Wal-Mart

buy in volumes, sell individually

buy in bulk, and get discount from manufacturer because they purchase quantities.

Then, sell them individually to consumers

make money on the "spread" - the difference in price of buying in bulk & selling individually

high turnover, low profit margin ( see financial statement analysis for more discussion about turnover)

strategy:

1. convert existing discount stores into supercenters and open new supercenters to capitalize on one-stop shopping by customers and to gain efficiencies in product distribution, stocking and advertisging

2. expand into other countries by acquiring existing retail chains instead of opening new stores on its own. Then will install its information, purchasing, and distributions systems into these chains to add value by reducing costs

3. Open smaller grocery stores in neighborhoods too thinly populated to justify a supercenter

Balance Sheet Analysis:

sears vs walmart _v01.xls

In the short term: Wal-mart keeps a very large portion of total assets in inventories (about 25% of total), and keeps a very small portion in cash (only about 3% of total). This means that they continuously need to sell inventory in order to pay their short term liabilities (accounts payable to suppliers = 20% approx). This means that Walmart is heavily dependent upon financing from its suppliers, who sell on credit, and that they never have enough cash to pay their suppliers - not until they sell inventory.

In the longer term: most of Walmarts assets are in their stores, which they finance with long term debt (and by proportion, not alot of equity)

Income statement analysis

Walmart has a profit margin (revenue - expenses / revenue) of about 3-4%

Cash Flow analysis

Wal-Mart has more than enough cash from operatios to pay for their investing (in new stores). In excess of their investing activities, Walmart generally has free cash flow left over to pay for financing activities (buy back stock, pay off loans,etc).