Ratio Analysis Of Walmart

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Quick ratio is a measure of current liquidity where inventories, prepayments and advances are excluded from current assets. Inventories usually take time to be converted into cash. Thus when in need, the company may have to accept lower price than the inventories book values. Advances and prepayments are omitted as well because they do not result in inflow of cash resources in the future for current liabilities settlement. From the table above, Walmart's average quick ratio is 0.21 for the past five years, which means that other than the exclusions, for every $1 of Walmart's current liabilities, the company has $0.21 to pay it. Of course, in most cases, with low quick ratio, this would be a bad thing and investors would be advised to stay away from this kind of company. It is because usually company with low quick ratio is not able to meet its short-term creditors demands could be facing an imminent threat of bankruptcy. However, some businesses traditionally have …show more content…

Again, this is due to the supplier leverage that Walmart has. Walmart is able to gain the trust from suppliers allowing it to have longer credit term. The trust is built from the long term relationships with them as well as the influence over these suppliers. Higher payables balances allowed Walmart to invest the money to generate more income such as opening up new stores in new location globally. According to Forbes, Walmart is able to earn more than $2 million per days based on a 3% annualized return on a $30 billion cash yet to pay to its suppliers. Cash Conversion Cycle Retailers like Walmart generate cash by buying goods from suppliers and selling them to households. Cash conversion cycle measures the efficiency of a company in selling off its purchased goods, collects cash from the sales and pays its

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