BU211 Financial Accounting 2 “The $2Million Question: Do I Invest or Not?” BU211 Financial Accounting 2 Case #5 “The $2 Million Question: Do I Invest or Not?” After an intense learning process of 8...

1. Walmart –
Walmart is one of the largest, if not the largest, companies in the world. It operates in the retail sector and provides a wide range of goods in its own stores. It operates the stores all around the world. It has been segmented in to three parts – 1. Walmart US, 2. Walmart International, 3. Sam’s club. Its key competitors are Costco, Target, Best buy and Dollar Tree Inc.
Walmart operates in the fast moving consumer goods and its retail stores are all over the world. They have a good control over its value chain and engages into vertical backward and forward integration to provide the best prices to the customers.
Walmart believes in the “Every day low prices” and provides the goods at the highest discounted rates among all the major competitors. Walmart was charged by SEC for failing to meet the anti-corruption compliance program recently.
2. Accounting Analysis Model –
In order to perform the accounting analysis we will look at the historical statements and analysis the past trends. We will perform he horizontal analysis to understand how the growth in the revenues, different costs drivers happened over the time. We will also perform the vertical analysis to understand the break up of different accounts in the accounting statements and how this has changed. We will also perform he profitability, solvency and liquidity analysis to understand the different strengths and weaknesses of the firm and compare it with the competitors.
3. Vertical Analysis –
Income Statement
As we can see below, there is not a significant changes in the income statement as far as the different cost drivers are considered. The gross profit margins have remained same, EBIT margins have increased slightly and so has the net income margins have moved upwards which is a good sign.
     
    2019
    2020
    2019
    2020
    Revenue
    514,405
    523,964
    100.00%
    100.00%
    Cost of Revenue, Total
    385,301
    394,605
    74.90%
    75.31%
    Gross Profit
    129,104
    129,359
    25.10%
    24.69%
    Selling/General/Admin. Expenses, Total
    107,147
    108,791
    20.83%
    20.76%
    Depreciation/Amortization
    --
    --
    0.00%
    0.00%
    Total Operating Expense
    497,248
    503,396
    96.66%
    96.07%
    Operating Income
    17,157
    20,568
    3.34%
    3.93%
    Interest Inc.(Exp.),Net-Non-Op., Total
    (5,697)
    (452)
    -1.11%
    -0.09%
    Net Income Before Taxes
    11,460
    20,116
    2.23%
    3.84%
    Provision for Income Taxes
    3,839
    4,915
    0.75%
    0.94%
    Net Income After Taxes
    7,621
    15,201
    1.48%
    2.90%
Balance Sheet
As we can see in the analysis below, we can observe the hat the liquidity position of the firm has gotten better. The portion of the long term debt has decreased. The cash position has improved. The overall total current assets have decreased and it is a good sign. The overall current liabilities have decreased too.
     
    2019
    2020
    2019
    2020
    Cash and Short Term Investments
    7,722
    9,465
    3.52%
    4.00%
    Accounts Receivable - Trade, Net
    6,283
    6,284
    2.87%
    2.66%
    Total Inventory
    44,269
    44,435
    20.19%
    18.79%
    Prepaid Expenses
    3,589
    1,622
    1.64%
    0.69%
    Total Current Assets
    61,897
    61,806
    28.23%
    26.13%
    Property/Plant/Equipment, Total - Gross
    198,570
    216,869
    90.55%
    91.70%
    Property/Plant/Equipment, Total - Net
    111,395
    127,049
    50.80%
    53.72%
    Accumulated Depreciation, Total
    (87,175)
    (89,820)
    -39.75%
    -37.98%
    Total Assets
    219,295
    236,495
    100.00%
    100.00%
    Accounts Payable
    47,060
    46,973
    21.46%
    19.86%
    Accrued Expenses
    22,159
    24,089
    10.10%
    10.19%
    Notes Payable/Short Term Debt
    5,225
    575
    2.38%
    0.24%
    Current Port. of LT Debt/Capital Leases
    2,605
    5,873
    1.19%
    2.48%
    Other Current liabilities, Total
    428
    280
    0.20%
    0.12%
    Total Current Liabilities
    77,477
    77,790
    35.33%
    32.89%
    Total Long Term Debt
    46,340
    48,021
    21.13%
    20.31%
    Total Debt
    54,170
    54,469
    24.70%
    23.03%
    Deferred Income Tax
    11,553
    12,265
    5.27%
    5.19%
    Other Liabilities, Total
    4,291
    16,867
    1.96%
    7.13%
    Total Liabilities
    146,799
    161,826
    66.94%
    68.43%
    Common Stock, Total
    288
    284
    0.13%
    0.12%
    Additional Paid-In Capital
    2,965
    3,247
    1.35%
    1.37%
    Retained Earnings (Accumulated Deficit)
    80,785
    83,943
    36.84%
    35.49%
    Other Equity, Total
    (11,542)
    (12,805)
    -5.26%
    -5.41%
    Total Equity
    72,496
    74,669
    33.06%
    31.57%
    Total Liabilities & Shareholders' Equity
    219,295...