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Walmart Company Financial Analysis

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Walmart Company Financial Analysis

Introduction

Walmart stores are among the world’s largest retail outlets. Walmart has three main segments which are Sams club which is 591 in number, Walmart U.S, and walmart.com is the other segment whose trading is international. The Sams club conducts its business only in the United States. Walmart operates 2,447 supercenters, one hundred and thirty-two neighboring markets, and nine hundred and seventy-one discount stores.

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Analysis of financial condition

The following report provides an in-depth financial analysis on the Walmarts market for the period ended 30th Dec 2010 and compares this financial year with the previous ones.

The year 2010 was characterized by a rise in net sales to the tune of four hundred and five USD. Billions this was up by 1% more than the previous period.

Policy on measuring results

The company measures the results of its three major segments mainly by measuring each segments operating income. Performance indicators of the two internal business segments are measured by comparing the growth in sales for a certain period over the previous year’s corresponding period.

Walmart stores have classified some of their revenue and expenses products into their consolidated statements of income this is for financial reporting. This is easier and much faster a method to use to ascertain whether the company is operating at a profit or a loss.

Assets

Long-lived assets

These are assets that serve the purpose of a long-term benefit for the company beyond the operating period. They are stated at cost. In the Walmart chain of stores, it is the prerogative of the management to review these kinds of assets which serve as an indicator of unrecoverable changes in the carrying amount. This leads to the evaluation of a cash flow which is performed at the lowest level in this case being the stores or the supermarket.

In cases whereby the assets cannot be recoverable since the carrying amount is greater than the recoverable amount then impairment is going to be measured based on the fair value(this is the amount of money obtained from the sale of an asset between willing parties who are both knowledgeable) of the related assets. For the year 2010, impairment in Walmart stores was recorded at 429 USD Million up from 269 USD Million the previous year. The impairment was classified in operating, administrative, sales and general expenses on the consolidated statements of income.

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Goodwill and other intangible assets

Goodwill is an account located on the asset side of the balance sheet of a particular company. Goodwill can be classified as an intangible asset on the balance sheets since it is not a physical asset.

Current assets

Cash and cash equivalent

These are the most liquid assets that one can find on a company’s balance sheet.In our context, Walmart refers to credit cards, currency, money orders, and paper checks. The amounts due classified in these transactions totaled up to 2.6 $billion in 2010 up from $2.0 Billion in 2009. There was also the restricted cash which was related to the cash collateral holdings which falls under this segment and out of this $469 million in the year 2010 and $577 the year 2009.

Receivables, net

Receivables are assets designations applicable to monetary obligations, debts, and they are recorded on the balance sheet.They involve debts owed to the stores from sources such as suppliers for marketing and incentive programs, real estate transactions and the cash and cash equivalent. Walmart collects reserves from receivables based on historical trends indicating the amounts which are past due and the reserve for uncollectible receivables was recorded as 298USD in 2010 and 188USD in the year 2009.

Inventories

This is the economic figure that tracks the amount of money held by retailers, distributors and the manufacturers. In short inventories are the goods that a company has available for sale. Walmart has employed a retail method of accounting referred to as the last in first out (LIFO) method. As of 31st Jan the 2010, the inventories valued at LIFO approximate inventories as though they are valued at (FIFO) First in first out. FIFO is the method used in merchandising of Walmart products abroad as opposed to LIFO which is the accounting method used in the United States of America.

Prepaid expenses and other

Prepaid expenses are assets that have become expenses as they get used up or expire. In our case these will include goods that were still on the stock shelves on their expiry date. There was a slight difference between the year 2009 at 2980$ and the year 2010 which stood at 3063$

Property and equipment

The amount of property and equipment increased in the year 2010.This can be attributed to the more outlets which were opened up overseas and the general replacement of worn-out equipment. The rising value of property such as buildings could also play a major role in the increase of these numbers. In the year 2009 the cost of new property and equipment stood at $125,820 whereas in the year 2010 it stood at 137848$.The items falling under this category include Land, transportation equipment, buildings and improvement and lastly fixtures and equipment.

Liabilities

Liability could be defined as anything that a company or business owes to shareholders or other businesses. There are two forms of liabilities namely the current and long-term liabilities (Rackham 43). Current liabilities are those liabilities that should be paid fully in a period of less than 2years. Almost every business operates on the basis of current liabilities, and it is hard to find a company without these.

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Long-term liabilities are those liabilities that have a repayment allowance of over two years. These mainly include loans from banks, grants etc. Unlike short-term or current liabilities, the long-term liabilities are big and in most cases come with a big interest.

By the end of business activity, all liabilities must have been fully repaid, failure to which the business will have operated on a loss (Reich 60).

Current liabilities

From analyzing these figures one could see that the total current liabilities for the year 2010 stood at slightly higher than in the previous years. The figures stood at 55561$ and 55390$ respectively. This increase was a result of increased expenditure which resulted in more cash going to the accounts payable docket. The current liabilities were collected from the below variables: short-term borrowings, accounts payable, accrued liabilities and long-term debts within one year.

Long term debt

The long-term debt stood at 33231$ for the year 2010 while the previous year it stood at 31349$.Subsequently, the long-term obligation under capital leases and the deferred income and taxes both increased with a margin of 1%.This has been the trend for over a decade now.

In Walmart Company, therefore, the current liabilities add up to a higher figure compared to the short-term liabilities. This is ordinary case implies that the business has a lot of financial exchange because the more a self-sufficient enterprise has financial transactions; the more it has a capability to repay the liabilities. A self-sufficient company can therefore be easily predicted by its cash flow and financial transactions to and from the business (Rachkam 147)

Owner’s equity

This is any debt that is owed to the business owner. In our case this is represented by the shareholders who have invested their money in Walmart. Shareholders are entitled to a dividend after every successful business year the dividend is paid out according to the number of shares that one holds in the company. This is also referred to as the shareholder’s equity. In the period ending 2010 the total Walmarts shareholders’ earnings totaled $70749 and $65285 in the year 2009.The fluctuations in the prices paid out can be attributed to the change in the percentage of the common stock and the preferred stocks.

Cash flow

Cash flow is the movement of finances into and from an entrepreneurship, over a specified period of time. Cash flow can either be money in terms of cash or in bankers’ cheques.

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Operating activities’ section

As of January 21st which is the end of the fiscal year, the consolidated net income had risen for the three consecutive years, from 2008 through 2009 to 2010, recording a consolidated net income of $13,137, $13,899 and $14,848 (all figures in millions)respectively. This shows that there has been a consistent increase in net income.

However, due to factors such as taxes and discontinued operations, several losses have been incurred from 2008 through 2009 to 2010, with the loss figures reading $132 for 2008 and $79 for 2010. 2009 however, recorded a profit of $149, meaning that the taxes and other factors such as discontinued operations did not contribute to any loss in the company.

Therefore, when the discontinued projects’ losses are deducted from the profits, a profit for the continuing operations’ profit of $13,269, $13,753 and $14,927 for the years 2008, 2009 and 2010 were realized respectively (all monetary figures in million). This case is also seen in the depreciation figures whereby they rise throughout the three years, from $6,317 through $6,739 to $7,157. However, there is an evident fluctuation in deferred income taxes, other operating activities, accounts receivables, inventories, and accounts payable. All these are liabilities in the Walmart company, which once added up to, accrued liabilities of $1,034, $2,036 and $1,348 for years 2008, 2009, and 2010 respectively. A notable consistent appreciator however has to be depreciation and amortization. The total add-up of the net profit provided by the operating activities, therefore, has an upward appreciation, of $20,642, $23,147, and $26,249 for the years 2008, 2009 and 2010 respectively, all monetary figures recorded in millions.

Cash flow for investing activities

Investing activities are some of the costs that Walmart Company will have to incur in form of liabilities. These invested properties are looked at from the liabilities’ perspective because they have to be paid back at the end of the business activities. In the balance sheet, it is evident that Walmart Company had heavily invested in property and equipment. Each year marked new investments, with the sequence being $14937, $11,499, and $12,184 for years 2008, 2009 and 2010 respectively. Proceeds from property and equipment also had their share of investments but at considerably low amounts, of $957, $714 and $1,002. This shows that the prices for investments aren’t consistent over the years.

The year 2010 also did not register any property or equipment proposal and disposal from international operations and payment for these proceeds. Overall, all proceedings added up to $95, $781, and $438.

These observations and analysis of the recorded figures from the cash flow statement show that there is a recorded consistent improvement in both the company’s profit-making and minimization of losses. From the balance sheet, it is also evident that Walmart Company has gradually been putting some emphasis on international investments. This is evident from the fact that there has been an improvement and an increase in the amount of money invested internationally from the year 2008 to 2009, with the figures reading $1,338 and $1,576 respectively. However, 2010 did not record any international investments.

In the three years that the figures were recorded, 2009 had the highest number of other external investments, recorded at $781, 2010 coming second at $438 and finally 2008 with $ 95. Due to this inconsistency therefore, the amount of cash invested in the three years 2008, 2009, and 2010, with the records reading $15,670, $10,742 and $11,620 respectively, all monetary figures being in millions. It is always important in every business venture or entrepreneurship not to emphasize a lot on investing in fixed assets. This is because the money invested should always be in a position to give returns at any given time. For this reason, accountants emphasize that entrepreneurs should invest much of their investments in stocking the business. Stock with time earns enough to purchase fixed assets (Parkinson 314).

Financing Activities Section

This section in the company deals with all the expenditures that Walmart Company incurred throughout the three fiscal years. The section has been broken down into various sub-sections, for easier analysis and accountability.

In financing itself, Walmart Company can be said to be self-sufficient in the essence that they have not been consistently borrowing money from external sources; rather they are able to use their own income to finance all their areas. This is even evident in the amount of external current/ short term and the long term liabilities that they own their loaners in the liabilities section.

In short-term borrowing, for example, Walmart Company borrowed $2,376 in 2008. However, in the following two years, they were able to pay back $3,765 and $1,033 in 2009 and 2010 respectively. This shows that the company was able to finance and support itself in the two consecutive years. Short-term debts are those debts that should be repaid before two years time period elapses.

The company also had long-term debts as indicated in the balance sheet. These long-term debts are the money borrowed that is expected to be repaid after two years and more (Reich 64). The company has been reducing its borrowing, as it is evident that they are borrowing less money and this has been the trend for the years 2008, 2009 and 2010, with the money borrowed being $11,167, $6,566 and $5,546 respectively. This shows that there has been a decrease in the amount of money that Walmart Company borrows from external sources. This is a sign that the company is becoming more and more self-sufficient.

Payment of long-term debts however has not been as consistent as earlier seen with short-term debts. This is because there was a decrease in trend from 2008 to 2009 and then a better performance in 2010, with the repaid figures reading $8,723, $5,327 and 6,033 for the years 2008, 2009 and 2010 respectively. This shows that there was a decrease from the year 2008 to 2009.

The company has however been doing well in the dividends paid to its shareholders since there is a consistent increase in the figures from 2008 through 2009 to 2010. However, the purchase of company stock by the shareholders has not been consistent as there was a flop in 2009 followed by a rise reading $7,691, $3,521 and then a rise to $7,276.

There was no purchase of redeemable non-controlling interest by the end of the three fiscal years, except for the year 2010, with $436. The two previous years, 2008 and 2009 did not have. When there is no purchase in non-redeemable interest, this implies that the business under scrutiny is becoming more and more self-sufficient.

It is also important to note that from the international investments that Walmart Company launched to the external markets, there was a recorded increase in the years 2008 to 2009 and with view to that, payment for the capital lease obligations for example money to raise the initial capital fell within the same range of $343, $352 and$346for the years 2008, 2009 and 2010 respectively. The overall, the net cash used in the financing of all the activities has been recorded to rise over the three fiscal years, from $7,422 through $9,918 to $14,191 in 2008, 2009 and 2010 respectively, all recordings in millions. This is the same case for net change even at the end of the year.

On a general observation, it is evident that there has been a decline from 2008 fiscal year to 2009 and then a rise from 2009 to 2010, in almost all Walmart Company’s operations and financial activities.

Conclusion

In conclusion from the balance sheet and the cash flow statement, it can be concluded that Walmart Company is one company that is doing well financially. Although there is a notable financial depression in the year 2009, it has been corrected in 2010 whereby the company performs better than it even did in 2009.

Secondly, record keeping is important to every company because it helps the stakeholders in knowing how a company is doing and it is easier to ascertain whether they are operating on a profit or a loss (Rachkam 57). From this case, it is easy for shareholders and other interested people to monitor Walmart’s financial performance.

Works Cited

Parkinson, Shayne. Settling the Accounts (Promises to keep). New York City: Amazon Services. 2011. Print.

Rackham, Neil. Major accounts sales strategy. New York City: McGraw-Hill. 1989. Print.

Reich, Christopher. Numbered Accounts. New York City: Dell Publishing. 1998. Print.

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