HW2b

SUPPLY CHAIN STRATEGY

WAL-MART STORES INC

1
1) Compare Wal-Mart and Amazon in 2010
Evaluate Wal-Mart’s financial performance based on the various metrics discussed in Section 3.1, such
as ROE, ROA, profit margin, asset turns, APT, C2C, ART, INVT, and PPET.
2) Which metrics does Amazon/Wal-Mart perform better on?
What supply chain drivers and metrics might explain this
difference in performance?
Amazon perform better on
C2C: Amazon have more weeks to collect money from sales before pay supplier - Inventory
PPET: Amazon could support more sales for each dollar spend on PP&E
APT: Amazon cover more fraction of its operation using the same money it owed suppliers
Wal-Mart perform better on
ROE: Wal-Mart have more return on investment make by shareholders
ROA: Wal-Mart have more return earned on each dollar invested by the firm in assets.
ART: Wal-Mart can collect money quickly after made a sale
Asset turns:
Amazon has less invested in the supply chain drivers of facilities and inventory than
Wal-Mart
Explains the better perform with the C2C and PPET metrics
3a) Wal-Mart for urban smaller stores. Which supply chain metrics will be impacted
by this move? How will this move impact the various financial metrics? Why?

• Facilities driver matrices will be impacted by this movement.

• increase facility and inventory costs
• Wal-Mart will increase inventory levels to support these new stores
• decrease transportation costs and reduce response time
• Wal-Mart is about to increase the overall assets needed throughout their supply chain

Impact on financial metrics

• Profit margin would depend on whether the smaller format stores are able to reap the cost
benefits of economies of scale that are available to the normal large format Wal-Mart
stores. In case, their efficiency is impaired, it may witness a fall in margin;
• The impact of this would also be visible on the returns metrics of ROA and ROE, as the net
income and type of financing used would shape these figures;
• As Wal-Mart is expected to exercise similar strategies for handling its receivables and
payables, the ART and APT figures are expected to remain at similar levels;
• Changes are expected in INVT and PPET due to the size of the stores and volume of traffic
being lower than the large-format stores.
3b) How will this move impact the various financial metrics?
Why?
• Impact on ratios –
• Profit margin would depend on whether the smaller format stores are able to reap
the cost benefits of economies of scale that are available to the normal large
format Wal-Mart stores. In case, their efficiency is impaired, it may witness a fall in
margin;
• The impact of this would also be visible on the returns metrics of ROA and ROE, as
the net income and type of financing used would shape these figures;
• As Wal-Mart is expected to exercise similar strategies for handling its receivables
and payables, the ART and APT figures are expected to remain at similar levels;
• Changes are expected in INVT and PPET due to the size of the stores and volume of
traffic being lower than the large-format stores.

• Facilities driver matrices will be impacted by this movement.

 Appendix I – financial statements

Wal- Mart Stores Inc Amazon.com Inc

($mn) 2010 2009 2010 2009 2008

Net operating revenues 4,08,214 4,04,374 34,204 24,509 19,166
Cost of goods sold 3,04,657 3,04,056 26,561 18,978 14,896
Gross profit 1,03,557 1,00,318 7,643 5,531 4,270
SGAS 79,607 77,520 6,237 4,402 3,428
Operating income 23,950 22,798 1,406 1,129 842
Interest expense 2,065 2,184 39 34 71
Other income (loss) - net 181 284 130 66 130
Income before income taxes 22,066 20,898 1,497 1,161 901
Income taxes 7,139 7,145 352 253 247
Other expenses 592 353
Net income 14,335 13,400 1,152 902 645

ASSETS
Cash & cash equivalents 7,907 7,275 3,777 3,444 2,769
Short-term investment 4,985 2,922 958
Net receivables 4,144 3,905 1,783 1,260 1,031
Inventories 33,160 34,511 3,202 2,171 1,399
Total current assets 48,331 48,949 13,747 9,797 6,157
Property, plant & equipment 1,02,307 95,653 2,414 1,290 854
Goodwill 16,126 15,260 1,349 1,234 438
Other assets 3,942 3,567 1,265 1,492 705
Total assets 1,70,706 1,63,429 18,797 13,813 8,314
LIABILITIES & STOCK HOLDERS EQUITY
Accounts payable 50,550 47,638 10,372 7,364 4,687
Short-term debt 4,919 7,669 59
Other current liabilities 92 83
Total current liabilities 55,561 47,638 10,372 7,364 4,746
Long-term debt 36,401 34,549 109 533
Other liabilities 1,561 1,083 363
Total liabilities 99,650 97,747 11,933 8,556 5,642
Stockholder equity 5,257 2,672 6,864 5,257 2,672
6 Total equity 71,056 65,682 6,864 5,257 2,672
Appendix for Walmart/Amazon
Return on Asset Calculation

ROA = (Net Income + (1 - 0.35) x Interest Expense)/Total Assets

Walmart:

ROA = (14,335 + (1 – 0.35) x 2,065)/170,706 = 9.18%

Amazon:

ROA = (1,152 + (1 – 0.35) x 39)/18,797 = 6.23%

Appendix for Walmart/Amazon
Return on Equity Calculation

ROE = Net Income/Stockholder Equity

Walmart:

ROE = 14,335 / 71,056= 20.17%

Amazon:

ROE = 1,152 / 6,684 = 16.68%

Appendix for Walmart/Amazon
ROFL Calculation

ROFL = Return on Equity – Return on Assets

Walmart:

ROFL = 20.17% - 9.18% = 10.99%

Amazon:

ROFL = 16.68% - 6.23% = 10.45%

Appendix for Walmart/Amazon
Profit Margin Calculation

Profit Margin = (Net Income + (1 - 0.35) x Interest Expense)/Net Operating Revenues

Walmart:

Profit Margin = (14,335 + (1 – 0.35) x 2,065)/408,214 = 3.84%

Amazon:

Profit Margin = (1,152 + (1 – 0.35) x 39)/34,204 = 3.42%

Appendix for Walmart/Amazon
Asset Turnover Calculation

Asset Turnover = Net Operating Revenues/Total Assets

Walmart:

Asset Turnover = 408,214/170,706 = 2.39

Amazon:

Asset Turnover = 34,204/18,797 = 1.82

Appendix for Walmart/Amazon
APT Calculation

APT = Cost of Goods Sold/Accounts Payable

Walmart:

APT = 304,657/50,550 = 6.03

Amazon:

APT = 26,561/10,372 = 2.56

Appendix for Walmart/Amazon
ART Calculation

ART = Net Operating Revenues/Net Receivables

Walmart:

ART = 408,214/4,144 = 98.51

Amazon:

ART = 34,204/1,783 = 19.18

Appendix for Walmart/Amazon
INVT Calculation

INVT = Cost of Goods Sold/Inventories

Walmart:

INVT = 304,657/33,160 = 9.19

Amazon:

INVT = 26,561/3,202 = 8.30

Appendix for Walmart/Amazon
PPET Calculation

PPET = Net Operating Revenues/Property, Plant, and Equipment

Walmart:

PPET = 408,214/102,307 = 3.99

Amazon:

PPET= 34,204/2,414 = 14.17

Appendix for Walmart/Amazon
Cash to Cash Calculation

C2C = -(52/APT) + (52/INVT) + (52/ART)

Walmart:

C2C = -(52/6.03) + (52/9.19) + (52/98.51) = -2.44

Amazon:

C2C = -(52/2.56) + (52/8.30) + (52/19.18) = -11.326