Integrative Case 4.1. Profitability and Risk Analysis of Walmart Stores Part A Walmart Stores (Walmart) is the worlds largest retailer. It employs an everyday low price strategy and operates stores as three business segments: Walmart U.S., International, and Sams Club.

Walmart U.S. Segment: This segment represented 67% of all 2020 sales and operates stores in three different formats: Discount stores (106,000 average square feet), Supercenters (178,000 average square feet), and Neighborhood Markets (42,000 average square feet). Each format carries a variety of clothing, housewares, electronic equipment, pharmaceuticals, health and beauty products, sporting goods, and similar items, and Supercenters include a full-line supermarket. Walmart U.S. stores are in all 50 states; Washington, D.C.; and Puerto Rico. Customers also can purchase many items through the companys website at www.walmart.com.

Walmart International Segment: The International segment includes wholly owned subsidiaries in Canada, Chile, China, and Japan; majority-owned subsidiaries are in Africa, Central America, India and Mexico. The merchandising strategy for the International segment is similar to that of the Walmart U.S. segment, but margins are lower due to its merchandise mix.

Sams Club Segment: Sams Clubs are membership club warehouses that operate in 48 states. The average Sams Club is approximately 134,000 square feet, and customers can purchase many items through the companys website at www.samsclub.com. These warehouses offer bulk displays of brand name merchandise, including hard goods, some soft goods, institutional-size grocery items, and certain private-label items. Gross margins for Sams Clubs stores are lower than those of the U.S. and International segments.

Walmart uses centralized purchasing through its home office for substantially all of its merchandise. It distributes products to its stores through 156 regional distribution centers located strategically throughout the United States and 221 distribution centers located in other countries. Sams Club merchandise flows through one of 27 dedicated distribution facilities.

Exhibit 4.42 sets out various operating data for Walmart for 2018 through 2020. Exhibit 4.43 presents segment data. Exhibit 4.44 presents comparative balance sheets for Walmart for 2017 through 2020 (an extra year to enable average balance computations when necessary), Exhibit 4.45 presents comparative income statements for 2018 through 2020, and Exhibit 4.46 presents comparative statements of cash flows for 2018 through 2020. Exhibit 4.47 presents selected financial statement ratios for Walmart for 2018 through 2020. With the exception of segment ratios, Walmart financial ratios include an adjustment for imputation of interest on operating leases based on Walmarts 2020 disclosed weighted-average discount rate on operating leases of 6.1%. The statutory income tax rate is 21%.

Integrative Case 4.1. Profitability and Risk Analysis of Walmart Stores Part A Walmart Stores (Walmart) is the worlds largest retailer. It employs an everyday low price strategy and operates stores as three business segments: Walmart U.S., International, and Sams Club.

Walmart U.S. Segment: This segment represented 67% of all 2020 sales and operates stores in three different formats: Discount stores (106,000 average square feet), Supercenters (178,000 average square feet), and Neighborhood Markets (42,000 average square feet). Each format carries a variety of clothing, housewares, electronic equipment, pharmaceuticals, health and beauty products, sporting goods, and similar items, and Supercenters include a full-line supermarket. Walmart U.S. stores are in all 50 states; Washington, D.C.; and Puerto Rico. Customers also can purchase many items through the companys website at www.walmart.com.

Walmart International Segment: The International segment includes wholly owned subsidiaries in Canada, Chile, China, and Japan; majority-owned subsidiaries are in Africa, Central America, India and Mexico. The merchandising strategy for the International segment is similar to that of the Walmart U.S. segment, but margins are lower due to its merchandise mix.

Sams Club Segment: Sams Clubs are membership club warehouses that operate in 48 states. The average Sams Club is approximately 134,000 square feet, and customers can purchase many items through the companys website at www.samsclub.com. These warehouses offer bulk displays of brand name merchandise, including hard goods, some soft goods, institutional-size grocery items, and certain private-label items. Gross margins for Sams Clubs stores are lower than those of the U.S. and International segments.

Walmart uses centralized purchasing through its home office for substantially all of its merchandise. It distributes products to its stores through 156 regional distribution centers located strategically throughout the United States and 221 distribution centers located in other countries. Sams Club merchandise flows through one of 27 dedicated distribution facilities.

Integrative Case 4.1. Profitability and Risk Analysis of Walmart Stores Part A Walmart Stores (Walmart) is the worlds largest retailer. It employs an everyday low price strategy and operates stores as three business segments: Walmart U.S., International, and Sams Club.

Walmart U.S. Segment: This segment represented 67% of all 2020 sales and operates stores in three different formats: Discount stores (106,000 average square feet), Supercenters (178,000 average square feet), and Neighborhood Markets (42,000 average square feet). Each format carries a variety of clothing, housewares, electronic equipment, pharmaceuticals, health and beauty products, sporting goods, and similar items, and Supercenters include a full-line supermarket. Walmart U.S. stores are in all 50 states; Washington, D.C.; and Puerto Rico. Customers also can purchase many items through the companys website at www.walmart.com.

Walmart International Segment: The International segment includes wholly owned subsidiaries in Canada, Chile, China, and Japan; majority-owned subsidiaries are in Africa, Central America, India and Mexico. The merchandising strategy for the International segment is similar to that of the Walmart U.S. segment, but margins are lower due to its merchandise mix.

Sams Club Segment: Sams Clubs are membership club warehouses that operate in 48 states. The average Sams Club is approximately 134,000 square feet, and customers can purchase many items through the companys website at www.samsclub.com. These warehouses offer bulk displays of brand-name merchandise, including hard goods, some soft goods, institutional-size grocery items, and certain private-label items. Gross margins for Sams Clubs stores are lower than those of the U.S. and International segments.

Walmart uses centralized purchasing through its home office for substantially all of its merchandise. It distributes products to its stores through 156 regional distribution centers located strategically throughout the United States and 221 distribution centers located in other countries. Sams Club merchandise flows through one of 27 dedicated distribution facilities.

Exhibit 4.42 sets out various operating data for Walmart for 2018 through 2020. Exhibit 4.43 presents segment data. Exhibit 4.44 presents comparative balance sheets for Walmart for 2017 through 2020 (an extra year to enable average balance computations when necessary), Exhibit 4.45 presents comparative income statements for 2018 through 2020, and Exhibit 4.46 presents comparative statements of cash flows for 2018 through 2020. Exhibit 4.47 presents selected financial statement ratios for Walmart for 2018 through 2020. With the exception of segment ratios, Walmart's financial ratios include an adjustment for imputation of interest on operating leases based on Walmarts 2020 disclosed weighted-average discount rate on operating leases of 6.1%. The statutory income tax rate is 21%.

Required

What are the likely reasons for the changes in Walmarts rate of ROA during the three-year period? Analyze the financial ratios to the maximum depth possible.

What are the likely reasons for the changes in Walmarts rate of ROCE during the three-year period?

How has the short-term liquidity risk of Walmart changed during the three-year period?

How has the long-term solvency risk of Walmart changed during the three-year period?