Walmart – Shareholder Value Creation Case Study Help
Dividend per Share (DPS):
The dividend per share increased to 2.08 US dollars per share in the year 2019 from 2.04 US dollars per share in the year 2018. This indicates a positive cash flow position and performance of the company and ensures the shareholders that the organization follows a stable dividend policy. However, the increase in dividend might indicate that the organization is raising its dividends to attract additional equity investors to finance the aggressive growth and expansion strategy of the organization.
Shareholder Value Added (SVA):
The shareholder value-added performance measure is used to analyze the organization’s profitability and management’s efficacy. The performance measure evaluates whether the shareholder value is added or not i.e. company’s profits have exceeded the overall cost. It is evaluated that Walmart created shareholder value worth 684million US dollars which indicates that the organization outperforms the expectation of its shareholders.
However, the organization created significantly less value as compared to last year as shareholder value worth 4752 million US dollars was created in 2018. The reason for less value created is due to the decline of 3344 million US dollars in the net income and investments in total assets.
The shareholder value added is calculated by deducting the cost of capital from the net operating profit after tax. The cost of capital is calculated using the current weighted average cost of capital of 4.58% ad multiplying the difference of total; assets and current liabilities by the weighted average cost of capital. (CHEN, 2020)
Dividend Yield:
The dividend yield increased from 1.29 percent to 1.42 percent in the last two years despite an 8 percent decline in the share price of the organization. The decline in share price indicates that the organization will need to sell more shares to raise the same amount of proceeds. Moreover, the fall in share price reflects the negative perception of investors in relation to the organization’s ability to grow its profits in the future. However, the increase in dividend yield indicates more dividend was paid to shareholders as compared to last year.
Total Shareholder Return and Value Creation:
It is evaluated that the total shareholder return of 200 percent was achieved in the year 2019 which is calculated using a dividend yield of 1.42 percent and a capital loss of 8 percent. As the share price of the organization’s shares reduced from 158 to 146, a capital loss of 8 percent was estimated.
In addition, the value created for shareholders was estimated to be 24337 million US dollars which are based on the cost of equity of 8 percent (Michael Canly, 2018), the market capitalization of 12631 million US dollars (Walmart Annual Report, 2019, p.6) and total shareholder return of 200 percent. The value created for shareholders is calculated by multiplying the equity market value with the difference between shareholder return and the cost of equity. (Oana, 2020)
Suggestions:
Enter Pacific Asian Markets:
In order to create and enhance value for existing and potential shareholders, it will be suggested to the business to enter the untapped markets in the Asia Pacific region as the Asia Pacific markets are witnessing fast economic growth and high demand for e-Retail business. The Indian e-commerce market is expected to grow at a compound annual rate of 30 percent and the gross merchandise value of 200 billion U.S. dollars by the year 2026.
Moreover, China alone generated half of the global E-Commerce revenues in the year 2019. Therefore, it will be advised to the business to focus on generating sales and revenue from this region and employ effective growth strategies in the Asia Pacific region.
Entering untapped markets in the Asia Pacific region will result in increased customer base and hence, business profits thus, leading to increased shareholder value in terms of increased share price, capital gain, market capitalization and dividend per share.
Invest in Asia Pacific Markets:
The organization will need to refocus on its growth strategy and mainly on infrastructure in the Chinese market to take advantage of its core competencies in the market. The organization failed to understand the Chinese Consumers' preference, culture and the product mix to offer in the 117 cities and 25 provinces in China. In addition, due to troubled relationships with politicians who fined Walmart for violating the laws and temporarily closed down its stores temporarily.
China is considered to be the global leader in the E-commerce market and accounts for 50 percent of the total industry’s revenue. Therefore, in order to increase and create value for shareholders and achieve growth, it will be advised to the business to improve infrastructure in the Chinese market, extend the distribution network in order to tap profitable markets in China and reach the maximum number of potential customers.
For instance, the organization can leverage mobile technology in order to grow it's business and brand faster in China and gain a competitive advantage in the region. This will ensure that additional value is created in terms of an increase in return on equity due to a rise in net income, an increase in dividend per share due to a rise in net income and increased share price due to strong position and perception of the brand.
Improve Work Culture and HR practices:
The organization is suggested to improve its HR practices and work culture in order to attract higher quality workers as compared to other retailers. The organization faced reputational damage due to criticism in relation to employment practices. The HR practices and work culture of Walmart Inc. Corporation comprises poor conditions for workers, anti-union policies, poor wages, lack of healthcare and other incentives.
Considering, human capital is a strategic asset and critical success factor of the organization. Moreover, as a result of employing a low cost model, the organization laid off 2300 workers at its subsidiary Sam’s Club in the year 2016. Due to lack of employees and employers of poor HR practices, the organization underperformed globally and in U.S markets as due to lack of employees, the operations were affected, the merchandise remained fixed on pallets in warehouses and goods were not reached and delivered to the customers.
On the other hand, employing poor HR practices led to reputational and legal damages for the organization creating a negative brand image of the brand, decline share price and uncertainty of the business going concern. Therefore, it will be advised to the business to practice ethical HR practices, increase employee morale and productivity, introduce rewards and incentives in order to ensure shareholder value is created, profits are maintained, operations are not disrupted, brand image and financial stability is maintained. Thus, stable dividends and huge capital gains are provided to shareholders.
Improve Quality Standards and Customer Perception:
One of the main concerns for the organization includes customer’s negative perception as a poor quality product and service provider due to offering services and products at cheap rates as compared to other retailers. Therefore, it will be advised to the business to adopt appropriate measures to change customer perception and a large number of potential customers.
In order to improve customer perception about the brand, the organization can advertise the certification and approvals granted by the food regulatory authorities that includes Food Safety Requirements for Food and Beverage Suppliers, U.S. Product Quality and Compliance Manual, Consumer Product Safety Commission, Federal trade commissions and supplier safety requirements in relation to over the counter drugs.
This will ensure that the organization attracts a maximum number of customers who were reluctant to purchase products from the stores due to quality concerns. In addition, improving customer perception will ensure sufficient profits are maintained and shareholder returns are increased as more profits will be distributed as dividends to the shareholders.
Conclusion:
The organization’s core strength includes strong financial stability and performance,huge product portfolio, strong customer-friendly brand image, low pricing strategy and invests in technological innovation. Its weaknesses include unethical HR practices, perception as a hungry corporation as a result of employing aggressive growth strategies, intense competition from various retail and Wholesale brands exposure to the volatility in exchange rates.
Based on the evaluation of organization performance in the last two years, it was evaluated that Walmart created shareholder value worth 24337 million US dollars and the Economic value added amounted to be 684million US dollars which indicates that the organization outperforms the expectation of its shareholders.However, the value-added was significantly low as compared to last year, therefore, various suggestions were given to the organization for increasing its brand’s performance and hence, create value for shareholders.
It was suggested to the business to enter the untapped markets in Asia Pacific region as the Asia Pacific markets are witnessing fast economic growth and high demand for e-Retail business as entering untapped markets in Asia Pacific region will result in increased customer base and hence, business profits thus, leading to increased shareholder value in terms of increased share price, capital gain, market capitalization and dividend per share.
Furthermore, it was suggested to improve infrastructure in the Chinese market, extend the distribution network in order to tap profitable markets in China and reach a maximum number of potential customers. The organization is suggested to improve its HR practices and work culture in order to attract higher quality workers as compared to other retailers and adopt appropriate measures to change the customer perception and a large number of potential customers................................
This is just a sample partical work. Please place the order on the website to get your own originally done case solution.
Related Case Solutions & Analyses:
Coke and Pepsi: from Global to Indian Advertising
Salud Digna: Successfully Competing with For-Profit Organizations
Leaders Who Make a Difference: Sam Palmisanos Smarter IBM: Day 2
WIPHOLD (B): Institutionalizing (Abridged)
Kodak (A)
Microsoft Latin America
Hypothesis Testing
Deloitte
Vision Communication
Inditex
