FINANCIAL ANALYSIS

Principles of Finance (Present Value and Capital Budgeting)

Principles of Finance (Present Value and Capital Budgeting)

Introduction to Wal Mart

Wal mart is a US based retail store company. Wal-Mart Stores operates retail stores in a range of layout. The company performs their operation through three different business segments. Wal-Mart United States which operates in different parts of US with the name Wal-Mart or Wal-Mart brand, Wal-Mart International serving international consumers of around 28 countries by retail outlets, restaurants, discount stores and super centers. Third business segment of Wal-Mart is Sam's Club, which comprises of membership warehouse clubs and online retail operations of samsclub.com (walmartstores.com). Wall mart is amongst the cheapest retail store in the retail industry of the world. Wal Mart is listed on the New York stock exchange (NYSE).

Discussion

The current market price of Wal mart share as on September 16 2011 is $52.65.

Wal mart stock has been a volatile stock since last 5 years. From the chart on the left side, the volatility of stock can be witnessed. In 2007, the share price of Wal mart was around $49. Since then, it has shown drastic ups and down. During the period 2007-08, the stock was at its lowest price i.e. $43. After the mid of 2007, the stock showed an increasing trend and on 11 September2009, the stock was at its highest price ever i.e. $63.17 (www.shareprice.co.uk).

Analyzing the 5 year trend of this stock, we can conclude that "since 2007 till present", the stock growth shows a 9.19% increase. This is average 5 year growth of the Wal mart stock. The annual average growth of Wal mart stock is 1.9%. This means that the stock price of this retail store is increasing at the rate of 1.9% per year. Keeping this annual growth in mind, we can easily predict the future share price of Wal mart of the next year. Multiplying the annual growth with the current market share price will give us the futures share price of the stock. In this case, the annual growth is 1.9%, and the current market price of the share is $52.65. Multiplying the annual growth with the share price will give us $53.65 per share price. If I get into a future contract of Wal mart share, then I will be earning a profit of $1 ($53.65-$52.65) on every share I buy.

The future price of 100 shares of wall part will be approximately $5,365. ...