Wal-Mart Financial Analysis Report Essay Sample
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Wal-Mart Financial Analysis Report Essay Sample
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial figures from the income statement which details monthly earnings as well as the company’s liabilities and equity position, and even project future yearly budgets.
After looking into several companies, I decided to research Wal-Mart because this store intrigued me from a financial standpoint and my family shops there very frequently. In addition, I really wanted to know where this giant corporation stood financially. As I evaluate Wal-Mart’s financial documents I will exemplify and explain the importance of the horizontal analysis using detailed gauges taken from Wal-Mart’s previous past two years of yearly financial records. I will hone in on Wal-Mart’s last two years, Current Ratio, Quick Ratio, Cash to Current Liabilities Ratio, and lastly I will investigate Wal-Mart’s net liquidity potential. For my final examination I will communicate my thoughts and investment suggestions for potential future investors who want to be stockholders in Wal-Mart.
The first of many things that pondered me was how this huge corporation emerged. Well in the year 1969 a gentleman by the name of Sam Walton had opened several Wal-mart chains. Now this small chain of Wal-marts from 1969 has expanded globally to over eleven thousand stores around the world. Wal-Mart retails a large assortment of merchandise and consumables such as, food, electronics, house ware, health and beauty, jewelry automotive, hardware and miscellaneous other general products.(Wal-Mart, 2012) In examining Wal-marts business aspects they are prearranged into three functioning categories U.S. Wal-mart, International Wal-mart, and Sam’s Club stores. In addition, they have a versatile store format, which includes supercenters, markets, express stores, and a web store online. Wal-marts are located in fifty states around the U.S and are global in other countries such as Japan, Brazil, Canada, just to name a few. Besides Wal-marts merchandise and consumables, they offer other great services such as bill payments, money orders and check cashing is available. I think this was worth mentioning because I see this as a way for Wal-mart to generate more business and revenue. Furthermore, Wal-Mart has its own licensed brands and markets these brands thru private label store brands. (Wal-Mart, 2012)
For every great corporation formed there is always a competitor, one of the biggest competitor that competes with Wal-mart is Target Corporation. Target is established as a store who seeks out the wealthier shoppers, by keeping their prices on a slightly higher scale. One of the reasons why Wal-mart is dominating the market is because; Wal-Mart is facing growing opposition from individuals who simply do not want the store in their communities. Small business mom and pop boutiques would like to see the Wal-Mart retailer be removed from the small cities and towns citing that these stores are “destroying” the look of “Main Street” (Alpha 2012) Now let’s move onto more of the financial aspects of Wal-mart by looking at the horizontal analysis of income statements and balance sheets.
Financial analysts use horizontal analysis to predict differences in operational trends and to pinpoint abnormalities within a business. According to our textbook horizontal analysis “can be used to compare data from within two or more periods, side-by-side. In other words, it is intended to show the change in certain accounts from two separate accounting periods.” (Wainwright, 2012) When a financial specialist reviews these types of reports managers can get a comprehensive look at the business’s operating expense from one year to the next. This type of report can be very beneficial in the management of a company. Balance sheets can best be reviewed by removing historical data via a Horizontal analysis. Assets, liabilities and owners’ equity can all be scrutinized and compared to determine if any damaging or constructive trends are apparent.
Wal-marts marketing strategy is to boast about having the cheapest prices out of their competitor’s and guarantees this, by implementing a price matching policy. Apparently, this has worked out for the best interest of the corporation, and their income statements can prove it. Wal-Mart’s income statement for the past three years reflects a positive growth pattern for every entry of the Income Statement. The Income tax-Current Domestic record is the only entry on this income statement that produces a stabile number. The indication for the income tax number to show a declining trend is probably that the Wal-mart accountants have located many tax loop holes to reduce the actual company income tax load owed.
I would now like to examine Wal-marts financial data. Wal-Mart’s revenue improved over these three years by $39,736 million which is a gross increase of 9.1%. Additionally the Cost of Sales climbed from $304,657 million to $335,127 million, which emulates a steady trend of 9.1%. I found these numbers remarkable as I would have expected to see a much higher cost of sales due to the increased costs of goods during these last three years of economic hardships seen in the United States. Wal-Mart’s operating income increased from $23,950 M in 2011 to $26,558 in 2013 which depicts a 9% growth. Wal-Mart retail stores net income increased from 2011 to 2012 very slightly and then declined from 2012-2013 with a calculated net increase of $1539 million. Now let’s take a look at the Consolidated Balance Sheet for 2013 Wal-Mart had $40.71 billion in inventory and assets with an average 1% increase over a three year period. The total inventory made up 74% of Wal-Mart’s current assets. This included 21% of the retail chains total assets.
My translation of these financial numbers is that people in the United States are making purchases on credit versus cash at the registers. Let me also note that Wal-Mart’s Accounts Receivables reflect $323 million in Bad Debt/Doubtful Accounts as a result of people using credit versus cash. These accounts will more than likely be written off and put against the taxable income earned yearly. Another figure on the Consolidated Balance Sheet is the $160 billion in Property, Plant & Equipment, which represents an increase over the last three years due to the development and opening of new retail chains. The Common Stock Par value dropped from $378 million in 2011 to $342 million in 2013. By looking at the numbers above you can see how this information can prove to be useful to enormous company and helping it seek a directive path. The next financial aspect I want to illustrate is Ratio analysis.
Ratio analysis is a quick way to determine the performance of business in the present to the past. Many times analyst or accountants can use this data to identify possible operational issues. This analysis can be useful in comparing similar types of companies, according to our text book. A helpful tool that determines a business’s liquidity is the current ratio. The president of Wal-mart states that “the company has performed better than its competitors in the areas of job creation increased Return-on-Investment (ROI), better customer service, competitive pricing and much more. (Wal-Mart, 2012) To solidify this statement I will do some calculation using the following ratios, Current ratio, Quick Ratio, and Cash to Current Liabilities Ratio.
Now if we refer to illustration A this indicates the current ratio for Walmart between the years of 2012 and 2013. The numbers suggest a difference of .1%, which lets me know that the liquidity of this company can handle their current- liabilities. This is a positive note for Wal-mart, and investors who are looking to invest in this company. Illustration B dictates the cash Wal-mart can raise in a quick amount of time and this is associated with the quick ratio. These numbers are a little bit on the low side, but are pretty much acceptable, when it comes to financial institutions for a business loan. Lastly, we have illustration C which tends to be low again, this might be due to the very large capital investments required to purchase inventory for all of their merchandising sites. Even though Wal-marts number is low in this area it is perceived that their cash flow is constantly hung upon their inventory.
In closing, I feel that Wal-mart still reins supremacy over other similar corporations not just in a local scale, but also globally. The name Wal-mart is a well-known brand which is marketed and recognized worldwide in the United States. Currently Wal-Mart shares sell for $79.44 a share which is an increase of $9.00 over the past three years. This increase reflect equity ratio of 20% for the year 2014. Wal-Marts have mastered the art of purchasing overseas from Asia and China where products are cheap to make. In turn this allows Wal-Marts to sell their goods at a low cost and drives revenue into all their retail stores nationwide. Even with their new promotions ads to help the customer save money will allow Wal-Marts to continue growing even in the hard economy, and help them surpass another fifty years of great services. If Wal-Marts continue to operate under its current business model its stock share will be a secure and a safe investment. As the economy continues to grow and get stronger, their business stocks may yield a very large investment profit.
Anonymous, (2012) Wal-Mart Web Site, Retrieved from: http://corporate.walmart.com/ Anonymous, (2012) Seeking Alpha, Why Wal-Mart Beats Its Competitors, Retrieved from:
http://seekingalpha.com/article/562821-why-wal-mart-beats-its-competitors Perr, J. (2012) Daily Kos, Wal-Mart Owners Look to Slash Federal tax
Payments, Retrieved from: http://www.dailykos.com/story/2012/11/21/1163884/-Wal-Mart-owners-look-to-slash-federal-tax-payments# Wainwright, S. (Ed.). (2012). Principles of Accounting: Volume I. San Diego, CA: Bridgepoint Education, Inc. Anonymous, (2012) Wal-Mart Web Site, Retrieved from: http://corporate.walmart.com/