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Drug Stores: Walmart

This analysis explores the Residual Income Model (RIM) applied to Walmart, utilizing forecasted EPAT and NEA for firm valuation instead of traditional cash flow projections. The study highlights the advantages of using accounting numbers only, emphasizing that residual income represents earnings exceeding expected NEA. One significant benefit of this approach is that income-shifting accounting choices do not impact valuation accuracy. This document also compares Residual Income Valuation with Discounted Cash Flow (DCF) methods, showcasing the unique insights provided by RIM.

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Drug Stores: Walmart

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  1. Drug Stores: Walmart Eric Biro

  2. Residual Income Model • Using forecasted EPAT and NEA to value the firm (instead of forecasted cash flows) • CF projections not needed – accounting numbers only • Residual income is the amount of earnings in excess of that expected of a given NEA • Benefit: income shifting accounting choices have no effect on valuation

  3. Residual Income Valuation

  4. DCF Valuation

  5. Comparison

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