Introduction
The paper comprises of various tools to analyze the financial statement of Walmart that operates in the global environment. The financial statement analysis is not limited to horizontal, but it also includes ratio analysis to determine the stability, profitability, and performance of a company. The data is collected from annual reports of the company and recommendations are provided that help in understanding the actual financial position of the company. The core objective of the paper is to provide a clear view to the users of financial statements that also helps an investor in decision making.
Company Overview
Walmart is an American retail company that has a chain of discount department stores, hypermarkets, and grocery stores in different cities. The company operated in a retail industry and headquartered in Bentonville, Arkansas. The company was formed by Sam Walton in 1969 and since the business is managed and controlled by Walton family. Walmart is a large size company that has more than 2.2 million employees providing their services in many countries including the United States, Brazil, Argentina, and Canada. It offers consumer products and services to its local and international customers that include grocery items, furniture, food products, electrical appliances, equipment, etc. The main competitors of Walmart are Amazon, Costco, and Target Corporation that is providing homogeneous products and similar services to final consumers.
Horizontal Analysis
Horizontal analysis is an effective tool to analyze the trend of a company regarding profitability in a specific period . It is helpful in comparing the performance of past few years of a company to determine the changes in various components of financial statements. It is important for an investor to determine the growth of a company over the past few years that will help him in the decision-making. In fact, it can be used to compare the company’s performance with its competitors. The horizontal analysis of Walmart is provided below.
The positive chance was observed in the revenue of 2015 that converted into a negative change in 2016 as shown in the above-provided table. The irregular fluctuations during 2014-2016 show that Walmart was not persistent in generating revenue, and the trend might change year to year. However, positive change was observed in Gross Profit of the past three years that showed the company was effective in controlling and reducing its direct costs and expenses. The trend of operating expenses was positive while decreasing revenue that indicates Walmart failed to control its expenses. The net income of the company increased by percent in 2015 but sudden decline in 2016 by 10.2 showed the inconsistency in maintaining stability of and profitability of business .
The negative change was observed in the total assets of Walmart in 2015 as compared to 2014. The change increased in 2015 by 1.51 percent that shows the company did not acquire new assets in this period. It reveals that Walmart paid attention to the acquisition of current assets and did not bother to purchase non-current assets that would have been utilized to generate potential revenue. The negative change was also observed in total liabilities of the company by 2.68 in 2015-2016, but it was good for the company. The negative change in the equity component was not in favor of the company’s stability as it relates to the capital investments and retained profits of Walmart.
Ratio Analysis
The decline in the results of current ratio and the quick ratio by 0.04 in 2015-2016 indicated that the liquidity position of Walmart was weak in this period. The main factor for the decreasing value was the decline in the value of current assets more than the decline in current liabilities. The slight decrease in the results of cash ratio reveals that Walmart was inefficient in generating cash to manage its liquidity position. The reason or factor for the decline was decreasing cash collection of the company more than the decrease in current liabilities of the company. The liquidity position of Target Corporation (competitor) was strong as compared to Walmart that shows the issues are with Walmart. Walmart did not compete with rivals efficiently in 2014-2016 that resulted in the weak position of the company otherwise the retail industry was growing rapidly (Wainwright, 2012).
Recommendation
The horizontal and ratio analysis indicates that the financial position of Walmart was weak in past two-three years, so the investor is suggested to avoid this company. The suggestion is based on the declining net profits and net assets of the company in past few years.
Conclusion
It can be concluded that financial statements analysis is essential before decision making as the recent performance of a company may not clarify the growth or decline in profit of the company. The comparison is required to analyze the performance of past few years and the net results obtained from it can help in investment decisions.
List of References
Wainwright, K. S., 2012. Principles of Accounting: Volume 1. San Diego, : Bridgepoint Education, Inc..
Warren, C. S., Reeve, J. & Duchac, J., 2015. Financial Accounting. Mason: Cengage Learning.
Weygandt, J. J., Kimmel, P. D. & Kieso, D. E., 2015. Financial & Managerial Accounting. Hoboken: John Wiley & Sons.
