Wk-4 Shareholder Analysis
University of Phoenix
15 April 2022
Economic conditions relate to the current state of a region's or country's economy at a certain point in time. These economic conditions change with time, along with the business and economic cycles. Generally, when an economy is growing, economic conditions are considered favorable; however, these conditions are deemed hostile and unfavorable when the economy is contracting. Economic conditions such as labor, unemployment, monetary policies, and inflation have a significant impact on business and influence the driving force of a firm. Despite its size, a company such as Walmart is not immune to the effects of these economic conditions.
Evaluate economic conditions that influence company performance. Consider political, environmental, currency (money), global economics, and government influences on economic conditions.
Being one of the largest corporations globally, Walmart is heavily influenced by political affairs. Walmart has gradually increased the amount of money on lobbying in the last two decades. Since 2000, the organization's lobbying expenses have risen from $2 million to $19 million per year. As we all know, Walmart is a well-known brand around the world. According to estimates, the company's stores in various locations across the globe serve 250 million people each year (Hunt, Watts & Bryant, 2020). Because of its size, a stable political environment is essential for executing different business operations.
For Walmart, stable economic conditions are crucial for its growth and well-being. The company has a culture of providing low-priced products. When a country’s economic conditions change, Walmart is usually forced to adjust its prices to ensure it remains profitable and running. Walmart is well-known for its positive work atmosphere and commitment to its employees. Walmart made the decision to raise the minimum wage of its employees to $9 per hour in 2015 in order to boost its reputation. This, however, had a partial impact on its overall profitability since a good percentage of the profits were channeled to salaries (Martínez, Galván & Alam, 2017). Recently, Walmart also announced plans to promote more than 240,000 of its employees, which would have had a significant influence on the company's sales. Walmart is also heavily influenced by fluctuations in currency. Changes in interest rates and market value are among the most significant sources of market risk. Government and legal factors also impact Walmart and influence its performance. Walmart, as a global corporation, is required to comply with all relevant international rules and regulations, including the World Trade Organization. Most of these laws are related to employment and labor regulations, labor laws, data protection regulations, and health and safety regulations.
Compare market conditions with the company's performance for 2017. Conclude how the year's market conditions influenced the company's performance, such as interest rates, Federal Reserve Bank monetary policy changes, or other market conditions relevant to the company you selected.
Many corporations, including Wal-Mart, benefited from the favorable economic conditions in 2017. The Federal Reserve Bank's reduced interest rate enabled firms to borrow more money to fuel their investments and expand operations. The stable political situation in the United States and throughout the globe provided a favorable commercial environment for Wal-Mart to thrive (Xin et al., 2017). Emerging economies raised disposable incomes, allowing Wal-Mart to have excellent company sales and profitability, improving overall financial performance. In 2017 alone, Walmart made approximately $124.7 billion in profit, an increase from $121.2 billion in 2016. The company also had a net income of $3033 million in 2017 and a current ratio of 0.81, higher than the industry average of 0.5. In the same year, Walmart also took advantage of its massive store footprint for easy online returns by partnering with Google on voice shopping. Furthermore, economic and legal aspects were favorable to the company.
Analyze year-over-year performance from 2016 and 2017. In your conclusions, consider key metrics or ratios such as trailing PE ratio, forward PE ratio, price to book, return on assets, and return on equity.
Walmart's P/E ratio was 14.26 in 2016 and 18.01 in 2017, indicating that investors expected the company to expand and were ready to pay a higher share price.
In 2016, the company’s P/BV ratio was 2.45, while in 2017, it was 3.09. A greater ratio suggests that the company's future ROA is likely to be higher.
In 2016, the company’s ROA was 5.5558, while in 2017, it was 7.1887. An increase in its ROA indicated that the corporation was making enough money from its assets.
In 2016, Walmart’s ROE was 14.0359, while in 2017, it was 18.7476. An increase in the company’s ROE indicated that the company's efficiency in generating profits had improved.
Since Walmart’s P/E, Mart's P/BV, ROA, and ROE ratios all increased, it's clear that 2017 was a fruitful year, and the company performed quite well. This was particularly motivated by favorable economic conditions, which led to Walmart's outstanding performance and development.
Most profitable businesses are in operation for one purpose only- to maximize their revenue. However, their success is highly dependent on the external economic conditions that are way beyond their control. These external factors revolve around politics, the economy, legislation, and technology and have a substantial influence on a company's performance. Therefore, these conditions should not be disregarded when the management is creating a corporate development strategy.
Hunt, I., Watts, A., & Bryant, S. K. (2020). Walmart’s international expansion: Successes and miscalculations. Journal of Business Strategy.
Martínez, A. B., Galván, R. S., & Alam, S. (2017). Financial analysis of retail business organization: a case of Wal-Mart Stores, Inc. Nile Journal of Business and Economics, 3(5), 67-89.
Xin, L., He, L., Bewli, J., Bowman, J., Feng, H., & Qin, Z. (2017). On the performance of Tailored Base-Surge policies: theory and application at Walmart. com. Com (December 18, 2017).
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