Free Wal-Mart Financial Performance Essay Sample
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According to Wal-Mart Stores, Inc. (2009), Wal-Mart stores is the world's biggest retail stores that operates many stores through out the world. The chain stores have experienced rapid growth with many customers demanding for the products of the stores. The stores have experienced increased profitability and growth. This paper analyzes the financial performance of the company. The paper analyses the financial ratios of the Wal-Mart stores with their interpretations. Some of the ratios analyzed are the profitability ratios, the return on investment ratios and the liquidity ratios. The ratio analysis is accompanied by the company's comments.
A balance sheet is a quantitative financial statement of an organization that shows the financial position of Wal-Mart stores at a given period. The report shows the assets, the liabilities and the net worth of the stores. The current assets, current liabilities and the statement of the position of the company are all shown. From the balance sheet of Wal-Mart, it is clear that all these three things are shown in the balance sheet (Wal-Mart Stores, Inc. 2009). The current assets of the stores include cash equivalents, accounts receivables, prepaid expenses and inventories. Each of these current assets have affected the cash management strategies of Wal-Mart differently. The inventories of Wal-Mart for the financial period ended 31 January 2009 decreased as compared to those of 2008. Inventories are an important input to an organization's production. The inventories are usually used as inputs to the manufacture of products of an organization.
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The inventory costs determine the profitability of an organization because they form part of the cost of sales and total costs. Cheap inventories reduce the cost of production while increasing the sales revenue and the profitability of an organization. The stores of Wal-Mart always make strategies to purchase raw materials and input that are cheap. The stores engage suppliers in the supply chain using cheap effective methods to solicit inventories. According to Wal-Mart Stores, Inc. (2009), the cost of inventories contributes much to the total cost of Wal-Mart. If the management can obtain cheap inventories, then the total costs can be substantially reduced while increasing productivity and profits. The search for cheap inventories for Wal-Mart has led to the stores to outsource cheap inventories from suppliers outside the U.S especially from China. Therefore, inventories have positively affected the strategies used by Wal-Mart to increase its profit.
Cash and cash equivalents are current assets that include liquid cash in the Wal-Mart stores and the things that can be easily converted to cash. The stores have always sought new and better strategies to increase the cash in the company. The receivables of the stores include the payment that the organization receives from its operations. These operations are important to the organization since they increase the profitability of the stores. Cash receivables also determine the liquidity level of the stores. Liquidity is important for the stores because it helps the stores meet its obligations as they fall due. Therefore, any strategy to increase the receivables of the stores such as increasing the credit sales is important. This also includes paying for goods or services in advance to increase the prepaid expenses (Wal-Mart Stores, Inc., 2009).
Current liabilities are the debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short-term debt, accounts payable, accrued liabilities and other debts. Liabilities increase the expenses of the Wal-Mart stores. The objective of any organization in business is usually to maximize profit and minimize costs. Wal-Mart stores also seek to minimize its liabilities as it increases its current assets (Wal-Mart Stores, Inc. 2009).
The Wal-Mart stores have reduces financing their activities using the commercial paper. The stores have come up with other strategies to finance the activities of the stores. For instance, the stores have turned to increasing accrued liabilities rather than using the commercial paper. Liabilities are the obligations that the stores incur and any strategies to reduce the obligations will yield more profit. The accounts payable by the stores has declined as the stores have changed the strategy to pay their obligations in cash. This is a strategy to increase cash and liquidity of the Wal-Mart stores (MSN, 2010).
Cash flow is the net flow of net cash in the stores of Wal-Mart that is provided by the operating activities in the period of presenting the cash flows minus the property and equipment payments made during the period. Cash flows are an important measure used by an organization to evaluate the financial performance of an organization. It measures the ability of the Wal-Mart stores to generate additional cash from its daily operations. The cash flows of Wal-Mart should continue to be regarded together with the net income of the stores as a measure for the performance of the stores. The net cash flows should be used as a measure of liquidity of the organization. The cash flow statements of Wal-Mart are presented below.
From the above cash flow statements, it is clear that the net cash flow of Wal-Mart increased in 2009 as compared to the cash flows of 2008. This is attributed to increased income from operations of the stores. The financing expenses of the activities in the stores and investment activities reduced. The total cash equivalents at the end of the financial period ended 31 January 2009 increased by 1,706. This shows that the stores increased their liquidity (Wal-Mart Stores, Inc. 2009).
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Increase in forecast revenues by 20%
The revenue of Wal-Mart from the pro forma statements of Wal-Mart for the financial year ended 31 January 2009 was $ 401,244 Million. If the forecast revenue for the following year is an increase by 20%, it will mean that the revenue is $ 481,893. Working capital is the difference between the current assets and current liabilities. The increase in the revenues means that the current assets of Wal-Mart would have increased. Though the current liabilities should decrease, some current liabilities should increase in line with the current assets (MSN, 2010).
Some current assets such as cash and cash equivalents will increase. Other assets that will increase are the receivables and the inventories. Some liabilities like the accounts payable and the income taxes are likely to increase. However, their increase could be less than the increase in the sales revenue leading to a higher working capital for the Wal-Mart stores. Due to the increase in the revenue of the store, the working capital will increase. A positive working capital affects the cash flow of the stores negatively. The increase in the revenue could be because of the liquidation of the inventory or drawing money from accounts that are due to be paid by the business. A positive working capital will affect positively the operational activities of the Wal-Mart stores. The activities of the company will increase while the stores will increase their growth (MSN, 2010).
The objective of an organization is to maximize profit and minimize costs. The financial reports of Wal-Mart include the balance sheet, the cash flow statements and the profit and loss statements. The financial statements for the year ended 31 January 2009 indicates that the stores are performing well. The current assets and the current liabilities affect the strategies that the Wal-Mart stores use to maintain its liquidity. The low level of cash receivables enables the stores to change their strategies to increase the revenue and amount of cash.