Wal-Mart Financial Analysis
The first item to analyze on the income statement is total revenue as it can help determine the overall sales of the company. Walmart’s total revenue consists of Net Sales from (Walmart US, Walmart International and Sam’s Club) along with membership and other income. For the fiscal year that ended 1/31/2015 to 1/31/2016 there was a decrease in net sales of 0.75%, while membership revenue for Sam’s Club increases by 2.75%. Walmart recognizes sales revenue, net of sales taxes and estimated sales returns. Walmart gift cards are not recognized as revenue until the card is redeemed and when the customer purchases merchandise using the gift card. Estimates of unredeemed gift cards are done and it recognizes revenue on the historical usage basis (page 227). ASC 606-10-55-48 (FASB website) introduces how an entity should recognize gift card based on breakage amount and revenue should only be recognized when the customer exercises their right to claim the goods. Membership revenue for the U.S. and International is recognized over the term of the membership 12 months, and deferred membership is included in accrued liabilities and membership revenue is included in membership and other income in the consolidated statements of income (page 227). ASC 606-10-55-5 (FASB website) relates to how nonrefundable upfront fees such as memberships should not be recognized right away until performance obligation is being satisfied. In terms of disclosure, Walmart provides thorough detail on how revenue is being recognized.
The second item to analyze is cost of sales because of the huge variety of products in its stores and this figure can help determine operating income. For the fiscal year that ended 1/31/16 and 1/31/15 there was a slight decrease in cost of sales of 1.12%. Cost of sales includes actual product cost, the cost of transportation to the company's distribution facilities, stores and clubs from suppliers, the cost of transportation from the Company's distribution facilities to the stores, clubs and customers and the cost of warehousing for the Sam's Club segment and import distribution centers. The company receives payments from suppliers for volume incentives, warehouse allowances, and reimbursements for specific programs such as markdowns, margin protection, advertising and supplier fixtures. Payments from suppliers are accounted for as a reduction of cost of sales and are recognized in the Company's Consolidated Statements of Income when the related inventory is sold, except when the payment is a reimbursement of specific, incremental and identifiable costs (p.228). ASC 705-20-25-3 (FASB website) relates to cash consideration in regards to how the entity can reduce cost of sales when they receive payment after selling the vendor’s products. Walmart does a great job disclosing its cost of sales and explaining its relation to its suppliers and vendors.
The third item to analyze is dividends per common share because it gives a chance to view Walmart as a positive company with strong business operations. Walmart is a relatively mature company and it doesn’t need to reinvest in itself, so that could be another reason why they don’t need to invest in themselves. For each fiscal year from 2014-2016, Walmart has increased its Dividends declared per common share from 1.88, 1.92, 1.96 (page 257). The income statement is not affected by the declaration and payment of cash dividends on common stock. Under ASC 505-20-30-03 (FASB website) introduces how accounting for a stock dividend should happen. Retained Earnings should be debited for fair value of shares while par value of shares and additional paid-in capital of the shares are credited. Evaluating Dividends per common share is important because it represents value to the shareholders and investors because they receive the value of the stock and dividends. In terms of disclosure, Walmart did a relatively great job of providing charts and explanations of when dividends would be paid.
In conclusion of the income statement, ASC Code 225-10-S99-2 (FASB website) references in regards to Regulation S-X and talks about how the income statement has various amounts of requirements that are necessary in order for it to be in a presentable manner to financial users.
The first item that is important to analyze on the balance sheet is Inventories. Inventory is important to analyze because Walmart/Sam’s Club have plenty of products in the retail stores and finding a way to value them is important. Inventories have decreased 1.5% from fiscal year that ended January 31, 2015 to January 31, 2016. Walmart uses the LIFO method for all of Walmart U.S. segment’s inventories, and Walmart International segment uses the FIFO method. The retail method of accounting results in inventory being valued at lower of cost of market