preface - justanswerww2.justanswer.com/.../2013-08-17_204302_wallmart_as… · web...

Note to the user:

This Word document provides a structured form template for preparing your responses to the

questions in the annual report project. Simply complete the input required by the form. If you did not purchase the workbook you are not permitted

to use this form template.

INTRODUCTION TO THE CORPORATE ANNUAL REPORT:

A Business Application with IFRS Content

3rd edition

Copyright 2011 by Applied Accounting Analytics. All rights reserved. Reproduction or translation of this book beyond that permitted by the applicable copyright law without Applied Accounting Analytics’ permission is prohibited. Requests for permission to reprint or for further information should be directed to [email protected] or [email protected].

ISBN: 978-0-9841839-2-0

mailto:[email protected]

mailto:[email protected]

To be completed by the student and submitted with the completed annual report project according to your instructor’s requirements.

Complete the following form before you submit your assignment. This step is required to

validate your compliance with sections 107 or 108 of the 1976 United States Copyright

Act.

1. Remove the front cover of the workbook and identify:

Student Name:Claudia Martins

Term:Summer

Selected Company:Wal-Mart1

Instructor:Yessman

2. Print your completed electronic template.

3. Attach the following:

This page completed with all required information. Completed Word form template. Form template boxes expand as you input

responses.

Claudia Martins

CHAPTER 1 - INTRODUCTIONSelect a Company and Gather DocumentsChapter 1: Select a Company and Gather Documents – Question 1

Identify with an “X”the primary source of data for this project.

Click here to enter text.

Annual report to shareholders


Annual report to shareholders with a letter from Chief Executive Officer and SEC Form 10-K as part of the annual report to shareholders. The annual report may include additional general company information.


SEC Form 10-K and the company website.

Fill in the page numbers from the annual report where the following are located.

Required information for this workbook project.

Page No.

Required information for this workbook project.

Page No.

Financial Highlights Not absolutely necessary, but very

common in annual report to shareholders.

Not in SEC Form 10-K.May be posted on company website. If so put WEB in Page No. box.

If not available, put N/A in Page No. box.

http://phx.corporate-ir.net/Tearsheet.ashx?c=112761

Chief Executive Officer Letter May be labeled President’s, CEO’s or

other top official’s message or letter to the shareholders

Not in SEC Form 10-K. Likely posted on company website if SEC Form 10-K used to satisfy the annual report to shareholders reporting requirement. If so put WEB in Page No. box.

100

Management’s Discussion and Analysis (MD&A) 42 Notes to Financial Statements

Put range of pages, for example, 47 to 58.71 to 97

Income StatementMay be labeled Statement of Earnings 66

Report of Independent Accountants or Independent Auditors’ Report

98

Balance Sheet May be labeled Statement of Financial Position

68 Five- or Ten-Year Summary of Operating Results

40

1

Claudia Martins

Item 6 in SEC Form 10-K

Statement of Change in Stockholder’s Equity

69

Management’s Report (Responsibility) on Internal Control over Financial ReportingItem 9A. Control and Procedures in SEC 10-K

100

Statement of Cash Flows 70

Investor and Company Information or Shareholder Information

106/107

Identify Why You Selected This CompanyChapter 1: Identify Why You Selected This Company – Question 1

A) What is/are your motivation(s) or interest(s) in selecting this company? [See above for examples.]

B) What question(s) are you seeking to answer? [For example, is the company profitable? Can the company change and develop new products and services to be competitive? Would I invest in this company? Will the company provide rewarding career opportunities? In chapter 5 you will have pulled together the financial and nonfinancial information to answer these question(s).]

A) The company is one of the largest company listed on NYSE. It is the largest in retail store industry. Its total revenue is around $469 billion for the year 2013. It is a customer oriented industry therefore it works for very low profit margin of around 4%, which is a good example of showing the power of low profit margin to generate high volume of revenues.

B)The basic purpose is to know about the financial position of the company. It can be done by using various techniques of financial analysis, such as horizontal, vertical and ratio analysis. These techniques have been used at various stages to measure the financial position of the business. The comparison of two years and at some places three years figures have been used to find the trend in various aspect such as profit margin, earning per share, the liquidity position, the solvency of the company and the ustilisation of resources. The possible reasons for these changes over years have been explained at various places in the assignment.

Company and Annual Report EssentialsChapter 1: Company and Annual Report Essentials – Question 1

What is the company’s complete name?

2

Claudia Martins

WAL-MART STORES,INC.

Chapter 1: Company and Annual Report Essentials – Question 2

What is the address of your company’s corporate headquarters?

702 S.W .8th Street Bentonville, Arkansas


Identify the company’s website address.

HYPERLINK "http://www.walmart.com"www.walmart.com


Identify the telephone number and e-mail address of the company’s Investor Relations Department.

Telephone number:1-800-438-6278

E-mail address:www.computershare.com


Which stock exchange lists your company?

New York Stock Exchange


What is your company’s stock exchange trading symbol?

WMT


What is your company’s Standard Industrial Classification (SIC) and sector? Run a search on “Standard Industrial Classification,” and the classification and code will be identified. Your company may list more than one SIC code number. The first listed is

3

Claudia Martins

considered the primary SIC for the company.For example, search – The Home Depot SIC – brings up a listing of sources. InvestorWords is one website location option - http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD. Move down the page and you will find:

SIC Code: 5211Sector: Basic Materials, Construction, Retail

Industry: Lumber and other building materials

SIC Code: 5311Sector : ServicesIndustry : Broadline Retailers


Locate the board of directors listing. How many board members does your company have?

17


How many of the directors are company employees, labeled inside directors? And how many are non-company directors, labeled outside directors? Why does a company want and need outside directors?(Inside and outside directors are typically identified as such by their title and company.)

3 are employees and 14 are non-company directors. The puspose of outside director to bring and use the experience of professional people. It also helps keep in touch with the corporate sector. It can help in understanding and adopting any changes in corporate sector. It can be a useful internal control, as the outside director will have no direct link with the employees of the company and will be able to keep better check on them.


Leadership addresses the stockholders, typically, once a year at the annual stockholders meeting. Identify where and when this occurred, as reported in your annual report.

The annual general meeting was held on June 7, 2013 at 7 a.m. in the Bud Walton Arena on the University of Arkansas.

Company Strategy and Business EnvironmentChapter 1: Company Strategy and Business Environment – Question 1

4

http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD

http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD

Claudia Martins

Review the chairman’s message of your company’s annual report. Does it appear to be uplifting or somewhat apologetic? Identify phrases that support your position.

It is definfitely uplifting, one is the reason that they are working on the philosophy of EDLP, every day low pricing, to save the money of the people. This approach has resulted in growth of 8% in sales for the year 2013 and it is expected that the growth will continue in the future.

Chapter 1: Company Strategy and Business Environment – Question 2

Check below the one primary company strategy identified in the chairman’s message. Support your answer with phrases found in the chairman’s message that pointed you to the identified corporate strategy.

Growth: VerticalClick here to enter text.

HorizontalThe company is using the horizontal strategy, which can be verified form the fact that the growth in sales was due to increase in retail square fee by 3.3% in 2013.

ConcentricClick here to enter text.

ConglomerateClick here to enter text.

Stability Click here to enter text.

RetrenchmentClick here to enter text.

Phrases to support your above conclusion:

The increase in net sales for fiscal year 2013 was due to 3.3% growth in retail square feet and positive compareable store and club sales.


Briefly summarize the company’s discussion found in Item 1 of SEC Form 10-K.

Type of business:

Retail Store Major business segments:

Walmart U.S., Walmart International and Sam’s Club

Primary customers:

Common Man/General Public/Final Conusmer

Primary products and/or services:

Grocery, Entertainment, Health and Wellness, Hardline, Apparel and Home are the

5

Claudia Martins

products. The company also provide the membership services through Sam’s Club.

Other:

It includes information related to net sales revenue and long live assets related to U.S. and Non U.S. operations.


Identify broad-based social, political, economic, and technological concerns that may affect your company. Put N/A if one of the categories does not apply.

Social:

The social activity has the major impact on the revenue of the stoes as it sales product which is liked by the people on various occasion. For example, at Christmas the sales are more than normal.Political:

Political aspect does not have any direct impact on the operation of the company.

Economic:

The inflation, the rate of employment, the taxes and new investment in the county may affect the purchasing power of the common man, which may affect the sales of the company at large.

Technological:

The change in technology may help the company in adopting its philosophy of every day low price.

Other:

The law and order situation both domestic and internationally may affect the supply and demand of the product being sold by stores at various locations of the world.

Wrap-upChapter 1: Wrap-up – Question 1

After further review of additional information you should now be confident in identifying the one primary company strategy, beyond the insight provided by the chairman’s message?

Check below the one primary company strategy identified in the chairman’s message and all other supporting documents. Support your answer with phrases.

Growth: VerticalClick here to enter text.

Horizontal Major increase from retail square feet

6

Claudia Martins

ConcentricClick here to enter text.

ConglomerateClick here to enter text.

Stability Click here to enter text.

Retrenchment Click here to enter text.Phrases to support your conclusion from information gathered from the chairman’s message, Item 1 of the SEC Form 10-K and other insight gained from completing Chapter 1.

The increase in net sales for fical year 2013 was due to growth of 3.3% in retail square feet. The growth in sales is about 5%, o$4ut of which the major portion of 3.3% is from retial square feet, which suggests that the company has followed the horizontal strategy approach.

7

Claudia Martins

CHAPTER 2 - ANNUAL REPORT STRUCTUREFinancial HighlightsChapter 2: Financial Highlights – Question 1

Review the financial highlights of your company’s annual report to the shareholders. Identify net sales or revenues, net income, basic earnings per share (BEPS), and total assets for the current and preceding years. These are the most common values included in financial highlights. If your company reports something different, simply cross out an item here and recap what is reported. SEC Form 10-K does not provide financial highlights. You may find this information on the company website. If not available put N/A in the first row of boxes.

Categories Current Year One Year Prior Two Years Prior

Net sales or revenues $ in billions

469.2

$ in billions

447

$ in billion

422

Net income 17.8 16.4 17

Basic EPS 5.04 4.54 4.48

Total Assets $ 203 billion $193 billion NA

Based on your preliminary review, is your company performing better than, equal to, or less favorably than in the prior year? Briefly explain.

According to the data given above the company is performing good then previous year as the sales and net income have increased from previous year. Assets have also increase as compared to previous year approximately upto 5%, which also supports the growth factor as the operation is expanding by adding more assets.

General Company and Marketing InformationChapter 2: General Company and Marketing Information – Question 1

Look for pictures of product and people that are colorful and send a positive company signal to the reader.

Category

Example: Volunteer Activities

Message

Ongoing and contributing to the success of the community

EDLP phiosophy It shws that company is not interesting in making profit by charging high prices rather by increase the volume.

8

Claudia Martins

Worldwide Stores It helps the consumer to reach easily to the consuable goods.

Variety of products It ranges from grocery to apparel, almost all products of daily use are available which gives a feeling that all things can be bought from one place.

Dr. Cash He is professor at Harvard University. It will benefit the organization by using the blend of education, research and experience. It will imrprove the operation of the business.

Mr. Flynn A retired chairman of KPMG, the professional firm, the experience of this person will help the company in developing better internal control.

What is the broader message from this information?

It is quite clear that the company has a philosophical approach of every day low price. This type of approach is normally from a philosopher like Mr. Cash. The only philosophy could help the company in opening stores worldwide and thus include most of the consumable items in its product mix. The huge business needs the tight internal control which can be developed by professional like, Mr. Flynn.

Management’s Discussion and AnalysisChapter 2: Management’s Discussion and Analysis – Question 1

Results of Operations:

Identify the primary drivers/issues that explain current and future results of operations discussed in the MD&A. For example, the gross profit percentage increased because of improved buyer/supplier relations resulting in greater overall operating performance. Or an increase in operating expenses because of increased fuel costs reduced profits. List the six major drivers/issues of performance you find in the MD&A section of the annual report.

1.Every day low price is the main cause of huge volume of the company and growth in almost all aspect of operation.

2.the business is seasonal and affected by many events during the year, such as Christmas.

3.Growth in sales due to growth in retail store feet.

4.The calendar of comparable stores and clubs is different from each other therefore the impact of fuel in 2013 was around 0.1% in 2013 and 0.6% in 2012 and they are very negligible.

5.Walmart US segment is the major contributor of operating income in all three years, it was around 77% to 78% of total operating income in all three years.

9

Claudia Martins

6.Return on Assets is showing a growth of arund 0.2% from 8.8% in 2012 to 9%, which is a good sign, definitely in terms of percentage it is very small, but it also shows that the company could atleast gnereate the return equal to previous with the additional assets in 2013. It means that the utilization of assets in 2013 was effective.

Liquidity:

Recap what you find about your company’s liquidity in the MD&A section of the annual report. Look for information about the ability of the company to satisfy short-term cash needs and the ability to generate operating cash flows, for example.

The free cash flow for the year 2013 is around $12.7 billion and it seems enough for the company short term need. The company has negative working capital of around $12 billion. It was due to payment of long term debt which has become due, but the company has enough free cash flow to meet this obligation and short term liability.

Capital Resources:

Recap what you find about your company’s capital resources in the MD&A section of the annual report. Look for information about cash reserves and credit availability. For example, your company’s MD&A section may have a disclosure about an established lined of credit to fund future growth.

The company fees that the cash flow generated from operation and finacing from short term borrowing will be enough to meet operation expenses and other obligation throughout the year and during the peak period of operation. It can be evident from the good rating of commercial paper and long term debt by S&P rating.

Reports by ManagementChapter 2: Reports by Management – Question 1

Review the Management’s Report (Responsibility) on Internal Control over Financial Reporting in your company’s annual report. Answer the following questions.

Who is responsible for maintaining the internal controls designed to provide reasonable assurance that the books and records reflect the transactions of the company?

Management is responsible for assuring the maintenance of internal control. For this purpose the audit committee was formed and appointed by the Board of Directors.

Record the statement that identifies management’s conclusion about internal controls.

Management has responsibility of establishing and maintaining adequate internal control over financial reporting.

10

Claudia Martins

Who audited management’s assessment of the effectiveness of your company’s internal control over financial reporting?

Ernst & Yound the Independent Registerd Puclic Accounting firm audited the assessment of effectivenss of internal control over financial reporting.

Independent Auditors’ ReportChapter 2: Independent Auditors’ Report – Question 1

Review the Independent Auditors’ Report of your company’s annual report and answer the following questions.

Who was the company’s auditor and where is it located?

Ernst & Yound LLP, located at Rogers, Arkansas

What is the responsibility of the auditor?

To make sure that the financial reporting gives a true and fair view of the financial position of the company and the internal controls have been maintained for financial reporting purpose.

Who is responsible for the preparation of and information within the company’s financial statement?

President and Chief Financial Officer.

The audit was conducted in accordance with what?

In accordance with the standards of the Public Company Accounting Oversight Board (U.S.)

What was the opinion of the auditor?

The auditor was of the opinion that the financial reporting represents fair view of the financial position of the company from numerical aspects.

Five- or Ten-Year Summary of Operating ResultsChapter 2: Five- or Ten-Year Summary of Operating Results – Question 1

Identify the major components provided in the five- or ten-year summary. Summarize the insight provided by each. Look for stable, increasing, or decreasing trends. Consistent, slightly improving performance signals management has control of the business. Inconsistent performance signals management does not have control of the business.

Component

Example: The Home Depot Statement of Earnings Data

Summary of Insight

Sales and earnings have grown significantly over time.Operating expenses are growing at an increasing rate.

Operating Results The company is showing growth in sales for last five

11

Claudia Martins

years, however the trend is not same for all five years, but for last three years it is showing an increasing trend which shows successful business strategy of the company. The gros profit maring is hovering around 25% and operating expenses around 20%for all 5 years, which shows control over cost by the company.

Financial Position Total assets are showing increasing trend which shows the expansion of the business. The long term debt was showing increasing trend till 2012 but now it has gone down which shows that company is not relying on debt financing and try to reduce the financial leverage of the company.

Click here to enter text. Click here to enter text.




12

Claudia Martins

CHAPTER 3 - FINANCIAL STATEMENTSThe Balance SheetChapter 3: Balance Sheet – Question 1

Identify the date shown at the top of your selected company’s balance sheet.

Current Year Prior Year

1/31/2013 1/31/2012

Does the company’s fiscal year follow the calendar year? Yes

If not, why do you think it is different?

No it does not follow as the calendar year ends on December 31st of each year, while the company fiscal year ends on January 31st each year.

Chapter 3: Balance Sheet – Question 2

Review the current asset section of your selected company’s balance sheet. Explain why the order of individual items begins with cash. In your opinion, would it be more or less appropriate to order these items according to dollar magnitude? Explain.

The current assets are listed according to its liquidity (ability to convert into cash) not by the size of dollar amount.


Review your company’s balance sheet (or SEC Form 10-K) and compare accumulated depreciation to the historical cost of Plant and Equipment (PE) using the following ratio.

Compute the following:

Accumulated depreciation /

Plant and Equipment

$ 51896 million/165825 = .313 or 31.3%

Percentage of Asset Life Remaining

High percentage means older assets

Low percentage means newer assets

Is the investment in fixed assets, on average, relatively recent? If not, can we assume

13

Claudia Martins

that these assets will be replaced shortly?

As the percentage is less than 50%, therefore it is relatively recent.


Since property, plant, and equipment (PPE) and long-term investments in stock represent a company’s investment, why do we distinguish between them in the balance sheet?

Because the property plant and equipment are operating assets and it belongs to the main operation of the business. While the investment in stock is non operating assets and it does not belong to the main operation of the business. It is done when the operating assets produce profit and company has enough cash to invest in stock, but without property plant and equipment , the operation of the business may not be run.


Review the noncurrent asset section of your company’s balance sheet. Are any intangible assets listed? If so, identify the types of intangible assets and the percent of total assets that the intangible assets represent.

Intangible Asset 1:Good will 20497

Intangible Asset 2:Click here to enter text.

Intangible Asset 3:Click here to enter text.

Total Intangible Assets Total Assets = 20497/203105 = 10.09%

If this company were to be acquired by another company, would the intangible assets influence the purchase price? Explain your answer.

Yes the intangible asset will influence the purchase price because the intangible asset is goodwill and goodwill will impact on the purchase price of the company. This is the amount which would have been created when Wal-Mart would have acquired another business. The mount of goodwill for new buyer can be different from this, but it will be considered by the buyer.


Now review your company’s total assets for the most recent year. What percentage of total assets is current? Noncurrent?

Current Noncurrent

14

Claudia Martins

29.5% 69.5%

Should companies have a greater investment in current assets or noncurrent assets, or does it depend on the nature of their business? Explain your answer.

It depends on the nature of business. If it belongs to service industry the investment in fixed assets will be on lower side but if it is manufacturing business, then relatively, the fixed assets will be on higher side.


Review your company’s balance sheet. Does it report a deferred tax asset? A deferred tax liability? If so, are the deferred tax assets and/or liabilities reported as current or noncurrent?

Deferred tax asset? Yes Noncurrent

CurrentDeferred tax liability? Yes Noncurrent

Current


Identify the information that relates to the stockholders’ equity section of your company’s balance sheet.

Par value per share of common stock? 0.10

Number of common shares authorized? 11000 million

Number of common shares issued? 3314 million

Number of common shares outstanding? 3314 million

Number of treasury shares held by the company? 0


Answer the following questions relative to the stockholders’ equity section of the balance sheet.

By what amount did retained earnings increase or decrease from the prior year?

$4.3 billion increase

Was the increase or decrease in retained earnings equal to the company’s current year net income or net loss?

No*

* If No, then dividends were paid (or declared) by your selected company or certain events took place during the year where the accounting for the events directly affected the retained earnings account.

15

Claudia Martins


List (write-in) each financial statement element as shown in your company’s balance sheet.

Assets Liabilities Stockholders’ Equity

Cash Short Term Borrowing Common Stock

Recievable Accounts Payable Capital in excess parvalue

Inventory

Prepaid Expenses and other

Accured Liabilities Retained Earning

Property Plant And Equipment

Accured Income Taxes Acc. Other comprehensive income

Property under Capital Leases

Long term Debt due within one year

Non-Redeemable noncontroling interest

GoodWill Obligation under Capital leases due within one year


Other Assets and Deffered Charges

Long Term debt

Long Term Obliation

Deffered income and taxes

Redeemable noncontroling interest

Commitment and Contigencies



Identify the combined carrying values (dollar amounts) of the following selected account groups taken from your company’s balance sheet:

Account Groups Current Year

Prior Year

Increase or Decrease(in dollars)

16

Claudia Martins

Current Assets

$ in millions

59940

$ in millions

54975

$ in millions

4965

Net Fixed Assets 116681 112324 4357

Intangible and Other Noncurrent Assets 26484 26107 337

Current Liabilities 71818 62300 9518

Long-term Liabilities 49549 55345 5796

Common Stock 332 342 -10

Additional Paid in Capital* 3620 3692 -72

Retained Earnings 72978 68691 4287

Other Equity Components 4808 3036 1772


Identify the three major balance sheet accounts, for example accounts receivable, accounts payable, inventory, etc. that changed the most from the prior year. What events might explain these changes? Working to explain why these changes occurred contributes to a greater understanding about a company.

Account Explanation

Example:

Account Receivable

Example:

An increase in accounts receivable should coincide with an increase in sales, i.e., a 10% increase in sales would explain a 10% increase in accounts receivable. If accounts receivable are increasing and sales decreasing, the signal is unfavorable.

Current long term debt

The increase in the current long term debt is 98% which is due to the payment which the company has to made this year.

Cash and Cash Equivalents

The increase in the cash and cash equivalent is 20 as compared to previous year because it has generated more cash this year.

Receivable The increase in receivable is 13.33% as compared to previous year because this year it has generated more sale on account.


Prepare a common-sized balance sheet (expressed in percentages) using the following

17

Claudia Martins

account groups shown in your selected company’s balance sheet.

Account Group Current Year

Prior Year

Increase or Decrease(current year percent minus

prior year percent)

Current Assets 30% 28% +2%

Net Fixed Assets 57% 58% -1%

Intangible and Other Noncurrent Assets 13% 14% -1%

Total Assets 100% 100%

Current Liabilities 35% 32% +3%

Long-term Liabilities 27% 31% -4%

Common Stock 0% 0% 0%

Additional Paid in Capital 2% 2% 0%

Retained Earnings 36% 36% 0%

Other Equity Components 0% -1% 0%

Total Liabilities and Stockholders’ Equity

100% 100%

Example provided because of common student error in completing this report. All accounts groups divided by total assets, in dollars.

Account Group Current Year

Prior Year Increase or Decrease

Current Assets 40% 35% 5%

Net Fixed Assets 40% 45% -5%

Intangible and Other Noncurrent Assets 20% 20%

Total Assets 100% 100%

Current Liabilities 60% 50% 10%

Long-term Liabilities 10% 15% -5%

Common Stock 20% 20%

Additional Paid in Capital 5% 5%

Retained Earnings 5% 10% -5%

Other Equity Components

Total Liabilities and Stockholders’ Equity

100% 100%

18

Claudia Martins


Identify the three balance sheet groups from question 13 above that changed most significantly. Within each of these groups, identify the primary balance sheet element that drove this change. What events might explain these changes?

Group Name:

Current Assets

Explanation:

(Example – sales increased by 22%, thus accounts receivable increased by approximately 22%)

Current Liabilities Current Liabilies were increase by 3% from previous which is mostly due to the current portion of long term debt

Long term liabilities It decreased by 4% due to transfer of long term debt to current portion which is gioing to be due in next 12 months.

Net Fixed Assets It decreased by 1% due to depreciation for the current year.


Did your company become more or less liquid when comparing this year to last year?

Current Year:

Current Assets minus Current Liabilities =

-$11878 millions

Prior Year:

Current Assets minus Current Liabilities =

-$7325 millions

Explain why?

This year the current liability is more than the previous year which result in less liquidity as compared to previous year.


Did your company increase or decrease its financial leverage when comparing total debt to total stockholders’ equity from this year to last?

Current Year:

Total debt Total stockholders’ equity =

1.65

Prior Year:

Total debt Total stockholders’ equity =

1.7

Explain why:

Current year the leverage ratio is 1.65 which is lower as compared to previous year

19

Claudia Martins

because company has made some payments and reduce their long term debts. It shows that the company reduced the financial leverage by .05 times but not very significant.

20

Claudia Martins

The Income Statement or Statement of EarningsChapter 3: Income Statement – Question 1

Review the heading of your company’s income statement. Does the company’s income statement provide two or three years of comparative information? (Insert number to the right.)

3 yrs.

Why do you think the SEC requires that balance sheets provide two years of comparative financial information and income statements provide three years of comparative financial information?

The balance sheet for two years are given to find the comparison of financial position of two years, while the income statement is given for 3 years to find the trend of each item of income statement so future can be forecasted. As the income statement is the result of operation therefore the trend must be known to estimate future earnings of the company.

Chapter 3: Income Statement – Question 2

Review the middle section of your company’s income statement. Did operating income (loss) increase or decrease from the prior year and by how much? You may have to compute operating income (loss).

Increased by $1.2 billion Decreased by $Click here to enter text.


Does the middle section of your company’s income statement show a nonoperating income (loss) increase or decrease from the prior year and by how much? You may have to compute nonoperating income (loss).

Increased by $ .09 billion Decreased by $ Click here to enter text.


In reference to why you are studying this company, is it important to know the different sources of income—operating or nonoperating?

The income from operating is recurring nature while the income from non-operating is from non-recurring nature and it will help the investor to make the decision as he may have the correct information . The survival of the company depends on operating

21

Claudia Martins

income not on non operating income.


If any of the irregular events are shown on your company’s income statement, describe the nature and the amount. Select the most current year affected by the event if multiple years are affected.

Irregular Event Amount Nature of the Change

Restructuring charge? 0 Click here to enter text.

Discontinued operation? -67 In 2012 the company rcorded tax and interest expense of discontinued opertion

Extraordinary event? 0 Click here to enter text.


Review the lower section of your selected company’s income statement. Did net income (loss) increase or decrease from the prior year and by how much?

Increased by $ 1.3 billions Decreased by $ Click here to enter text.


Prepare a common-sized income statement for the categories below.

Account/Category Current Year


(current year percent minus prior year percent)

Net Sales (revenues) 100% 100%

Cost of Goods/Services (if applicable) (75 %) (75%) 0

Gross Profit 25% 25% 0

Operating Expenses (19%) (19%) 0

Operating Income (Loss) 6% 6% 0

Nonoperating Income (Loss) 0 0 0

Income Tax Expense (2%) 2% 0

Net Income 4% 4% 0

Example provided because of common student error in completing this report. All

22

Claudia Martins

account categories divided by net sales (revenue), in dollar.

Account/Category Current Year


Net Sales (revenues) 100% 100%

Cost of Goods/Services (if applicable) (35%) (36%) (1%)

cost of goods sold decrease

Gross Profit 65% 64% 1%

gross profit increase

Operating Expenses (25%) (23%) 2%

expenses increased

Operating Income (Loss) 40% 41% (1%)

operating income

decreased

Nonoperating Income (Loss) 5% 5%

Income Tax Expense (20 %) (17%) 3%

taxes increased

Net Income 25% 29% (4%)


Identify the three income statement accounts/categories that changed the most in Question 7. What events might explain these changes?

Account or Category:

Explanation:

(Hint – the MD&A section will provide good information to answer this question.)

Sales No item has changed significantly if look at question 7, but to answer this question the change in dollar has been made the criteria. The sales has increased from 447 billion to 469 billion it was due to increase in retail store feet of the business.

Cost of sale The cost of sale are increase by 5.19% due to the increase in sale as

23

Claudia Martins

compared to previous year, which shows that most of the cost of goods old of the company is variable cost.

Operating Expense

The operating expense has increased by $3.6 billion in 2013 as compared to previous year due to increase in total revenues.


Identify your company’s Basic and Diluted EPS amounts. Place a N/A in Diluted EPS if not reported.

Basic EPS Diluted EPS

Current year 5.04 5.02

Preceding year 1 4.54 4.52

Preceding year 2 4.48 4.47

Why is diluted EPS always equal to or less than basic EPS?

Because the diluted EPS is caluculated by dividing more number of shares as compared to the basic EPS due to some of the option which can be excercised in future

Statement of Cash Flows (SCF)Chapter 3: SCF – Question 1

Is the SCF dated in the title for a period of time similar to the income statement or for a point in time similar to the balance sheet? Why?

Yes because the cash flow statement has also been made for 12 months for which the financial reporting has been reported.

Chapter 3: SCF – Question 2

Identify the following sections of the SCF and record the amounts. Check the math by summing to the cash balance at end of year. Verify that the ending cash balance reported on the SCF is the same as reported on the balance sheet.

Section Current Year

Prior Year Second Prior Year

Net operating cash flows

All figures in $ in millions

25591

All figures in millions in $

24255


23643

24

Claudia Martins

Net investing cash flows -12611 -16609 -12193

Net financing cash flows -11972 -8458 12028

Net increase (decrease) in cash flows 1231 -845 -512

Cash balance at beginning of year 6550 7395 7907

Cash balance at end of year 7781 6550 7395

Does the total match balance sheet cash? Yes YesYes Yes


Record net sales, net income and net operating cash flows below. All three should be trending in approximately the same direction. If so, this is a sign of a well-run business. If one or more are going in a different direction, or random, then you must keep an eye open for an explanation why.

Item Current Year Prior Year Second Prior Year

Net Sales


466114


443854


418952

Net Income 17756 16387 16993

Net Operating Cash Flows

25591 24255 23643

Explain why net sales, net income and net operating cash flows are trending together or differently. (Hint: Look at depreciation expense and substantial changes in inventory, accounts receivable and accounts payable balances. Explaining why is a key learning point.)

The trend of net sales and net operating cash flow are the same due to increase in revenues, but the net income has different trned in 2012, it went down, it is due to depreciation expense which was on higher side in 2012 as compared to 2011 therefore the net income was lower but the net operating cash flow trend was increasing.


Identify the primary cash outflows and inflows from investing activities.

Description of Activity Amount

Cash outflow:

25

Claudia Martins

In $ in millions

(12898)

Cash inflow: 532

Consider three key issues at this point. Is the company adding assets? This is a sign of growth. Is the company replacing assets? This is a sign of growth and stability. Is the company only selling assets? This is a sign of retrenchment.

The company purchasing assets which can be seen the amount spend of 12898 on the purchasing of non current assets and company has also disposed of some old asset to the amount of 532. But the increase is more than the disposal which shows that company is growing.


Identify the primary cash inflow and outflow from financing activities.

Description of Activity Amount

Cash inflow:

All in millions in $

2754

Cash outflow: (Note: cash dividends paid are reported here.) -1478

Consider two key issues at this point. How is the company being financed, through debt or equity? Can you determine which is growing faster and why? A sound corporate strategy is to finance a company with debt during stable times, because this demands regular payment of principal and interest, and to finance a company with equity during unstable times, because leadership can elect to pay or not pay dividends.

The company is financed through equity because it long term debt has been decreased significantly and short term borrowings are increasing which indicates that for its operations is is using short term loans. Out of total assets 62% have been financed from debt and remaining 38% from equity. But as the company is doing well and has very strong financial position it will not create any problem for the company.

The Statement of Stockholders’ Equity (SSE)Chapter 3: SSE – Question 1

Identify the elements that comprise the statement of stockholders’ equity section of your company. Hint: These items are generally illustrated across the top of the page using a

26

Claudia Martins

columnar format. (Example. Common stock – shares and dollar amount.)

Common stock, capital in excess of par, retained earnings, accumulated other comprehensive income and nonredeemable noncontrolling interest.

Chapter 3: SSE – Question 2

Identify the cash dividends per share. $ 1.59

Determine the dividend payout percentage. A company’s dividend payout percentage is computed by dividing dividend per common share by net income or earnings per common share. (Hint: If your company reported a net loss for the year, the answer lacks meaning.)

32%

Compute dividend yield. A company’s dividend yield is computed by dividing dividend per common share by market price per common share. (Hint: Use the current per share price for your selected company.)

2%

Is your company’s dividend yield a reasonable return given current market conditions?

It seems to be on lower side but keeping in view the last five years average of 2.2%, it is okay. Another thing which is to be considerd that the investor invest in the common stock, not only for dividend but also for capital gain, so the total return on common stock comprises of dividend yield and capital gain, if the dividend yield is on lower side, it is expected that the capital gain will be on higher side.

Notes to the Financial StatementsChapter 3: Notes to the Financial Statements – Question 1

How does your company define “cash and cash equivalents”?

Are those investment which can be matured in three months of time period.

Chapter 3: Notes to the Financial Statements – Question 2

How does your company value its “inventories”? Explain the meaning of the inventory valuation method. Are domestic and international inventories valued thesame?Service companies will typically not have inventory.

The company uses Lifo methos to value it inventory and uses lower cost for the arrival

27

Claudia Martins

of final value of its inventories


Does your company report any investments in marketable securities? Identify the respective amount(s) invested.

Category Current Year Amount

Trading Securities 0

Available-for-Sale Securities 0

Held-to-Maturity Debt Securities 0


Note 1 and a separate note on income taxes should provide the information to answer this question.

What was your company’s income tax expense for the current year?

$ 7981 million

How much cash was paid for income taxes in the current year? (Hint: Review the SCF. The difference generally relates to the accrual basis of accounting.)

$ 7304 million

Identify the three major elements, such as depreciation or other post employment benefits, that gave rise to deferred tax assets or deferred tax liabilities:

Deferred Tax Assets Deferred Tax Liabilities

Loss and tax carry forwars Property, plant and equipment/Depreciation

Accrued liabilities Inventories

Share based compensation Other

What is this year’s effective tax rate for your company? What is the current year statutory rate?

Effective Tax Rate: %31

Statutory Tax Rate: %35


Reviewing note #1, any related supporting notes, and/or the 10-K, identify the fixed asset group(s), depreciation methods used, and the estimated useful lives of these fixed assets.

Fixed Asset Group Depreciation Method Estimated Lives (range)

28

Claudia Martins

Land NA NA

Building and Improvement Straight line method 3-40 years

Fixtures and equipment Straight line method 3-25 years

Transportation Equipment Straight line method 3-15 years

Goodwill NA NA


Review the balance sheet, note #1, and any related notes and identify the amount of goodwill reported in the current year.

Amount reported in current year. $ $20497 millions

Identify the amount of any significant write-down of goodwill that occurred during the current year.

$ $593 million

How does management describe how it accounts for goodwill as disclosed in the note(s) to the financial statements?

Goodwill is recorded excess of purchase price over the fair value of the assets purchased.


Given present executive compensation packages, why would the user of financial information prefer a company follow SFAS #123(R) instead of APBO #25? Explain.

Because under SFAS 123 R, stock option can be shown as expense at its fair value.


Review your company’s lease note (and related balance sheet information), then identify the following amounts:

Minimum lease payments under operating leases $16.8 billion

Minimum lease payments under capital leases $6.3 billion

Ratio of operating lease payments to capital lease payments

16.8/6.3 = 2.67 times

As a user of reported financial information, would you be concerned about a significant amount of operating leases that are not reported in the balance sheet? Explain.

29

Claudia Martins

It can not be shown in balance sheet under the heading of liability as the event has not occurred or the company has not any legal ownership of the assets, it is the promise or commitment by the company , therefore it is shown under notes to financial statements.


Review your company’s long-term debt note and identify the following (consider the three most significant liabilities only):

Instrument Maturity Date Rate Amount Due

Unsecured Debt Fixed US demominated

2014-2042 4.6% $32.5 billion

Unsecured Debt Fixed Sterling demominated

2031-2039 5.3% $5.6 billion

Unsecured Debt Fixed Yen denominated

2014-2021 1.4% $1.9 billion

How much interest expense was recognized in the current year?

$2.1 billion

How much cash was paid for interest in the current year? (Hint: Look in the SCF.*)

$2.3 billion

*The difference between interest expense and cash paid for interest is due to the accrual basis of accounting (and in some cases, the capitalization of interest).


Review your company’s pension and OPEB note (if applicable) and answer the following questions.

Pensions OPEB

How much is the Projected Benefit Obligation (PBO) and Accumulated Postretirement Benefit Obligation (APBO) for your company at the end of the current year?

$763 million NA

What was the amount of pension or OPEB benefits paid to plan participants during the current year?

$166 million $1 billion

30

Claudia Martins

What amount of cash did the company contribute to the respective funds during the current year? This is known as “employer contributions.”

$166 million $1 billion

What is the value of the plan assets at the end of the current year?

NA NA

Based on your review of the plan assets and the projected benefit obligation (or accumulated postretirement benefit obligation), has your company sufficiently funded its employee benefit plans (this is known as funded status)?

In year 2013 company has adjusted all underfunded plans in United Kingdom and Japan

An expected average return on invested plan assets is used to reduce the volatility in the reporting of pension or OPEB expense. Higher expected average returns reduce pension or OPEB expense, and lower expected returns increase pension expense. What rate of return on plan assets does your company use to compute pension or OPEB expense? Does this appear reasonable, given present market conditions?

Rate employed?NA Response:NA


Based on your review of the contingencies note, briefly identify specific events that have led to the accrual of contingent liabilities in your selected company’s the balance sheet.

The contingencies are against legal proceedings in various cases, such as wage and hour class action, gender discrimination class action, and harardous material investigation. The other is FCPA investigation and related matter. The consequences of this investigation might be negative..


Based on your review of the segment-reporting note to the financials, identify the reported operating segments, their related revenues, and operating income. Identify the largest three if more than three are disclosed.

Reportable Operating Segments

Net Sales Revenue Net Operating Income

Walmart US $274.5 billion $21.5 billion

31

Claudia Martins

Walmart International $135.2 billion $6.7 billion

Sam’s Club $56.4 billion $2 billion


Based on your review of the segment-reporting note to the financials, identify the geographical segments and their related revenues. Identify the largest three if more than three are disclosed.

Country Net Sales Revenue

US Operation $333 bilionNon US operation $136 billionClick here to enter text. Click here to enter text.

Chapter 3: Notes to the Financial Statements—Question 14

Based on your review of the notes to the financials or the statement of stockholders’ equity, identify the components (no more than four) that comprise Other Comprehensive Income for your company.

Component Amount

Currency Translation $ 1042 million

Derivative Instruments $ 136 million

Minimum Pension Liability ( $166 million)


32

Claudia Martins

CHAPTER 4 - FINANCIAL ANALYSISSummary Financial Analysis Report

Profit Margin %

Answers how well the business performed.

Company Two Years

Prior

Company One Year

PriorCompany Industry S&P 500

Gross Margin Gross Profit /

Total Revenue 25%25% 25% 21% NA

Pre-Tax Margin Operating Income

/ Total Revenue6% 6% 6% 3.3 % NA

Net Profit Margin Net Income /

Total Revenue

4%* 4%* 4% 3.% NA

Sales Financial Statement

$422 billion

$ 447 billion

$469 billion

Not required Not required

Operating Income Financial

Statement$25.5

billion$26.6

billion$ 27.8 billion


Operating Cash Flows

Financial Statement

$23.6 billion

$24.3 billion

$ 25.6 billion


Evaluate Profitability (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find increasing performance, above or below industry average. For a company with a stability strategic focus you will likely find stable performance, above or below industry average. For a company in a retrenchment strategic focus you will likely find poor performance, below industry average with efforts to improve and approach industry average. Note: Sales, operating income and operating cash flows should trend in approximately the same direction. This signals a stable operating business environment. If the three measures are not trending together, this signals lack of control by management.)

All profitability ratios and figures are showing consistency and healthy and growing figures. The gross profigt margin is around 25% in all three years and better by around 4% as compared to industrial average. The pre tax profit margin and net profit margin are 6% and 4% respectively and they both are better by around 3% and 1%, respectively as compared to industrial average. Due to non availability of data for S&P 500, the figures could not be compared.

33

Claudia Martins

Financial Condition

Signals ability to take on additional debt and liquidity.

Company Two Years

Prior

Company One Year

PriorCompany Industry S&P 500

Debt/ Equity Ratio

(Total Liabilities – Current Liabilities)

/ Total equity

NA* 1.7* 1.65 0.62 NA

Current Ratio Current assets /

Current liabilitiesNA 0.88 0.83 0.53 NA

Quick Ratio

(Cash and Short Term Investments

+ Short Term

Investments + Total Receivables,

Net) / Current Liabilities

NA 0.2 0.2 0.24 NA

Interest Coverage Data not readily

available

11.59* 11.57* 12.09 3.30 NA

Evaluate Financial Condition (often labeled liquidity and solvency analysis) (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find stable or slightly decreasing liquidity, above or below industry average. Debt to equity often is increasing in a growing company. For a company with a stability strategic focus you will likely find stable liquidity, above or below industry average. Debt to equity often is stable as well. For a company with a retrenchment strategic focus you will likely find poor liquidity, below industry average with efforts to improve and approach industry liquidity. Debt to equity often is decreasing in a company during retrenchment.)

The company has very high debt to equity ratio which is almost twice as compared to industrial average. But as the company is growing and able to pay off its all debts, these debt will increase the wealth of shareholders in future. The current ratio is less than 1, but it is better than industrial average. The quick ratio is very low and it is around 0.2 in both years. But is also near to industrial average. The comparison of industrial average suggests that the low current and quick ratio are not on lower side, but this type of industry do have low current and quick ratio. The interest coverage ratio is around 12 times in all three years and far better than industrial average of around 3 times. Overall financial condition is satisfactory.

34

Claudia Martins

Investment Return %

Signals performance for managers and owners.

Company Two Years

Prior

Company One Year Prior

Company Industry S&P 500

Return On Equity Net Income /

Total Equity

NA* 23 %* 23 % 3.25% NA

Return On Assets Net Income /

Total Assets

NA* 8.5 %* 8.7 % 2 % NA

Return On Equity

(5-Year Avg.)

Not required Not required Click here to enter

text.

Click here to enter

text.

Click here to enter

text.

Return On Assets

(5-Year Avg.)


text.

Click here to enter

text.

Click here to enter

text.

Evaluate Investment Return (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find increasing returns. For a company with a stability strategic focus you will likely find stable investment returns. For a company in a retrenchment strategic focus you will likely find poor and stable investment solvency, below industry average.)

The company has utilized its equity and total assets effectively in current and previous year. The ratio for 2 years prior could not be calculated as the balance sheet in 10-K report is only for two years. The effective utilization of assets and equity is evident from the fact that in both years, return on equity is around 23% and return on assets is around 9%. They both are far better than indusrial average. It means that the company has utilized its assets and equity better than industry.

35

Claudia Martins

Management EfficiencySignals how well the company was run by management.

Company Two Years

Prior

Company One Year Prior

Company Industry S&P 500

Income/Employee


text.

Click here to enter

text.

Click here to enter

text.Revenue/Employee


text.

Click here to enter

text.

Click here to enter

text.

Receivable Turnover

Total Revenue /Average Accounts Receivable - Trade, Net

NA 74.5 69 12 Click here to enter

text.

Average is defined: (beginning of the year + end of the year) / 2

Inventory Turnover

Cost of Revenue, Total / Average Total

Inventory

NA 8.23 8.05 13.4 Click here to enter

text.

Asset Turnover

Total Revenue / Average Total

Assets

NA 2.31 2.31 0.68 Click here to enter

text.Evaluate Management Efficiency (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find improving efficiency, above or below industry average. For a company with a stability strategic focus you will likely find stable efficiency, above or below industry average. For a company in a retrenchment strategic focus you will likely find poor efficiency, below industry average with efforts to improve and approach industry average.)

The receivable turnover has declined from around 75 times to 69 times in current year. It is due to increase in receivable was faster than increase in sales. But still it is far better than industrial average of 12 times. The inventory turnover has shown small decline in current year as compared to previous year. But it is the area of concern as it is around 4 times shorter than industrial average in both years. But it may be due the fact that the volume of Wal-Mart is quite extra ordinary which might have resulted in low inventory turnover. The total assets turnover of 2.31 in both years is far better than industrial average of 0.68 times. Overall management efficiency is satisfactory.

36

Claudia Martins

CHAPTER 5 - DECISION-MAKING PROCESSChapter 5: Decision-making Process – Question 1

Based upon your review, do the numbers support the company’s explicit strategic focus: a growth, stability or retrenchment focus? Why or why not?

Almost all the figures suggest that company is growing for last few years. It is evident from the increase in fixed assets, which resulted in increase in sales of 5% for the current year. The profitability ratios, the liquidity ratios, the investment return ratios and efficiency ratios suggest that company’s financial condition is quite healthy and expected to become more healthy in future. Some of the areas such as debt to equity and inventory turnover seems to be week at first sight, but keeping in view the size of company and volume of business, they are not troublesome.

Chapter 5: Decision-making Process – Question 2

Return to the first question in this project. Chapter 1: Identify Why You Selected This Company—Question 1

A) What is/are your motivation(s) or interest(s) in selecting this company?

B) What question(s) are you seeking to answer?

You were asked to explain why you were investigating this company’s annual report. You have likely uncovered numerous pieces of information, some with conflicting insight. This may involve both financial and nonfinancial information. In addition, you may have found certain information to be incomplete for decision-making purposes. This is real world analysis. Most business decisions are made with as much reliable information as possible, yet common to the decision-maker is a desire for more information.

Prepare a thorough, yet concise answer to your original questions A and B above. For example, would you work for this company, why or why not? Support your response with the information gathered throughout your annual report study.

The reason for selecting the company is its huge sales volume. The company is the largest in retail store industry. The company has utilized its resources in efficient and effective manner, which is evident from good return on assets and return on equity. The EPS of the company is arund $5 per share and dividend payout ratio is around 32%, which is quite attractive for investor. As all these facts will help in increasing the wealth of shareholders. The investment in fixed assets and low price policy suggest that the compay will grow further in future. The Board of Directors of company do have blend of education and experience, which will help in innovating new ideas for better future.

37

Claudia Martins

Chapter 5: Validate Your Conclusion – Question 1

The Altman Z-score is a predictive model created by Edward Altman in the 1960’s. The score combines and weights five financial ratios to estimate the likelihood of a company going bankrupt. The lower the Altman Z-score the higher the odds of bankruptcy. Research findings suggest the Z-score predicts 72 - 80% of corporate bankruptcies two years prior to the actual filing.

Z-score > than 3 = considered healthy

Z-score between 1.8 and 3 = considered a warning sign

Z-score < than 1.8 = could be headed for bankruptcy

Computing the Z-score for your company is very simple. Go to one of the Websites listed below and compute the Z-scores for the respective years identified below. Print out your results and turn them in with this workbook.

www.jaxworks.com/calc2a.htm

www.ironwoodadvisory.com/zscore.htm

Two Years Prior One Year Prior Current Year

Z-score NA 4.26 4.37

Z-score interpretation compared to the financial analysis. Does the Z-score agree or disagree with your analysis?

It definitely agress with the above analysis, the Altman Z score shows that the company has very healthy position and it is evident from the fact of growth in sales, net income, total assets and other financial metrics of the company.

Congratulations.

Now submit to your instructor your completed workbook per the instructions provided at the beginning of this document.

38