Walmart’s price-to-book ratio of 2.77, presented in Exhibit B, is higher than the general merchandising industry’s median P/B ratio of 1.80. This implies that the market expects a higher level of return-on-equity relative to the cost of capital to the business, when compared to other firms in the same industry. Walmart’s competitors all have lower P/B ratios, but they also have lower sales and lower asset bases, leading to the rational conclusion that companies with larger sales volume are expected to produce a greater return on equity that competing firms. Walmart’s high value-to-book ratio of 4.28 supports the P/B ratio in suggesting that investors expect larger than average returns on equity from this company.
Other posts on Wal-Mart financial analysis:
Wal-Mart: Comparison of ROCE for Wal-Mart’s Alternative Cash Management Strategies
Analysis of Wal-Mart Financial Ratios
Analysis of Wal-Mart Financial Ratios, P/E Growth
Analysis of Wal-Mart Financial Ratios, P/B
Wal-Mart: A Potential Management Issue Resulting from Excess Cash
Analysis of Wal-Mart Financial Ratios P/E, V/E
Wal-Mart in the News, Adoption of Eco-Friendly Activities
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