Retrieved August 15,
2020, from https://www.thedailystar.net/business/news/processed-food-market-size-hits-25b-
1830406

6. SemiColonWeb. (n.d.). About Us. Retrieved August 15, 2020, from http://olympicbd.com/about-
us/