Ratio Analysis: Walmart Stores, Inc Vs. Apple, Inc

Ratio Analysis: Wal-Mart Stores, Inc vs. Apple, Inc

Wal-Mart and Apple have certainly proved themselves as successful businesses. But how successful are they? Two questions must be answered before any decision can be made about each company’s financial health. How successful will they continue to be and how can we measure this? Wal-Mart sells anything from cereal to wide screen televisions. Since the later 1980s, Wal-Mart has been a common household name. The company made over four hundred million in revenues this past year with no sign of slowing down (MSN Money, 28 November 2011). Apple has not been quiet, either. Since it became public in 1980, Apple has grown from providing just desktop computers to phones, tablets, and laptops. Recently, Apple stocks have grown over 300%! So how do we compare these two companies? I will be using standard accounting formulas that will show liquidity and efficiency, solvency, profitability, and market prospects for each company. By evaluating these key components, I can recommend which company is financially healthier and a good pick for any first time stock buyer. First, I will discuss the liquidity and efficiency of the two businesses.

Liquidity plays an integral part of the day-to-day business operations and short-term cash needs. For me to measure the liquidity of each company, I will use seven tests: current ratio, acid test ratio, accounts receivable turnover, day’s sales uncollected, inventory turnover, day’s sales in inventory, and total asset turnover. With a current ratio of 160.8% and acid test ratio of 1.3, Apple is in a position to pay any current liabilities much more readily than Wal-Mart. Actually; Wal-Mart shows some concerns with an acid test ratio of 0.2, indicating greater short-term liabilities than readily available funds. Inventory turnover and day’s sales in inventory can also provide quick access to cash. Apple, again, shows great liquidity by moving products quickly and keeping a low inventory with high inventory turnover, 70.5, and low day’s sales in inventory, 4.4. Wal-Mart suffers with completely different statistics. The company seems to hold a high level of inventory, with an inventory turnover rate of 7.6. It also has difficulty moving the product from the shelves, a day’s sales in inventory ratio of 51.1 days. Another component to examine is the accounts receivable of each company. Wal-Mart has something it can finally boast about. The number of day’s sales uncollected is 4.1; that is an average of 4 days to collect money owed! In a given period, Wal-Mart can convert their accounts receivable into cash an average of 84 times. Apple struggles to collect with 39.5 days of uncollected sales and a conversion of receivables to cash averaging only 10 times a year. The final test for liquidity is the total asset turnover ratio. Wal-Mart out paces Apple with a 2.2 ratio, compared to a 0.3 ratio. Wal-Mart converts its assets into