Running Head: Finance for Managers 1

Assignment

On

Wal-Mart Stores Inc.

Finance for Managers

By

Date
Finance for Managers 2

Task-1:

1.1.

Financial Information needed and it’s Analysis:

For the analysis of the financial information of a company, what is needed is usually published

on annual basis by the companies. This is known as the Annual Report or Annual Publication of

the companies which can be usually found on their official website in the Investor relations

category. The companies need to periodically publish and make public their earnings and

expenses reports in order to satisfy their investors on their performance.

Wal-Mart publishes its annual as well as quarterly earnings report and annual report on its

official website. The company earnings, legal accountability requirements, its budgets, funding,

its expenses and many other information in terms of its financial operations is published in these

reports.

The investors usually need to analyze the following information which is published in the annual

reports in order to assess the profitability and working of the company and its operations. It

includes the analyze the profit and loss statement which shows the company net revenues, its

operating expenses, income tax and interest expense deducted, and its Net income. This net

income is the income which is attributable to the shareholders. The investors assess their

company’s profitability by comparing it to industry’s and the companies past net incomes.

Other than this, the Balance Sheet or the Financial Position Statement of the company is also

used for the assessment of operations of the company. For this statement shows the position of

the assets and liabilities of the company on a specific point in time. Moreover, the Statement of

cash flow is also analyzed. This shows the funds which were generated by the operations of the
Finance for Managers 3

company, or through financial borrowings, and were used in investments and financing. IT also

shows the cash outflow and inflow in the company (walmart.com, 2016).

1.2.

Balance Sheet Statement:

The balance Sheet of the company Wal-Mart Stores Inc. shows that the assets value of the

company has decreased in the current year as compared to its past year assets value. This can be

attributed to the fact that more depreciation expense is deducted this year as compared to the last

year. Other than this, the noncurrent assets, and the current assets both have declined in the year

2016. However, the value of the property plant and equipment has increased. Looking at the

liabilities side of the balance sheet we can see that the company Wal-Mart Stores Inc. total

liabilities portion has increased whereas its equity portion has declined, showing its more

dependency on the debt funding as compared to the equity financing.

Profit & Loss Statement:

The profit and Loss statement of the company Wal-Mart Stores Inc. shows that the revenue of

the company has declined this year. However, tremendously the Gross Profit has increased. This

shows the great performance of the company in terms of reducing its cost of operation. The

company Wal-Mart Stores Inc. even with the decreased revenue has reported increased gross

profit because of the reduced cost of revenue showing its good performance.

However, the Net income is declined as the revenue, because of the increase expenses recorded

under the heads of sales, general and admin expenses.

The declined EPS is depicting the low performance this year in terms of revenue and earnings

form operations.
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Statement of Fund Source and Application:

This is normally known as the Cash flow statement. The cash flow statement of the company

Wal-Mart Stores Inc. shows that the declined net income has affected the cash provided from

operations value as well. The company Wal-Mart Stores Inc. has used lower amount of cash this

year for its investing activities then last year however more for the financing activities. The net

change in cash is negative showing the low level of cash from operations and its high

consumption and application. The free Cash flow value has also declined.

1.3.

Financial Ratio Analysis

2016 2015
Profitability ratio
Gross margin 25% 25%
Gross profit $ 121,146.00 $ 120,565.00
Revenue $ 482,130.00 $ 485,651.00

Net margin 3% 3%
Net income $ 14,694.00 $ 16,363.00

Operating margin 5% 6%
Operating profit $ 24,105.00 $ 27,147.00

ROA 7% 8%
Income $ 14,694.00 $ 16,363.00
Total assets $ 199,581.00 $ 203,706.00

ROE 18% 20%

Equity $ 80,546.00 $ 81,394.00
Income $ 14,694.00 $ 16,363.00

Efficiency ratios
2016 2015
Asset turnover 2.42 2.38
Net sales $ 482,130.00 $ 485,651.00
Finance for Managers 5

Average assets $ 199,581.00 $ 203,706.00

Inventory turnover 10.84 10.76

Net sales $ 482,130.00 $ 485,651.00
Average inventory $ 44,469.00 $ 45,141.00

Receivable turnover 85.73 71.65

Net sales $ 482,130.00 $ 485,651.00
Receivables $ 5,624.00 $ 6,778.00
(morningstar.com, 2016)

Liquidity ratios
2016 2015
Current ratio 0.93 0.97
Current assets $ 60,239.00 $ 63,278.00
Current liabilities $ 64,619.00 $ 65,272.00

Quick ratio 0.12 0.14

Quick assets $ 14,329.00 $ 15,913.00
Current liabilities $ 119,879.00 $ 111,563.00

Stability ratios
2016 2015
Debt to equity ratio 1.48 1.50
Debt $ 119,035.00 $ 122,312.00
Equity $ 80,546.00 $ 81,394.00
Equity Ratio 0.60 0.60

Investors ratios
2016 2015
Price per share $ 67.40
Earnings $ 4.58
Price earning $ 14.72
EPS $ 4.58 $ 5.07
(stock-analysis-on, 2016)

1.4.
Finance for Managers 6

The financial information of the company Wal-Mart Stores Inc. critically analyzed through

various ratio analysis shows that the company ratios declined this year that is in the year 2016.

However, the company performance is evident to have strength for redemption and bouncing

back. The profitability ratios of the company Wal-Mart Stores Inc. has decreased or remained

stable in the year 2016 as compared to 2015. The Return on Assets and Return on Equity has

declined because of the decline in the Net Income value of the company. The liquidity ratios

have also declined because for the lower value of the current assets and quick assets value of the

company. Te stability ratios have also decreased or declined this year. The investor ratios show

that the company Earnings per share has declined because of the decreased net income available

(nasdaq.com, 2016).

Task-2:

2.1

Usually the budget process is initiated with the sales revenue as it is used for determining the

demand and production of the company. This is also used in order to determine the purchases

and the cost of these purchases or raw materials. The budgets which are usually formed for the

budgeting process are Sales budget, production budget, materials budget, and administration

budget.

The sale budget is usually made in order to determine the facts about the costs. This is used in

order to know important factors like the cash which would be available for spending on the cost

of production. This cost of production includes the cost of raw material, and purchases. This

gives an idea about the profit which can be made. The targets set for achieving the profit margins

or revenue margins aids here to determine how much production would have to be done for

achieving a certain target (NASH, 2016).

Finance for Managers 7

Similarly, the company also uses various methods for the making and forecasting of the

production budget. The company Wal-Mart Stores Inc. forecasts and predicts its production

requirement as per the market demand and sales. It is determined by the market labor

availability, and it depends upon the fact that what is needed to be produced and when it is

needed to be produced. For the company Wal-Mart Stores Inc. the Production budget is in actual

the Retail Budget which entails the information about the requirement of the various items which

are to be put on the stores, online or on racks of the physical stores.

The Material Budget usually shows the amount of purchases and the amount of inventory which

is needed to be stored for the achieving of the production targets. The planned production targets

and in case of the company Wal-Mart Stores Inc. the planned retail material to be purchased

gives the company targets about their retail production (walmart, 2017).

The Administration budget is related to the planning of the expenses and costs which is not

related to the direct retail or cost of revenue. These costs or expenses are the operating expenses

which are needed in order to run the business. These are the expenses which usually are allocated

budget for the running of the business. The human resources who are needed to operate the

business their salaries, the legal and financing costs of running the business, the interest

expenses, and the rental, and warehousing costs are included in these types of expenses. The

company Wal-Mart Stores Inc. allocates a portion of its operational income for bearing the

operational expenses.

Other than this, the pricing of the various retail items which are being sold at the Wal-Mart

Stores also plays a vital role in the planning and budgeting process. The company Wal-Mart

Stores Inc. needs to evaluate and asses the various profit margins for them which they will gain

from the various items on sales in their stores. This is however a factor which cannot be
Finance for Managers 8

completely controlled by the company Wal-Mart Stores Inc. and hence therefore is needed to be

looked periodically for better assessment of its affects on the budgeting and planning of revenues

and profits.

2.2

The major aim of the budgeting process is to provide a basis and foundation for the planning and

production process and in the case of the company Wal-Mart Stores Inc. for the retail sale and

business. The targets and allocation of the budgets gives the set marks for achieving the profit

margins or revenue margins and aids here to determine how much production that is how much

retail sales would have to be done for achieving a certain target.

The companies use their budgeted amounts to compare with their actual amounts after the fiscal

year for the performance evaluation. It also aids in the analysis of the assessment of the

budgeting process. The assessment shows the variation of the actual results from the budgeted. It

shows if the company was able to act accordingly its set parameters or not, and that the budget

targets which were set were they realistic and near to actual or not (walmart, 2015).

2.3

This variance analysis usually shows many reasons which the company needs to analyze to make

its performance better, other than this, it is not the only factor which usually leads to changes in

the actual and budgeted values. This also happens if the company had not set realistic targets or

had not make budgets and realistic allocations. This shows that the company has made mistakes

in the assumption of its abilities or the assumptions of its market indicators.

The targets and allocation of the budgets gives the set marks for achieving the profit margins or

revenue margins and aids here to determine how much production that is how much retail sales

would have to be done for achieving a certain target. The major aim of the budgeting process is
Finance for Managers 9

to provide a basis and foundation for the planning and production process and in the case of the

company Wal-Mart Stores Inc. for the retail sale and business. The planned production targets

and in case of the company Wal-Mart Stores Inc. the planned retail material to be purchased

gives the company targets about their retail production (walmart, 2015).

Task 3

3.1 & 3.2

The company Wal-Mart Stores Inc. being the giant retailer that it is often usually focuses on the

two important factors any business proposal that it has to analyze. The cost and financing. The

beginning, start of the business proposal, the growth and its stability and profitable running

depends upon this major aspect. How it would be financed and how much it is needed to be

financed. Another important factor which is analyzed while critically evaluating any project is its

flexibltity to lower the sales price so that through increased sales volume the targets can be

achieved. The company Wal-Mart Stores Inc. usually gains competitive advantage and market

share through the penetration strategy, that is, by offering lower costs and on place solutions to

its customers. For this, it needs to have the products whose prices can be lowered and decreased

and are flexible enough to get advantage by volume sales.

3.3 & 3.4

Other than this, the company Wal-Mart Stores Inc. also puts considerable focus on the risk

involved with each project proposal. The lower the risk, the higher the acceptability chances of

this project. The company uses Cost benefit ratios analysis for the analysis of the projects. The

cost and financing. The beginning, start of the business proposal, the growth and its stability and

profitable running depends upon this major aspect. How it would be financed and how much it is

needed to be financed. Therefore, the financing and costs alongwith the benefits that it offers are
Finance for Managers 10

analyzed for the comparative analysis of the project. The company uses break even analysis and

keeping in view the objectives and targets set by the company for the financial viability of the

investment projects that it is considering to evaluate. Payback period is another method which it

can use in order to analyze the financial viability of the project; however it does not often leads

to complete knowledge about the financial viability of tee project. Therefore the Net present

value of the project is another method which is used for its purpose usually by the companies

like Wal-Mart Stores Inc (walmart.com, 2016).

References:

morningstar.com. (2016). Wal-Mart Stores. Retrieved January 25, 2017, from morningstar.com:

http://www.morningstar.com/stocks/XNYS/WMT/quote.html

nasdaq.com. (2016). WalMart Financial Analysis. Retrieved 2017, from NASDAQ:

http://www.nasdaq.com/symbol/wmt/financials?query=ratios

NASH, K. S. (2016, APril 21). Wal-Mart Spent $10.5 Billion on Information Technology in

2015. Retrieved January 25, 2017, from wsj: http://blogs.wsj.com/cio/2016/04/21/wal-

mart-spent-10-5-billion-on-information-technology-in-2015/

stock-analysis-on. (2016). Wal-Mart Stores Inc. (WMT). Retrieved January 25, 2017, from stock-

analysis: https://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc

walmart. (2017). walmart. Retrieved 2017, from walmart: https://www.walmart.com/

walmart. (2015). Walmart global capital expenditure plan. Retrieved January 25, 2017, from

walmart: http://corporate.walmart.com/_news_/news-archive/2013/10/15/walmart-

announces-118-to-128-billion-fy2015-global-capital-expenditure-plan
Finance for Managers 11

walmart.com. (2016). Annual Report 2016. Retrieved January 25, 2017, from walmart.com:

http://stock.walmart.com/investors/financial-information/annual-reports-and-

proxies/default.aspx

Appendices:

WAL-MART STORES INC (WMT)

BALANCE SHEET
Fiscal year ends in January. USD in millions $ $ $ $ $
except per share data. 2,012 2,013 2,014 2,015 2,016
Assets
Current assets
$ $ $ $ $
Cash and cash equivalents 6,550 7,781 7,281 9,135 8,705
$ $ $ $ $
Total cash 6,550 7,781 7,281 9,135 8,705
$ $ $ $ $
Receivables 5,937 6,768 6,677 6,778 5,624
$ $ $ $ $
Inventories 40,714 43,803 44,858 45,141 44,469
$ $ $ $ $
Prepaid expenses 1,685 1,588 1,909 2,224 1,441
$ $
Other current assets 89 460
$ $ $ $ $
Total current assets 54,975 59,940 61,185 63,278 60,239
Non-current assets
Property, plant and equipment
$ $ $ $ $
Land 23,499 25,612 26,184 26,261 25,624
$ $ $ $ $
Fixtures and equipment 41,916 43,699 45,756 47,851 49,950
$ $ $ $ $
Other properties 95,523 102,413 106,738 108,522 112,480
$ $ $ $ $
Property and equipment, at cost 160,938 171,724 178,678 182,634 188,054
$ $ $ $ $
Accumulated Depreciation (48,614) (55,043) (60,771) (65,979) (71,538)
$ $ $ $ $
Property, plant and equipment, net 112,324 116,681 117,907 116,655 116,516
$ $ $ $ $
Goodwill 20,651 20,497 19,510 18,102 16,695
$ $ $ $ $
Other long-term assets 5,456 5,987 6,149 5,671 6,131
Finance for Managers 12

$ $ $ $ $
Total non-current assets 138,431 143,165 143,566 140,428 139,342
$ $ $ $ $
Total assets 193,406 203,105 204,751 203,706 199,581
Liabilities and stockholders' equity
Liabilities
Current liabilities
$ $ $ $ $
Short-term debt 6,022 12,392 11,773 6,402 5,453
$ $ $ $ $
Capital leases 326 327 309 287 551
$ $ $ $ $
Accounts payable 36,608 38,080 37,415 38,410 38,487
$ $ $ $ $
Taxes payable 1,164 5,062 3,520 3,613 3,065
$ $ $ $ $
Accrued liabilities 18,154 15,957 16,239 16,560 17,063
$ $
Other current liabilities 26 89
$ $ $ $ $
Total current liabilities 62,300 71,818 69,345 65,272 64,619
Non-current liabilities
$ $ $ $ $
Long-term debt 44,070 38,394 41,771 41,086 38,214
$ $ $ $ $
Capital leases 3,009 3,023 2,788 2,606 5,816
$ $ $ $ $
Deferred taxes liabilities 7,862 7,613 8,017 8,805 7,321
$ $ $ $ $
Minority interest 4,446 5,395 5,084 4,543 3,065
$ $ $
Other long-term liabilities 404 519 1,491
$ $ $ $ $
Total non-current liabilities 59,791 54,944 59,151 57,040 54,416
$ $ $ $ $
Total liabilities 122,091 126,762 128,496 122,312 119,035
Stockholders' equity
$ $ $ $ $
Common stock 342 332 323 323 317
$ $ $ $ $
Additional paid-in capital 3,692 3,620 2,362 2,462 1,805
$ $ $ $ $
Retained earnings 68,691 72,978 76,566 85,777 90,021
$ $ $ $ $
Accumulated other comprehensive income (1,410) (587) (2,996) (7,168) (11,597)
$ $ $ $ $
Total stockholders' equity 71,315 76,343 76,255 81,394 80,546
Finance for Managers 13

$ $ $ $ $
Total liabilities and stockholders' equity 193,406 203,105 204,751 203,706 199,581

WAL-MART STORES INC (WMT)

PROFIT AND LOSS STATEMENT
Fiscal year ends in January. USD in millions
except per share data. 2012 2013 2014 2015 2016
$ $ $ $ $
Revenue 446,950 469,162 476,294 485,651 482,130
$ $ $ $ $
Cost of revenue 335,127 352,488 358,069 365,086 360,984
$ $ $ $ $
Gross profit 111,823 116,674 118,225 120,565 121,146
Operating expenses
$ $ $ $ $
Sales, General and administrative 85,265 88,873 91,353 93,418 97,041
$ $ $ $ $
Total operating expenses 85,265 88,873 91,353 93,418 97,041
$ $ $ $ $
Operating income 26,558 27,801 26,872 27,147 24,105
$ $ $ $ $
Interest Expense 2,322 2,251 2,335 2,461 2,548
$ $ $ $ $
Other income (expense) 162 187 119 113 81
$ $ $ $ $
Income before income taxes 24,398 25,737 24,656 24,799 21,638
$ $ $ $ $
Provision for income taxes 7,944 7,981 8,105 7,985 6,558
$ $ $ $ $
Minority interest 688 757 673 736 386
$ $ $ $ $
Other income 688 757 673 736 386
$ $ $ $ $
Net income from continuing operations 16,454 17,756 16,551 16,814 15,080
$ $ $
Net income from discontinuing ops (67) 144 285
$ $ $ $ $
Other (688) (757) (673) (736) (386)
$ $ $ $ $
Net income 15,699 16,999 16,022 16,363 14,694
$ $ $ $ $
Net income available to common shareholders 15,699 16,999 16,022 16,363 14,694
Earnings per share
$ $ $ $ $
Basic 5 5 5 5 5
Diluted $ $ $ $ $
Finance for Managers 14

5 5 5 5 5
Weighted average shares outstanding
$ $ $ $ $
Basic 3,460 3,374 3,269 3,230 3,207
$ $ $ $ $
Diluted 3,474 3,389 3,283 3,243 3,217
$ $ $ $ $
EBITDA 34,850 36,489 35,861 36,433 33,640

WAL-MART STORES INC (WMT)

CASH FUNDING AND APPLICATION STATEMENT
Fiscal year ends in January. USD in millions except
per share data. 2012 2013 2014 2015 2016
Cash Flows From Operating Activities
$ $ $ $ $
Net income 16,387 17,756 16,695 17,099 15,080
$ $ $ $ $
Depreciation & amortization 8,130 8,501 8,870 9,173 9,454
$ $ $ $ $
Deferred income taxes 1,050 (133) (279) (503) (672)
$ $ $
(Gain) Loss from discontinued operations 67 (144) (285)
$ $
Accounts receivable (796) (614)
$ $ $ $ $
Inventory (3,727) (2,759) (1,667) (1,229) (703)
$ $ $ $ $
Accounts payable 2,687 1,061 531 2,678 2,008
$ $ $ $ $
Accrued liabilities 59 271 103 1,249 1,303
$ $ $
Income taxes payable 981 (1,224) 166
$ $ $
Other working capital (566) (569) (491)
$ $ $ $ $
Other non-cash items 398 527 938 785 1,410
$ $ $ $ $
Net cash provided by operating activities 24,255 25,591 23,257 28,564 27,389
Cash Flows From Investing Activities
$ $ $ $ $
Investments in property, plant, and equipment (13,510) (12,898) (13,115) (12,174) (11,477)
$ $ $ $ $
Property, plant, and equipment reductions 580 532 727 570 635
$ $ $
Acquisitions, net (3,548) (316) (15)
Finance for Managers 15

$ $ $ $ $
Other investing charges (131) 71 105 479 167
$ $ $ $ $
Net cash used for investing activities (16,609) (12,611) (12,298) (11,125) (10,675)
Cash Flows From Financing Activities
$ $ $ $ $
Short-term borrowing 3,019 2,754 911 (6,288) 1,235
$ $ $ $ $
Long-term debt issued 5,050 211 7,072 5,174 39
$ $ $ $ $
Long-term debt repayment (4,939) (1,478) (4,968) (3,904) (4,432)
$ $ $ $ $
Repurchases of treasury stock (6,298) (7,600) (6,683) (1,015) (4,112)
$ $ $ $ $
Cash dividends paid (5,048) (5,361) (6,139) (6,185) (6,294)
$ $ $ $ $
Other financing activities (242) (498) (1,210) (2,853) (2,558)
Net cash provided by (used for) financing $ $ $ $ $
activities (8,458) (11,972) (11,017) (15,071) (16,122)
$ $ $ $ $
Effect of exchange rate changes (33) 223 (442) (514) (1,022)
$ $ $ $ $
Net change in cash (845) 1,231 (500) 1,854 (430)
$ $ $ $ $
Cash at beginning of period 7,395 6,550 7,781 7,281 9,135
$ $ $ $ $
Cash at end of period 6,550 7,781 7,281 9,135 8,705
Free Cash Flow
$ $ $ $ $
Operating cash flow 24,255 25,591 23,257 28,564 27,389
$ $ $ $ $
Capital expenditure (13,510) (12,898) (13,115) (12,174) (11,477)
$ $ $ $ $
Free cash flow 10,745 12,693 10,142 16,390 15,912
Supplemental schedule of cash flow data
$ $ $ $ $
Cash paid for income taxes 5,899 7,304 8,641 8,169 8,111
$ $ $ $ $
Cash paid for interest 2,346 2,262 2,362 2,433 2,540