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Walmart’s Financial Statement Analysis

Company Overiew

Walmart was founded in 1962 by Sam Walton. This first Wal-Mart was opened up in Rogers, Arkansas. When Sam Walton opened up Walmart his idea was to center it on offering lower prices and great service to customers, but his competitors thought it wouldn’t work. But to their surprise the company ended up being a great success. Walmart went public in 1970 and because of its great profits, it lead to its expansion.

Low cost is what attracted the customers to the business. Sam relied on his associates to give their customers a great shopping experience so they would continue coming back to the store. (Our History Sam Walton, n.d.). Mr. Walton quoted, “The secret of successful retailing is to give your customers what they want.

And really, if you think about it from your point of view as a customer, you want everything: a wide assortment of good-quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.’ (Sam Walton, 1918-1922). Based on this statement, you can clearly see that Wal-Mart’s business strategies involve using price as a selling point to attract target consumers.

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Wal-Mart is one of the largest retailers in the world in terms of sales and number of employees. It is in the industry of retail. Its top competitors are Target, Costco Wholesale, and Bestbuy.( Walmart Stores, Inc. MarketLine Company Profile, 2017).

Walmart offers its customers a variety of products and services. Some of the services are retail goods, photo services, pharmacy service, financial services, and wireless services. Some the products they offer are electronics, health and beauty products, jewelry, toys, apparel, hardware, automotive, home furnishings, pet supplies, house ware, and lawn and gardening items.

Horizontal Analysis

A 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. These analyses can be used to pinpoint shifts in key business elements, such as a buildup of inventory, capital investments, changing debt levels, and so forth. (K Wainwright, S. (Ed.). (2012).

Investors such as Walmart use horizontal analysis to show how their company financial performance changes over a period of time. It also showed spotting trends and growth patterns from year to year. From this, analysts were able to evaluate relative changes in different line items over a period of time and project them. When you see the income statement, balance sheet, and cash flow statement all at once, you can clearly see what made Walmart’s performance operate efficiently and profitably.

Total liabilities, redeemable noncontrolling interest, and equity $204,522 $198,825 $199,581. Based on the income statement analysis, you can see that Wal-Mart’s net sales increased from 2016 to 2017 by $2,703 million dollars. Then in 2018, it increased even more by $14,444 million dollars. The operating income from the company declined all three years. The reason for this could have been because of a decrease in sales or an increase in expenses.

Income from continuing operations before income taxes started out at 4.52% in 2016 and declined to 3.05% in January of 2018. Looking at this analysis, I also saw where the income from continuing operations declined from 3.15% to 2.97%. Then in 2018, it declined again to 2.12%.

When I looked at the consolidated net income attributable to Wal-Mart, I saw another decrease in all three years. In 2016 to 2017 it decreased by 0.24% and then from 2017 to 2018, it decrease even more by 0.84%. This decline could have been because of the decrease in the amount that the company had left over after they subtracted all of their expenses from their revenues for those years.

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Looking at the balance sheet current assets declined from 2016 to 2017 by 1.17%. Then in 2017 to 2018, the current assets started increasing again by 0.16%. Decreases in assets happen all the time for many reasons. The total assets decreased in 2016 to 2018. Then, there was a tremendous increase in 2018. Accrued liabilities increased by 0.57% from 2016 to 2017 and increased again by 0.43% from 2017 to 2018. The total liabilities increased by 1.38% from 2016 to 2017 and by 0.99% from 2017 to 2018. There was a decrease of 1.38% in the total equity from 2016 to 2017 and a 0.99% from 2017 to 2018.

Ratio Analysis

The current ratio decreased by 0.1 from 2017 to 2018. This decline could have been due to an increase in short-term debt or a decrease in current assets. The quick ratio also decreased by 0.03 from 2017 to 2018. Since the liquidity ratio is lower than 1 it could mean that this company is relying on inventory or other assets to pay their short-term debt. Cash to current liabilities ratio decreased as well by 0.01 from 2017 to 2018.

Whenever a company has a current ratio less than 1 this means they are at a financial risk by creditors and the company might not be able to easily pay down their short-term obligations. Based on calculations of the current and quick ratio, Wal-Mart is not considered a liquid company because their ratio is not more than 1. But just because their current and quick ratio is low, doesn’t mean they have critical problems.

If Walmart has a good long-term prospect, they might be able to borrow against those prospects to meet their current obligations. Some factors that could be influencing these ratios are the state of the economy, inflation, performance of competitors, or management changes. Walmart competitors Costco Wholesale and Target had a ratio of 0.6 and 0.2 respectively. (“Does Walmart Have a Liquity Problem?”,2013). So based on their ratio I don’t see where their company is considered liquid either.

Recommendation

Based on the information that I have gathered, I would recommend an individual to invest in this company. One strength I see in Walmart, is that it offers stability. The reason why is because when you invest in Walmart you know exactly what you will be getting. It has had increased revenues, profits and earnings per share for the last couple of years.

Another strength that I see in Walmart is that it offers returning capital because it is good about using cash to reward its shareholders. Finally, Walmart is always moving and never sits still, which means they are always busy introducing new technologies. Some of the risks that I see in Walmart could be economic risk like inflation, deflation or the availability of goods from suppliers and the cost of goods from suppliers.

Conclusion

Eventhough Walmart has some good growth patterns and some that may not be as good, overall I would say that this company has enough strong growth patterns that will keep it in business for a long time.

References

  1. Hargreaves, R. (2013, November 30). Does Walmart Have a Liquidity Problem?. Retrieved from http://www.fool.com
  2. Wainwright, S. K., (Ed.). (2012). Principles of Accounting: Volume I . Retrieved from https://content.ashford.edu/books/4
  3. Walmart Inc. (WMT) Financial Analysis and Stock Valuation. (n.d.) Retrieved from http://stock-on –analysis-on.net/
  4. Walton, S. (1918). Walmart’s History and Mission. Retrieved from http”//help.walmart.com/
  5. Our History Sam Walton. (n.d). Retrieved from htt://coporate.walmart.com/our-story/our-history
  6. Vasiu, D. E., Baltes, B., & Gheorghe, L. N. (2015). Theoretical and Applied Economics, Vol XXII, Iss 3, Pp 187-206. Retrieved from http://eds.a.ebscohost.com.proxy-library.ashfod.edu/
  7. Walmart Stores, Inc. MarketLine Company Profile. (2017, November 23). P1-32. 32p. Retrieved from http://www.eds.a.ebscohost.com.proxi-library.ashford.edu/

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Walmart’s Financial Statement Analysis
Artscolumbia
Artscolumbia
Company Overiew Walmart was founded in 1962 by Sam Walton. This first Wal-Mart was opened up in Rogers, Arkansas. When Sam Walton opened up Walmart his idea was to center it on offering lower prices and great service to customers, but his competitors thought it wouldn’t work. But to their surprise the company ended up being a great success. Walmart went public in 1970 and because of its great profits, it lead to its expansion. Low cost is what attracted the customers to the busine
2021-09-13 05:42:42
Walmart’s Financial Statement Analysis
$ 13.900 2018-12-31
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