HW2b SUPPLY CHAIN STRATEGY WAL-MART STORES INC

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 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 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

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