Example Of Stock Market Fluctuation For Wall Mart Company Case Study

Introduction

Organizations conduct monthly, quarter or annual measures on the financial status in order to determine the path taken in terms of sales and profits. Walmart, one of the world’s best performing companies, suffers from the stock market fluctuation. The financial report released by Walmart in 2015 shows that the company has experienced 6 quarters without any significant growth. The company continues to invest in key business areas such as e-commerce and mobile sector in order to achieve more business improvement opportunities (McDaniel, 2014). Positive growth was experienced by Walmart competitors during the same period leading to the following business question.

Business question: What is the impact of the stock market fluctuation on Walmart Net Sales?

Hypothesis statements:
Null Hypothesis (H0): The fluctuation in the stock market positively linearly affects net sales at Walmart Stores.
Alternative Hypothesis (H1): There lacks a relationship between the fluctuation in the stock market and company sales.
The hypothesis will be tested using a regression model in order to determine the influence of the stock market fluctuation on the company’s net sales volume. Additionally, other statistical analysis methods such as mean, mode, median, minimum and maximum values will be utilized to find the relationship between tested variables. Additionally, the analysis will use t-statistics or t-score to evaluate the relationship between variables.

Overall findings

The outcomes of the analyses indicated that stock market fluctuation has a significant influence on net sales at Walmart Stores. The data shown in table 1 shows the amount of sales made with the corresponding profits. During the first quarter of the year, the company delivered a solid decrease in earnings per share. The consolidated net sales in the U.S. stores were below expectations.

Background Information

Walmart operates many retail shops globally under three major subsidiaries: Wal-Mart Stores, International, and Sam’s Club. The company has discount stores where customers enjoy discounts all year round leading to increased sale volumes per year. The company has remained the leading store market in the world. Stock market fluctuations affect sales projections of the company leading to unwanted expenses. The company’s risk management sector has not managed to predict the future of the stock market leading to unforeseen drop in sales. The stock market is traditionally known as the indicator of economic activity of an organization. Stock prices have a significant effect on economic activities and eventually interfere with the overall sales volume of the organization. Walmart experiences unstable sale volumes and profits because of fluctuating market prices (Comincioli’95, 1995). Comincioli only investigated the relationship between the stock market and economic activities. The following analysis aims at establishing the relationship between fluctuating stock market prices and sales made by an organization.
During 2014 fiscal year, Walmart’s net sales increased by 4.6 percent when the company eliminated the impact of the stock market fluctuations. In order to overcome the impact of market fluctuations, the company added 12.5 million square feet and 324 stores. In 2014, Walmart had more than six thousand stores worldwide. Additionally, the company planned on maintaining the market share in most countries even with the challenging microeconomic environment. Stock market fluctuation acts as the major barrier that limits Walmart from achieving the company goals. The company engages in a number of strategies aimed at targeting more promising opportunities in the global market. For example, the company has opened numerous stores in China in order to capture new market opportunities. China forms one of the fastest growing e-commerce regions in the world (Walmart, 2015).
On the other hand, Wal-Mart experienced a decline in market share by 1.2 percent as per the report dated February 11, 2015. In order to cope with the situation, the firm confirmed that it would invest a total of 269 billion U.S. dollars in 2015 fiscal year on their stores in Canada. According to the HSBC analysis conducted through TheStreet (2015), the company’s revenues have gone slightly higher than the average expected in the first quarter of 2015 fiscal year. Additionally, the stock has risen over the past few years because many entrepreneurs had invested in company shares. The company management still fails to understand the underlying fact contributing to declining in sales volume. In order to get to the bottom of the matter, the following research will investigate the role of the stock market fluctuations on company’s net sales value.
Most economic shocks experienced in the market today have minimum innovations but produce permanent impacts on cash flows to an organization. According to Greenwald, Lettau, and Ludvigson (2014), permanent cash flows create no effects on expected returns but have a dramatic influence on the real stock market value. Many factors determine the amount of sales made by the organization on monthly, quarterly, or annual basis. The world has experienced over 85 percent of fluctuations in the last sixty years. Fluctuations are related to economic shocks that are measured in terms of labor income, consumption, and asset wealth of the company. The issue if the stock market fluctuation started a long time ago. In order to understand the nature of the stock market behavior, it is necessary to understand the origin of fluctuations. Very little research has been conducted on the issue leaving economic experts with limited knowledge as to cause of fluctuations in real value of stock market in the global economy (Greenwald, Lettau, and Ludvigson, 2014).
Company managers should understand response functions relating performance measures in order to make good marketing decisions. Marketing resources are scarce, and managers should be aware of prevailing market conditions before making any allocation. Additionally, the respond from customers and competitors affects managers’ decision-making processes. According to Dekimpe, Hanssens, and Silva-Risso (1999), marketing interventions reveals market fluctuations affect the overall sales outcomes of an organization. Price dynamics is influenced by the nature of the market. A stable market has little influence on price dynamics and makes a manager more aware of expected returns during the coming financial reports. On the other hand, unstable markets caused by stock fluctuations affect profits of an organization. One of the most affected aspects of marketing is the demand. Fluctuations in demand caused by unstable stock market prices affect the volume of sales of products and services of the company.
Net sales signify the position of the organization in relation to the competitors. Selecting sales as the main feature to investigate how stock market fluctuations affect the overall production of Walmart Company was a great idea. According to Marshall (n.d), the effect of Walmart to U.S. economy cannot be compared to any other online store. Walmart acts as the largest retail and service economy. The company has experienced a decline in digital sales volumes in the last four quarters because of the unstable stock market price. Changes in foreign exchanges and availability of many competitors offering products at lower prices lead to the decreased sales growth. In order to keep pace with the growing economy, Walmart engages in cost-cutting operations; however the strategy has failed to achieve the expected revenue growth. The following analysis will investigate how stock market fluctuations contribute to the decline in sales at Walmart without considering other factors like competition and price.
Variations in foreign exchange rates have a significant influence on returns and volatility of stock prices in the share market. The globalization of financial markets has accelerated variations in foreign exchange rates which eventually influences causes fluctuations in stock markets. Knowledge of the relationship between foreign exchange rates and globalization of financial markets assists managers in developing successful strategies while investing in stock markets. A study conducted by Stefanescu and Dumitriu to investigate the above relationship came up with a conclusion that factors such as foreign capital inflows, perception of the national economy, and global crisis effects influence foreign exchange rates variation. The study employed the GARCH model to analyze the results. The following research will utilize regression model to determine the relationship between the stock market fluctuations and net sales values at Walmart Stores in U.S.

Data Description

The main data utilized in this analysis includes the 42 closing stock prices for Wal-Mart Stores in the 2013/2014 fiscal year. The following statistical measures will be calculated: The mean, the median, the mode, the sample variance, and the standard deviation. The following formula is applied in determining measures of tendency:

Mean: Mean is calculated using the following formula:

.. (1)
where = Sample Mean
- represents data sets from 1 to 30
And, n is the total number of data sets (n = 30)

Median:

Median is the middle score for the set of data arranged in order of magnitude.
Mode:
The mode forms the most frequent score in the data. This will be represented by an histogram as shown in table 2.

Minimum and Maximum:

The minimum represents the data value less or equal to all other values while the maximum represents a data value greater than or equal to all other values in the data set. The maximum and minimum sales values are shown in table 2.

The regression model uses the following formula:

y = a + bx (2)
b is the slope of the graph calculated as:
b = S = ∆Y∆X 3

T-score

The t value is given by the following formula:
t = X-µSn ... (4)

Where; is the sample mean, µ is the population means, s the standard deviation of the sample.

σ = √∑( Xi - μ )2N . (5)

Where, σ is the standard deviation, Xi is the ith element from the population

The sample standard deviation is calculated as:
s =√ ( xi - x )2( n - 1 ) . (6)

Statistical Analysis

The slope of the curve can be calculated as follows:
= 4072-366.482780-278 = 1.481
y = a + 1.481x (4)

Measures of central Tendency

Mean
, hence
= {80501/30} = $2683.37

Median:

Mode: according to table 2, the mode for the data was $471.00
Minimum: $170.00
Maximum: $5888.00
t-score calculations’
σ = √∑( Xi - μ )2N
= σ = √80501-2683.3730 = √2593.921 = 50.93

Sample standard deviation, s is given by formula 6:

s =√ ( xi - x )2( n - 1 ) = s =√ ( 5888-170)2( 30 - 1 ) = √1127431.862
s = 1061.81
using equation 4, t-score is calculated as:
t = X-µSn = 2683.37-1187.961061.8130
= 42.72
The graph shown in figure 1 shows a representation of the regression model used to analyze the data in table 1. The figure shows that a decline in variable 1 leads to a significant decline in variable 2. Many sales volumes fall below the straight line an indication that the company experienced a decline in sales volume when stock fluctuations are negative. Additionally, the mean sales for the company were $2683.37. The above value indicates that the company would increase the net sales with an increase in the market share. On the other hand, the calculated median was $2608. The value indicates that the company makes average sales of $2608 billion when the stock market is normal. The calculated mode was $471.00. The mode value revealed that the company achieves sales of $471 more frequently during stock market fluctuation. The maximum of profits shown in table 2 is clear evidence that without stock market fluctuation the company makes huge sales of $5888 million.
The t-score shows that the value of t was 42.72, which exceeds the computed value from the table of 37.33. The results show a statistically significant probability that there exists a relationship between variables. The research hypothesis is accepted and there exists a relationship between the stock market fluctuations and net sales for Walmart Company.

Conclusion

A better understanding of the stock market trend plays a major role in influencing business activities of the firm. Stock market fluctuations are the worst risks that a company might experience especially when a firm has invested a lot of revenues to the global stock market. The market share of a company dictates its position in the global market share. Walmart is an international organization, and it trades among the top ten firms in the global market. Lack of adequate information on the stock market fluctuations causes the firm to experience decline in sales and profits each year. The above analysis aimed at investigating the impact of the stock market fluctuations on Walmart net sales. The null hypothesis was accepted because figure 1 indicates a decrease in net sales and profits in consecutive data. Additionally, the analysis came to a conclusion that stock markets affect the company’s market share. A decline in sales leads to a significant decrease in the profit margin lowering the firm’s market share. The study analysis revealed fluctuation in the stock market positively linearly affects net sales at Walmart Stores.

References

Comincioli’95, B. (1995). The stock market as a leading economic indicator: An application of
granger casualty. Honors Projects. Paper 54.
Dekimpe, M. G., Hanssens, D.M., and Silva-Risso. (1999). Long-run effects of price promotion
in scanner markets. Journal of Econometrics, 89(1), 269-291.
Greenwalr, D.L., Lettau, M., and Ludvigson, S.C. (2014). Origins of stock market fluctuations.
Retrieved from
http://www.econ.nyu.edu/user/ludvigsons/osf.pdf
Marshall, J. (n.d). The High price of Low Cost: The View from the other side of walmart’s
‘Productivity Loop”. Retrieved from
http://makingchangeatwalmart.org/files/2011/10/The-High-Price-of-Low-Cost.pdf
McDaniel, A. (November 13, 2015). Wal-Mart reports positive comp sales and smaller format
stores boost Q3 2014 financials. Retrieved February 12, 2014 from
http://www.andnowuknow.com/bloom/wal-mart-reports-positive-comp-sales-and-smaller-format-stores-boost-q3/andrew-mcdaniel/43667#.VNxmZDSUdXo
Stefanescu, R., and Dumitriu, R. (2013). Impact of the foreign exchange rates fluctuations on
returns and volatility of Bucharest Stock Exchange. Published in: Proceedings of the 5th International Conference on Economics and Administration No. 2013, 197-209.
TheStreet. (February 11, 2015). Walmart (WMT) Stock declining today on ratings cut. Retrieved
February 12, 2014 from
http://www.thestreet.com/story/13043355/1/walmart-wmt-stock-declining-today-on-ratings-cut.html?puc=yahoo&cm_ven=YAHOO
Walmart. (2015). Walmart 2014 Report. Retrieved February 12, 2015 from
http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf