Determine how Walmart’s free cash flow would change

You are the Chief Financial Officer (CFO) of Walmart. This afternoon you played golf with a member of the company’s board of directors. One of the board members enthusiastically described a recent article she had read in a leading management journal. This article noted several companies that had improved their stock price performance through effective working capital management, and the board member was intrigued. Even though Walmart was known for working capital management, she wondered if it could do even better. How was Walmart managing its working capital, and how does it compare to Costco, another company well known for working capital management?


Upon returning home, you decide to do a quick preliminary investigation using information freely available on the Internet.


1. Obtain Walmart’s financial statements for the past four years from or any other platform of your choice.

a. Enter the stock symbol (WMT) in the box and click “Get Quote.”

b. Next click “Income Statement” in the left column.

c. Select “Annual,” and if you are using Internet Explorer, place the cursor in the statement and right-click the mouse. Select “Export to Microsoft Excel” from the menu. If you do not have that option, you can copy and paste the data into Excel.

d. Go back to the Web page and click “Balance Sheet” at the left of the page; repeat the download procedure for the balance sheets.

e. Copy and paste the balance sheet so that it is on the same worksheet as the income statement.


2. Obtain Costco (COST) ratios for comparison from the Reuters Web site (www.reuters .com/finance/stocks) or any other platform of your choice.

a. Enter the stock symbol (COST) in the box, then select “Financials.”

b. Scroll down to find the efficiency ratios and copy and paste them into your spreadsheet where Costco’s financial statements are located.


3. Compute the cash conversion cycle for Walmart for each of the last four years.

a. Compute the inventory days using “Cost of Revenue” as cost of goods sold and a 365-day year.

b. Compute accounts receivable days using a 365-day year.

c. Compute accounts payable days using a 365-day year.

d. Compute the cash conversion cycle for each year.


4. How has Walmart’s CCC changed over the last few years?


5. Compare Walmart’s inventory and receivables turnover ratios for the most recent year to the industry average.

a. Compute the inventory turnover ratio as cost of revenue/inventory.

b. Compute the receivable turnover ratio as total revenue/net receivables.

c. How do Costco’s numbers compare to Walmart’s? Hi


6. Determine how Walmart’s free cash flow would change if Walmart’s inventory and accounts receivable balances were adjusted to meet Costco’s ratios.


7. Determine the net amount of additional free cash flow and Walmart’s cash conversion cycle if its inventory and receivables turnover ratios were at Costco’s levels and its

payable days didn’t change.


8. What are your impressions regarding Walmart’s working capital management based on this preliminary analysis? Discuss any advantages and disadvantages of attempting

to match Costco’s cash conversion cycle.


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