You are on page 1of 2

Business Valuation

Case 1: Valuing Wal-mart Stock

Submitted By

1. Assess the financial health of Wal-Mart based on an analysis of


financial statements.

Cash cycle and quick ratio are very low which means that Walmart has high
bargaining power with both buyers and suppliers
Company is investing and still maintaining the profit margin which is
ascertained from the retention and payout ratios
Debt to equity ratio is increasing by repurchase of shares

2. Develop a pro forma Income Statements and Balance Sheet for WalMart for the fiscal year ending January 31, 2006.
Calculations in the attached excel sheet
3. Determine the intrinsic value (on per share basis) of Wal-Mart using
three forms of DDM
[Tarun to fill this space]
4. Determine the intrinsic value (on per share basis) of Wal-Mart using
the P/E approach
Intrinsic value based on P/E approach = $47.95 per share (calculations in the
attached excel)
5. Finally, what recommendations would you make?
We recommend Rachael Martin to recommend Walmart stock to the new clients. Based on
our calculations, the intrinsic value of Walmart stock is [$XX] based on DDM approach. The
P/E approach gives the intrinsic value of $47.95 per share. Further, Analysts consensus
target price is $55.45.
As Walmarts stock is currently priced at $49.47, our calculations suggest it is undervalued.
Hence we recommend buying of new Walmart stocks.

You might also like