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MBA 520 Milestone Two Guidelines and Rubric

Overview: This milestone assignment covers section III of the final project. It is an opportunity to draft this section and get your instructor’s feedback before
submitting the final version. For this milestone, you will discuss factors that may affect current and future performance of your chosen company.

Prompt: Now that you have evaluated your company’s financial health in Milestone One, you must research and assess the company’s strategic priorities
and behavior. You should investigate internal risks and nonmonetary factors that may affect current and future performance and decisions.

Specifically, you must address the following critical elements from section III of the final project:

III. Success Factors and Risks: Use this section to discuss the factors that may affect current and future performance. Specifically:
A. How do the organization’s financial and strategic priorities affect accounting procedures and business decisions? How might that affect business

success? For example, is management growth-oriented or efficiency-oriented? What is the organization’s approach to risk and short- versus
long-term planning horizons?

B. How might the organization better capitalize on nonfinancial factors such as market share, reputation, human resources, physical facilities, or
patents? Support your response with relevant research and analysis.

C. What are the most significant internal risks to the company’s financial performance? Give evidence to support your response. For example, is
the company vulnerable to technological changes or cyberattacks? Loss of high-talent personnel? Production disruptions?

Rubric

Guidelines for Submission: Use the Final Project Template to complete this assignment. Your report should be approximately 3–5 pages (excluding the title page,
any spreadsheets and graphs, and the references list). It should be double spaced, with 12-point Times New Roman font and one-inch margins, and use the latest
guidelines for APA formatting for references and citations. Include your name, course name, and report topic on the title page.

Critical Elements Proficient (100%) Needs Improvement (70%) Not Evident (0%) Value

Success Factors and
Risks: Priorities

Determines how
organization’s financial and
strategic priorities affect
accounting procedures and
business decisions, and the
implications for business
success

Determines how organization’s financial
and strategic priorities affect accounting
procedures and business decisions, and
the implications for business success, but
response is cursory or contains
inaccuracies, or links between priorities
and business decisions and procedures are
weak or illogical

Does not determine how
organization’s financial and
strategic priorities affect
accounting procedures and
business decisions, and the
implications for business success

30

https://learn.snhu.edu/d2l/lor/viewer/view.d2l?ou=6606&loIdentId=21519

Critical Elements Proficient (100%) Needs Improvement (70%) Not Evident (0%) Value

Success Factors and
Risks: Nonfinancial

Factors

Identifies how organization
might better capitalize on
nonfinancial factors,
supported by relevant
research and analysis

Identifies how organization might better
capitalize on nonfinancial factors,
supported by research and analysis, but
response is cursory, contains inaccuracies,
or is poorly supported

Does not identify how
organization might better
capitalize on nonfinancial factors

30

Success Factors and
Risks: Risks

Pinpoints most significant
internal risks to financial
performance, supported by
evidence

Pinpoints most significant internal risks to
financial performance, supported by
evidence, but response is cursory or
contains gaps in accuracy or logic, or
evidence is weak or irrelevant

Does not pinpoint most
significant internal risks to
financial performance

30

Articulation of
Response

Submission has no major
errors related to citations,
grammar, spelling, syntax, or
organization

Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas

Submission has critical errors
related to citations, grammar,
spelling, syntax, or organization
that prevent understanding of
ideas

10

Total 100%

MBA-520 | Integrative Case – Wal-Mart | Baker

4.1 Profitability and Risk Analysis of Walmart Stores

Walmart’s fiscal year ends at the end of January of each year. Despite Walmart’s convention of referring to its year ending January 31, 2016, as its fiscal 2016, we will follow the common practice of referring to it as 2015 since 11 of the 12 months fall within 2015. This same convention holds true for Carrefour and Target in Part B of this case.

PART A: Walmart Stores (Walmart) is the world’s largest retailer. It employs an ‘‘everyday low price’’ strategy and operates stores as three business segments: Walmart Stores U.S., International, and Sam’s Club.
1. Walmart Stores U.S.: This segment represented 62.3% of all 2015 sales and operates stores in three different formats: Discount stores (104,000 average square feet), Super-centers (178,000 average square feet), and Neighborhood Markets (42,000 average square feet). Each format carries a variety of clothing, housewares, electronic equipment, pharmaceuticals, health and beauty products, sporting goods, and similar items, and Supercenters include a full-line supermarket. Walmart U.S. stores are in all 50 states; Washington, D.C.; and Puerto Rico. Discount stores are in 41 states, Supercenters are in 49 states, and Neighborhood Markets are in 31 states. Customers also can purchase many items through the company’s website at www.walmart.com.
2. International: The International segment includes wholly owned subsidiaries in Argentina, Brazil, Canada, Chile, China, India, Japan, and the United Kingdom; majority-owned subsidiaries are in Africa, Central America, and Mexico. The merchandising strategy for the International segment is similar to that of the Walmart U.S. segment.
3. Sam’s Clubs: Sam’s Clubs are membership club warehouses that operate in 48 states. The average Sam’s Club is approximately 134,000 square feet, and customers can purchase many items through the company’s website at www.samsclub.com. These warehouses offer bulk displays of brand name merchandise, including hard goods, some soft goods, institutional-size grocery items, and certain private-label items. Gross margins for Sam’s Clubs stores are lower than those of the U.S. and International segments.

Walmart uses centralized purchasing through its home office for substantially all of its merchandise. It distributes products to its stores through regional distribution centers. During fiscal 2015, the proportion of merchandise channeled through its regional distribution centers:

Walmart Discount Stores, Supercenters, and Neighborhood Markets

79%

Sam’s Club (nonfuel)

69%

International

77%

Exhibit 4.43 sets out various operating data for Walmart for 2013 through 2015. Exhibit 4.44
presents segment data. Exhibit 4.45 presents comparative balance sheets for Walmart for 2012 through 2015 (an extra year to enable average balance computations when necessary), Exhibit 4.46 presents comparative income statements for 2013 through 2015, and Exhibit 4.47 presents comparative statements of cash flows for 2013 through 2015. Exhibit 4.48 presents selected financial statement ratios for Walmart for 2013 through 2015. The statutory income tax rate is 35%.

Required

a. What are the likely reasons for the changes in Walmart’s rate of ROA during the three-year period? Analyze the financial ratios to the maximum depth possible.

b. What are the likely reasons for the changes in Walmart’s rate of ROCE during the three-year period? Note: Requirements c and d require coverage of material from Chapter 5.

c. How has the short-term liquidity risk of Walmart changed during the three-year period?

d. How has the long-term solvency risk of Walmart changed during the three-year period?

PART B: Part A of Integrative Case 4.1 analyzed the profitability and risk of Walmart Stores for its fiscal years 2013, 2014, and 2015. Part B of this case compares the profitability and risk ratios of Walmart and two other leading discount retailers, Carrefour and Target, for their 2013 through 2015 fiscal years.

Carrefour

Carrefour, headquartered in France, is Europe’s largest retailer and the second largest retailer in the world. Carrefour is organized by geographic region (France, Europe excluding France, Asia, and Latin America). Each segment is organized according to store formats, which include the following (2015 number of stores in parentheses):

· Hypermarkets (1,481): Offer a wide variety of household and food products at competitively low prices under the Carrefour store brand.
· Supermarkets (3,462): Sell traditional grocery products under the Market, Bairro, and Supeco store brands.
· Convenience Stores (7,181): Offer a limited variety of food products in smaller stores than those of hypermarkets and supermarkets at aggressively low prices under Express, City, Contact, Bio, Montagne, and other store brands.
· Cash & Carry (172): Provides professional restaurant and shop owners food and non-food products at wholesale prices, under the Promocash and other store brands.

Carrefour derived approximately 47% of its 2015 sales in France, 25% in Europe excluding France, 19% in Latin America, and 9% in Asia.

Target

Target Corporation, headquartered in the United States, is a retailer that includes large-format general merchandise and food discount stores as well as an online business at www.target.com. Target stores offer a wide variety of clothing, household, electronics, sports, toy, and entertainment products at discount prices. Target stores attempt to differentiate themselves from Walmart’s discount stores by pushing trendy merchandising with more brand-name products. Target emphasizes customer service, referring to its customers as ‘‘guests’’ and focusing on the theme of ‘‘Expect More, Pay Less.’’ Target Corporation attempts to differentiate itself from competitors by providing wider aisles and a less cluttered store appearance. Target discontinued its Canadian operations in 2014, which led to a significant nonrecurring loss in that year.

Exhibits 4.49 and 4.50 present profitability ratios for Carrefour, Target, and Walmart for their
2013 through 2015 fiscal years. Exhibit 4.51 presents risk ratios for the three firms. Exhibit 4.52 presents selected other data for these firms. The financial statements include the present value of commitments under all leases in property, plant, and equipment and in long-term debt.

Required

a. Walmart and Target follow somewhat different strategies. Using Cross-Section ROA Profitability Analysis information in Exhibits 4.49 and Selected Other Financial Data 4.52, suggest reasons for these differences in operating profitability.

b. Walmart and Carrefour follow similar strategies, but Walmart consistently outperforms Carrefour on ROA. Using information in Exhibits 4.49 and 4.52, suggest reasons for these differences in operating profitability.

c. Refer to Exhibit 4.50 for Cross-Section ROCE Profitability Analysis. Which firm appears to have used financial leverage most effectively in enhancing the rate of ROCE? Explain your reasoning. Note: Requirements d and e require coverage of material from Chapter 5.

d. Refer to Exhibit 4.51 for Cross-Section Risk Analysis. Rank-order these firms in terms of their short-term liquidity risk. Do any of these firms appear unduly risky as of the end of fiscal 2015? Explain.

e. Refer to Exhibit 4.51. Rank-order these firms in terms of their long-term liquidity risk. Do any of these firms appear unduly risky as of the end of fiscal 2015? Explain.

8

Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;

Chapter 04: Profitability Analysis

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