Company Analysis

Part 1

Wal-Mart is one of the world’s largest retail companies. It operates its business globally in order to help people around the world to save money and live better. It offers its products and services through retail stores, online and mobile devices. The company is located in different countries including USA, China, Brazil, China, Canada, UK, Japan, Mexico, Asia, Africa, Europe, North America, etc. (Wal-Mart Stores, Inc., 2012). The company has physical buildings with estimated useful lives of 3-40 years. The company shows the amount of building in the balance sheet under property and equipment, net head.


The first Wal-Mart store was opened in 1962 in Rogers, Arkansas. The business of Wal-Mart is the result of Sam Walton’s visionary leadership and different associates focused on helping customers and communities (Wal-Mart Stores, Inc., 2012). In the year 1969, the company officially incorporates as Wal-Mart Stores, Inc. After this, it becomes a publicly traded company on 1st October 1970. In the next year, the company opened its first distribution center in Bentonville, Ark. In 1972, it was listed on the New York Stock Exchange with ticker: WMT. In the year 1979, the Wal-Mart foundation was established. After this, Wal-Mart expands into business in the international market through a joint venture with Cifra in year 1991 (Annual Report 2012). Further, it expanded its market in Canada by purchasing Woolco stores in 1994 and also opened its first store in China in 1996. It entered in Japanese market in 2002 and also entered into Chile by acquiring a majority of stake in D&S S. A. In the year 2011, it surpasses 10,000 retail units around the world through the acquisition of Mass-Mart.


The company is currently involved in different litigations such as Braun/Hummel v. Wal-Mart Stores, Inc. case, Dukes v. Wal-Mart Stores, Inc. case and a part of hazardous materials investigations by the United States Attorney’s office (Annual Report 2012). These litigations are related to wage and hour class action, gender discrimination class action and a target of hazardous materials investigations. For instance, in 2005, the company has been informed by US Attorney’s office that it is a target of a criminal investigation due to the violations of the Resource Conservation and Recovery Act (RCRA). Management analysis shows that Wal-Mart operates its business in a highly competitive retail industry, in which it faces a tough competition from other department, drug, discount and variety and specialty stores and warehouse clubs and supermarkets. The net sales for the company increased 5.9% and 3.4% in the year 2012 and 2011 respectively over the previous year. The management discussed that the return on investment in the year 2012 decreased over last year, mainly due to additional investments in property, plant and equipment (Annual Report 2012). Additionally, management also described different risk factors such as market, interest, foreign currency risk, etc. which company exposed. It is estimated by the manager for the future that the company will add new stores, increase its international presence, improve operating income, enhance revenue and serve customers in an effective manner.


Part 2


Financial Condition of the Company


It is identified from ratio analysis that the net profit margin ratio of Wal-Mart is 3.63, 3.51 and 3.17 in the years 2013, 2012 and 2011 respectively (See Appendix). It shows that the net profit margin in 2013 improved to 0.46 points over the year 2011. Thus, it indicates that the profitability position of the company enhanced in this year over previous years (Porter & Norton, 2009). On the other hand, it is also analyzed that the debt to equity ratio for the company is 0.54, 0.66 and 0.64 in years 2013, 2012 and 2011 respectively (See Appendix). It shows that the long-term solvency of the company improved in the current year over previous years because the company has decreased the use of outside funds in the capital structure in the year 2013, which cause to decrease in this ratio. A low debt ratio is beneficial for the company, as it enhances the firm’s ability to raise additional funds from market (Gibson, 2010). For the reason, use of low debts in the capital structure provides sufficient safety margins to creditors due to use of more owners funds. Thus, it can be stated that Wal-Mart’s ability to pay its long-term obligation improved in the year 2013.


Apart from this, it is analyzed that the quick ratio of the company is lower than the ideal quick ratio, which is 1:1. The quick ratio of the company is 0.22, 0.23 and 0.27 during the year 2013-2011 respectively (See Appendix). A quick ratio of 0.22 indicates a poor short-term financial position of the company, as it has more current liabilities in comparison of current assets. It shows that the company is unable to meet its short-term financial obligations (Brigham & Ehrhardt, 2011). Additionally, the trend analysis on net income after interest and taxes shows that the net income increased by 8.28% in the year 2013 over the year 2012. At the same time, it is also analyzed that the net income as a percentage of sales increased in both years 2013 and 2012 over previous years. Therefore, it can be stated that the overall financial condition of the company is good, but at the same time it needs to improve the short-term solvency position.


Part 3


Reliability of Financial Statements


Reliability of financial statements can be analyzed on the basis of annual independent audit reports and certain provisions of laws and regulations (Increase Reliability of Financial Information). It is found that the consolidated financial statements and management’s report to company’s shareholders at Wal-Mart audit by independent registered public accounting firm. Internal control over financial reporting of the retail company have audited by the firm on the basis of criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework) (Annual Report 2012). Additionally, the audit is also in accordance with the standards of the Public Company Accounting Oversight Board (United States).


The auditing firm described that the company maintained in all material aspects an effective internal control over financial reporting for the fiscal year 2012 on the basis of COSO criteria. It also stated that all the financial statements are presented fairly and are also in conformity with U.S. generally accepted accounting principles. In contrary to this, the auditor firm audits the consolidated balance sheets of the company as of January 31, 2012 and 2011and related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows statement in these years on the basis of standards of Public Company Accounting Oversight Board (PCAOB) (United States). The report by auditor firm expressed an unqualified opinion thereon regarding these statements (Annual Report 2012).It shows that company’s financial statements are reliable from the stakeholders’ point of view, as they comply with COSO framework standards. But, at the same time, there is a need to enhance compliance of different consolidated financial statements to the standard of PCAOB US. The auditing firm stated that the management’s report to shareholders about the management’s assessment and conclusion regarding the effectiveness of internal control over financial reporting did not include the internal controls of Massmart Holdings Limited and Netto Food Stores Limited, which are included in the company’s 2010 consolidated financial statements (Annual Report 2012). It shows the unreliability of management’s report to shareholders. Therefore, the audited report suggested that there are some deficiencies in internal control over financial reporting in terms of management’s statements and in terms of compliance with PCAOB US.


Compliance of Financial Statements with the SEC Code of Ethics


According to SEC rules, it is necessary that annual reports must contain an “internal control report” describing management responsibility for the effectiveness of internal controls for financial reporting (United States general Accounting Office, 2002). In this concern, it is identified that the annual report presented by the company is as per SEC rules, as it includes a management assessment of the effectiveness of internal control of financial reporting. Additionally, the company has received the certificate from Securities and Exchange Commission (“SEC”) in regard to its consolidated financial statements for the year ended January 31, 2012, which shows the compliance of its financial statements in the SEC code of ethics (Annual Report 2012).


Along with this, it is also analyzed form company’s annual report that Wal-Mart is following a statement of ethics, which guide all the people at the firm to follow high ethical standards including integrity, honesty and compliance with different laws and regulations. It also maintains a different code of ethics for the senior financial officers of the company. It supports financial officers in preparing all financial statements as par SEC rules and regulation (Annual Report 2012). It is also identified that the company has a Related-Party Transaction Policy, under which Wal-Mart’s senior officers and directors and requires material related-party transactions are needed to be reviewed by the audit committee.The company has also an ethics helpline in place, through which associates can inform about any violations of financial and accounting matters to the company. All these help the company to prepare its financial statements with Full compliance with SEC rules and regulations. Additionally, an audit of a company’s financial statements by the audit committee including independent directors (independent registered public accounting firm, Ernst & Young LLP) also reflects the compliance of these statements with the SEC Code of Ethics (Annual Report 2012). Therefore, it can be discussed that Wal-Mart’s financial statements are in compliance with different SEC rules and regulations.




  • Annual Report (2012). Retrieved from
  • Brigham, E. F. & Ehrhardt, M. C. (2011). Financial Management: Theory and Practice. USA: Cengage Learning.
  • Gibson, C. H. (2010). Financial Reporting and Analysis: Using Financial Accounting Information. USA: Cengage Learning.
  • Increase Reliability of Financial Information (n.d). Retrieved from
  • Porter, G. A. & Norton, C. L. (2009). Using Financial Accounting Information: The Alternative to Dbits and Credits. USA: Cengage Learning.
  • United States general Accounting Office (2002). Financial statement restatements trends, market impacts, regulatory responses, and remaining challenges. USA: DIANE Publishing.
  • Wal-Mart Stores, Inc. (2012). Heritage. Retrieved from
  • Wal-Mart Stores, Inc. (2012). Our Locations. Retrieved from
  • Yahoo Finance (2013). Retrieved from
  • Yahoo Finance (2013). Retrieved from

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