Wal-Mart is a company that has been massively successful in the United States, although it has experienced significantly less success elsewhere around the world. The company’s massive success has been attributed to a number of social and economic factors; however, it is also important to consider the history of the company and apply predictive modeling techniques to attempt to glean a better understanding of the way sales and net profits are associated for a company like Wal-Mart. Because Wal-Mart is now an international corporation which owns a number of smaller subsidiary companies, the overall sales and the overall net profit will be considered.
Although sales and net profits are not always completely linear in a real-world analysis of financial statements, they are generally linked with a relatively linear relationship. When considering the relationship between sales and net profit, it is important to understand first and foremost that not all sales equate to net profit. Wal-Mart does its best to maximize revenue with the inclusion of all its various expenses, but like any company, sales and revenues are not linked perfectly. In this discussion, Sales or Revenues for Wal-Mart is the independent variable—something that operates without the impact of the net profit. Below is a table of net sales or revenues for Wal-Mart taken over the last ten years:
(AmigoBulls, 2016; Yahoo! Finance, 2016).
Net profit, then, is the net sales for a company less the expenses that a company has—and Wal-Mart, being a very large corporation, has many expenses that must be considered. The net profit for the company is contained in the table below:
(AmigoBulls, 2016; Yahoo! Finance, 2016).
The next thing to be considered for this organization is the profit margin for each year. The profit margin has been calculated by dividing the net profit by revenue and multiplying by one hundred, which gives a good ratio for understanding the general health of the income and profit that the company is experiencing.
(AmigoBulls, 2016; Yahoo! Finance, 2016).
Considering these values for the next two years, it seems that Wal-Mart is and will probably continue to operate at a profit margin of anywhere from 2.69 to 3.30%, and this is very important information to consider when thinking about the potential future profits of the company. Wal-Mart has been taking on greater expenses as the company continues to grow, and the more operating locations that the company opens, the greater the likelihood that the company will need to expend more of its gross revenue to properly operate these locations. As such, the profit margin and the net profits that the company experiences will be very different as the company experiences growth over time.
The predictions for the next two years will be included as follows, using the approximate decrease of profit margin that was demonstrated using the profit margin analysis.
The independent variable, net profit, can be calculated using the reverse of the previous calculations and by including the profit margin ratio as a way to gauge the successes of the company in the future. Although these calculations and guesses regarding the future of this company are not perfect, they take into account the institutional changes that have been made regarding company structure and the relationship between revenue and profit for this company.
This is also an excellent illustration regarding the reasons why both profit and sales must be considered when considering the health of a company; a company with high sales but low profit is probably misallocating funds in some way, and might not have the strongest business model—even if that company is doing extremely well in terms of sales and gross profit.
References
AmigoBulls. (2016). Walmart Annual Income Statement 2016, 2015.Amigobulls.com. Retrieved 26 July 2016, from http://amigobulls.com/stocks/WMT/income-statement/annual
Yahoo! Finance (2016). WMT Interactive Stock Chart | Wal-Mart Stores, Inc. Common St Stock - Yahoo Finance. Finance.yahoo.com. Retrieved 26 July 2016, from https://finance.yahoo.com/chart/WMT
