Wmt in Order for Wal-Mart Essay

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Wal-Mart's capital structure is relatively debt-heavy. For the end of fiscal 2008, Target had a debt/equity ratio of 0.4, indicating a capital structure more oriented towards equity financing. Costco had a debt/equity ratio of 1.25, again lower than that of Wal-Mart (MSN Moneycentral, 2010). These competitors provide interesting comparables in that neither is as heavily leveraged as Wal-Mart. They are very large companies with stable cash flow, just like Wal-Mart, but have chosen to take on less debt in their capital structure.

The financial crisis has also had an impact on Wal-Mart's capital structure. When planning the optimal capital structure, firms need to consider the ability of the company to whether economic slowdowns. In Wal-Mart's case, the impacts of the slowdown were delayed somewhat, but eventually sales began to slump. The company increased its long-term debt in both 2009 and 2010. The debt/equity ratio increased to 1.50 in 2009 but then decreased in 2010 to 1.

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41, close to the level of two years prior. This indicates that the company has targeted an capital structure of around 1.40.

Overall, Wal-Mart has significant borrowing capacity. This is fueled by the strength of the firm's revenue streams. Wal-Mart seeks to lower its cost of capital by increasing its degree of leverage. As a result, the company has more debt than its closest competitors. The economic slowdown initially had a negative impact on Wal-Mart's capital structure but the firm took steps in fiscal 2010 to bring the capital structure back in line with the company's debt policy. While Wal-Mart could borrow more, the company clearly views debt over the 1.4 debt/equity ratio mark as being less than optimal, and seeks to maintain healthy liquidity by placing constraints on its….....

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