Particulars Ms Smart - Walmart

Retail stores for fast moving consumer goods

Business Model - Primarily low to mid ticket products (Grocery, fashion, electronics etc)
- High number of stores (~12k) to improve customer convenience

High Sales (Gross Merchandise Value) driven by high volumes/# of

Turnover/GMV
Operating Strategy

transactions

Margin Profile Low margins given focus on scale and profile of products

Smaller operating cycle of ~3 weeks

Operating Cycle - Relatively low receivables and inventory days given low unit product costs
and fast moving products

Walmart's cash position is marginally weak with cash being reinvested in the
Liquidity Profile business to fund the operations. Company's cash contributes ~7% to current
assets

Company employs an appropriate debt level to finance its long-term and

short-term capital requirements. At 0.6x Debt/Equity and 2.0x Net
Solvency Profile
Debt/Operating Income, the company is efficiently utilising it's capital
Financing Strategy

structure

Return Profile Company operations are characterised by thin margins and high asset
(RoA) turnover ratio

Company is able to clock higher RoE by employing controlled levels of

Return Profile
leverage to compensate for lower margins. Leverage explain ~60% of
(RoE)
company's RoE (using DuPont Analysis)
 Mr Quick - Tiffany Recommendation

Retail stores for luxury jewellery and other products

Choice between convinience
- Primarily high ticket products (Rings, necklaces etc)
and luxury offering
- Stores only at the high street (ex Mayfair, London)

High Sales (Gross Merchandise Value) driven by value of transactions

Higher margins given focus on brand recognition and exclusivity

Long operating cycle of ~35 weeks

- Very high inventory given by high per unit cost, frequent change in fashion trends and
general slow moving characteristics of jewellery products

Tiffany's current ratio is relatively high given high pile-up in inventory. However, cash
position is still stable as cash and equivalents contributed ~20% to the current assets.

Company is bearish with respect to employing more debt. This is depicted by its lower
Debt to equity ratio of 0.3x. This can be explained by company's conservative strategy
as demand for luxury products is highly affected by economic downturns

Company operations are characterised by high margins and relatively low asset
turnover ratio

Company is able to clock higher RoE on the back of higher margins and minimal
support from leverage. Leverage explains ~40% of company's RoE
1

4
Which company was more successful based on return on equity (ROE)?
Walmart Stores has a higher RoE in 2002 and also on average for 2002 and 2001

What could be the differences in strategy that explain the differences in ROE? Specifically, how much of the ROE was due to operations ver
Use row 10, 5 and 9 (previous sheet)
Then ROE

What could be the risks that arise from the operating and financing strategy for each firm?
Operating: Tiff vs Walmary - 6,3 &4 + liquidity
Financing: DSCR, Tax Component, Conservative approach
 WalMart Tiffany’s
2002 2001 2002
Return on Equity Net Income/Shareholder's Equity 19.0% 20.1% 16.7%
Profit Margin Net Income/Sales 3.1% 3.3% 10.8%
Asset Turnover Sales/Total Assets 2.6x 2.4x 1.0x
Leverage Total Assets/Shareholder's Equity 2.4x 2.5x 1.6x
Return on Assets Adjusted Net Income/Total Assets 9.0% 9.2% 11.4%
Profit Margin Adjusted Net Income/Sales 3.5% 3.8% 11.6%
Asset Turnover Sales/Total Assets 2.6x 2.4x 1.0x
Margin Analysis
Gross Margin Gross Profit/Sales 22.2% 22.5% 58.7%
Operating Margin Operating Income/Sales 5.5% 6.0% 19.3%
Interest Rate Interest Cost/Total Debt 6.1% 6.2% 6.6%
Tax Rate Tax Expense/Profit Before Tax 36.2% 36.5% 40.0%

Efficiency Ratios
Receivable Days 365/Sales/Receivables 3.4 3.4 22.4
Payable Days 365/Inventory Purchases/Payables 33.0 36.3 94.8
Inventory Days 365/Cost of Goods Sold/Inventory 48.1 52.1 336.7
Operating Cycle Days (Receivables+ Inventory- Payable) days 18 19.2 264
Working Capital-to-Assets (Current Assets - Current Liabilities)/Total Assets 0.0x (0.0)x 0.4x
Solvency Ratios
Debt to Equity Debt/Equity 0.6x 0.7x 0.3x
Leverage Net Debt/Operating Income 2.0x 2.1x 0.4x
Interest Coverage Operating Income/Current Year Interest 7.6x 6.9x 15.6x
Debt Service Coverage Operating Income/Current Year Interest+Principal 3.2x 1.4x 2.8x

Liquidity Ratios
Current CA/CL 1.0x 0.9x 2.8x
Quick CA - Inv - PPE / CL 0.2x 0.1x 0.9x
Cash CA - Inv - PPE - AR / CL 0.1x 0.1x 0.6x
Tiffany’s
2001
20.6%
11.4%
1.1x
1.7x
12.8%
12.1%
1.1x

56.9%
19.6%
4.8%
40.0%

23.4
79.8
330.5
274.1
0.4x

0.3x
0.4x
20.2x
3.8x

3.0x
1.0x
0.7x
WAL-MART STORES, INC.
Consolidated Balance Sheet $m $m
Liabilities and Shareholders’ Equity 2002 2001
Current Liabilities
Commercial paper 743 2,286
Accounts payable 15,617 15,092
Accrued liabilities 7,174 6,355
Accrued income taxes 1,343 841
Long-term debt due within one year 2,257 4,234
Obligations under capital leases due within one year 148 141
Total Current Liabilities 27,282 28,949
Long-Term Debt 15,687 12,501
Long-Term Obligations Under Capital Leases 3,045 3,154
Deferred Income Taxes and Other 1,128 1,043
Minority Interest 1,207 1,140
Shareholders’ Equity
Preferred stock ($0.10 par value; 100 shares authorized, none issued)
Common stock ($0.10 par value; 11,000 shares authorized, 4,453
and 4,470 issued and outstanding in 2002 and 2001, respectively) 445 447
Capital in excess of par value 1,484 1,411
Retained earnings 34,441 30,169
Other accumulated comprehensive income (1,268) (684)
Total Shareholders’ Equity 35,102 31,343
Total Liabilities and Shareholders’ Equity 83,451 78,130

Assets
Current Assets
Cash and cash equivalents 2,161 2,054
Receivables 2,000 1,768
Inventories
At replacement cost 22,749 21,644
Less LIFO reserve 135 202
Inventories at LIFO cost 22,614 21,442
Prepaid expenses and other 1,471 1,291
Total Current Assets 28,246 26,555
Property, Plant and Equipment, at Cost
Land 10,241 9,433
Building and improvements 28,527 24,537
Fixtures and equipment 14,135 12,964
Transportation equipment 1,089 879
Gross Assets 53,992 47,813
Less accumulated depreciation 11,436 10,196
Net property, plant and equipment 42,556 37,617
Property Under Capital Lease
Property under capital lease 4,626 4,620
Less accumulated amortization 1,432 1,303
Net property under capital leases 3,194 3,317
Other Assets and Deferred Charges
Net goodwill and other acquired intangible assets 8,595 9,059
Other assets and deferred charges 860 1,582
Total Assets 83,451 78,130

Schedules
Opening Inventory 21,442 0
Purchases 172,734 151,758
CoGS (171,562) (150,255)
Ending Inventory 22,614

Total Debt 21,880 22,316

Total Equity 35,102 31,343
Debt-to-Equity 0.6x 0.7x

Net Debt 19,719 20,262

Operating Income 10,064 9,524
Net Debt to Operating Income 2.0x 2.1x
10751
525
819
502

(232)

(1,172)
(180)
WAL-MART STORES, INC.
Consolidated Statements of Income
$m 2002 2001 2000
Revenues
Net sales 217,799 191,329 165,013
Other income-net 2,013 1,966 1,796
219,812 193,295 166,809
Costs and Expenses
Cost of sales 171,562 150,255 129,664
Operating, selling and general and administrative expenses 36,173 31,550 27,040

Interest Costs
Debt 1,052 1,095 756
Capital leases 274 279 266
209,061 183,179 157,726

Income Before Income Taxes, Minority Interest and

Cumulative Effect of Accounting Change 10,751 10,116 9,083
Provision for Income Taxes
Current 3,712 3,350 3,476
Deferred 185 342 (138)
3,897 3,692 3,338

Income Before Minority Interest and

Cumulative Effect of Accounting Change 6,854 6,424 5,745
Minority Interest (183) (129) (170)

Income Before Cumulative Effect of Accounting Change 6,671 6,295 5,575

Cumulative Effect of Accounting Change, net of tax benefit of (198)
$119
Net Income 6,671 6,295 5,377
79%
17%

12,077
TIFFANY & CO. AND SUBSIDIARIES
Consolidated Balance Sheet
($ in thousands, except per share amount) 2002 2001
ASSETS
Current assets:
Cash and cash equivalents 173,675 195,613
Accounts receivable, less allowances of $6,878 and $7,973 98,527 106,988
Inventories, net 611,653 651,717
Deferred income taxes 41,170 28,069
Prepaid expenses and other current assets 29,389 22,458

Total current assets 954,414 1,004,845

Property, plant and equipment, net 525,585 423,244
Deferred income taxes 4,560 7,282
Other assets, net 145,309 132,969

Total Assets 1,629,868 1,568,340

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Short-term borrowings 40,402 28,778
Current portion of long-term debt 51,500 0
Obligation under capital lease 0 40,747
Accounts payable and accrued liabilities 161,782 189,531
Income taxes payable 48,997 42,085
Merchandise and other customer credits 38,755 36,057
Total current liabilities 341,436 337,198

Long-term debt 179,065 242,157

Postretirement/employment benefit obligations 29,999 26,134
Other long-term liabilities 42,423 37,368
Commitments and contingencies

Stockholders' equity:
Common Stock, $0.01 par value; authorized 240,000 shares,
issued and outstanding 145,001 and 145,897 1,450 1,459
Additional paid-in capital 330,743 318,794
Retained earnings 743,543 630,076
Accumulated other comprehensive (loss) gain:
Foreign currency translation adjustments (45,306) (24,846)
Cash flow hedging instruments 6,515 --
Total stockholders' equity 1,036,945 925,483

Total Liabilities and Shareholders’ Equity 1,629,868 1,568,340

Schedules
Opening Inventory 651,717 504,800
Purchases 622,994 866,559
CoGS (663,058) (719,642)
Ending Inventory 611,653 651,717

Total Debt 300,966 337,816

Operating Income 309,897 327,396
TIFFANY & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts) 2002 2001 2000
Net sales 1,606,535 1,668,056 1,471,690
Cost of sales 663,058 719,642 650,010
Gross profit 943,477 948,414 821,680
Selling, general and administrative expenses 633,580 621,018 564,797
Earnings from operations 309,897 327,396 256,883
Interest expense and financing costs 19,834 16,207 15,038
Other expense (income), net 751 (6,452) (6,213)
Earnings before income taxes 289,312 317,641 248,058
Provision for income taxes 115,725 127,057 102,379
Net earnings 173,587 190,584 145,679
41% 43%

39% 37%