Introduction
Walmart is a global multi-format company that specializes in retail, wholesale, and e-commerce through the Internet platform and mobile commerce applications. The primary external influence on this company comes from political factors, including government influences at the city and national levels, which reflect the requirements due to the spread of the pandemic and regulate the legal aspects of taxation. As a global firm, Walmart must pay income tax on all of its income, including those earned while operating outside the United States (Petro, 2020). External global and local factors of influence of currencies, respectively, on the company’s expenses in the process of converting and paying taxes in the United States.
Discussion
In addition, from an environmental standpoint, Walmart has repeatedly been caught in misconduct and now must conduct business in every possible way to comply with ecological responsibility requirements. Gigaton projects and many others have been created for this (Walmart, 2022b). In 2019, the world suffered from a crisis of unprecedented scope: the COVID-19 pandemics that quickly conquered the globe and pressed the businesses into recession due to massive lockdowns and border closing. The purchasing power of many customers has fallen, governments have poured money into medicine, and the global economy has entered a state of crisis. At the same time, governments are pushing the trend of social responsibility by continuously raising the legal minimum wage per hour for employees (Soergel & Clarke, 2021). Given that Walmart has over 1.5 million employees in the US alone (Walmart, 2022a). As a result, with each such decision, the company must review its expense items in order to make its financial performance more efficient.
Still, Walmart managed to acclimate to the new situation fairly quickly, and made significant profits. The company’s net profit in the first quarter of 2019 fiscal year, which ended on April 30, 2019, increased by 80%: to $3.84 billion from $2.13 billion for the comparable period a year earlier (Walmart, 2019). Earnings per share increased from $0.72 to $1.33, as Walmart (2019) stated in the annual report. This was mostly due to the fact that the coronavirus hysterics prompted people to stock up on basic needs goods. A complete picture of key financial indicators is shown in Table 1.
Table 1. Walmart key financial ratios (Macrotrends, 2022a; YCharts, 2022).
The crisis prompted the management heads of big companies such as Walmart to make difficult decisions to optimize existing business models, find ways to reduce costs, and develop new business areas. For example, Farooq et al. (2021) state that “one of the two goals of re-stabilizing a business disruption is to shift operations and other activities towards digitally supported systems, upgrading overall reliability” (p. 2506). Overall, Walmart managed the transition well: the company’s comparable sales in the US in the first quarter increased by 3.4% – this growth rate was a record for the first quarter since 2010 (Walmart, 2019). Online sales jumped 37%, as people, while being locked down in their homes during the peak of pandemic, begun to shop online more actively (Walmart, 2019). The company’s PE ratio in 2019 was 39.93, given the constant growth of more than 3 times over the past three years, is an indicator that the company is developing.
However, at the same time, the forward PE ratio is significantly higher than the actual growth, with the exception of 2018, which indicates that the company has not yet fully realized its potential and is losing its profits in particular sectors (Macrotrends, 2022a). Throughout 2018 and 2019, Walmart’s price to book ratio increased from 3.5 to around 4.0, which indicates that the stock is expensive but still a bargain compared to competitors (Macrotrends, 2022b). Walmart’s financial performance improved in the four-years span from 2016 to 2019. Return on equity has been gradually falling over all four years only due to falling net revenue, while investment activity continues to increase at the same pace (Macrotrends, 2022a). However, despite such a drop, the company’s shares continue to be bought, while net revenue can range from $5 to $20 billion during the year (Macrotrends, 2022a). According to the company’s report (2019), the company’s return on assets declined in the year of pandemic: from 7.6% of 2016 to 3.4% in 2019. Walmart (2019) states that “the decline in ROA was due to the decrease in consolidated net income resulting from the $4.5 billion net loss related to the sale of the majority stake in Walmart Brazil” (p. 33). Overall, the company’s financial strategy during 2019 allowed it not only to maintain its stable and strong place on the market, but also improve some areas such as e-commerce and delivery.
Conclusion
The development of such services allows Walmart to keep the pace of revenue growth, despite possible one-time costs and external factors that increase non-operating expenses. In 2019, in addition, the US Federal Reserve cut its key rate by 25 basis points, stimulating credit policy and long-term economic growth (Smialek, 2019). Walmart, reliant on the incomes of middle-income households that were already beginning to struggle with purchasing power in late 2018 and early 2019, lowered their earnings per share contrary to Wall Street’s forecasts, significantly hurting the company’s ratings (Walmart, 2019). However, this decision significantly increased the forward PE ratio, making the forecast as optimistic as possible for the next years, despite the need to restore the economy after the pandemic crisis.
References
Farooq, M. U., Hussain, A., Masood, T., & Habib, M. S. (2021). Supply Chain Operations Management in pandemics: A state-of-the-art review inspired by covid-19. Sustainability, 13(5), 2504.
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Macrotrends. (2022b). Walmart Price to Book Ratio 2010-2022 | WMT. Web.
Petro, G. (2020). Walmart challenges amazon on sustainable packaging. Forbes. Web.
Smialek, J. (2019). Federal Reserve Cuts Interest Rates for Third Time in 2019. New York Times. Web.
Soergel, A. & Clarke, S. (2021). 24 U.S. states will see a minimum wage increase in 2021. US News. Web.
Walmart. (2019). 2019 Annual Report. Walmart Investor Relations. Web.
Walmart. (2022a). How many people work at Walmart? Web.
Walmart. (2022b). Sustainability. Web.
YCharts. (2022). Walmart Inc. Web.