ACC 561 Week 3 American Corporation Analysis

ACC 561 Week 3 American Corporation Analysis

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American Corporation Analysis

The reasoning behind financial analysis is to give a better perspective about the financial structure and profitability position of the corporation. Such corporations as Wal-Mart Incorporated benefit considerably from a financial analysis because it assists in determining the durability in handling sales, assets, and debts. Wal-Mart was established in 1962 by Sam Walton in Rogers, Arkansas; by 1967 24 stores were open with a $12.7 million sales revenue. In 1970, the corporation became a publicly traded company with stocks at $16.50 per share. Ten years later Sam Walton reached $1 billion in sales annually, beating out other major competitors. In 1990, Wal-Mart was the number one retailer nationally, and continued its success by going international. Today, Wal-Mart employs 2.2 million associates in North America and internationally, serving over 200 million customers weekly at more than 11,000 stores.

Horizontal Analysis

After completing the horizontal analysis of Wal-Mart’s consolidated balance sheets for the years of 2011 and 2012, several elements stand out with significant variances. For example, Wal-Mart’s cash and equivalents decreased by 11% while total assets increased by 7%. Prepaid expenses saw a significant decrease of 43% in 2012 which could indicate better cost control and current asset utilization. The red flag item on the balance sheet is short-term borrowing, which saw an increase of $292 in 2012; this could indicate a significant short-term financing of operating expenses. Accrued income taxes in 2012 also increased by 641% that raises the questions in regards to income tax declaration practices by the corporation (See Appendix A).

The consolidated statement of income horizontal analysis also showed several items with significant variances over two years, these elements were: interest income (decrease of 19%), deferred income taxes (increase 37%), and loss from discontinued operations net of tax (decrease 106%). Other elements such as net sales and diluted income per common share saw an increase of 5.9% and 8.6% respectively.  Collectively, the data shows there were significant operational changes from 2011 to 2012 resulting in significant variances on the financial statements from discontinued operations. Overall Wal-Mart's key elements such as sales, expenses, and asset growth are on a marginal increase (See Appendix A).

Positive or Negative

Wal-Mart’s annual report indicated economic changes for indicated risks and losses. The report states, “Any one, or a combination, of these risks, factors and uncertainties could materially affect our financial performance, our results of operations, including our sales, earnings per share or comparable store sales or comparable club sales and effective tax rate for any period, business operations, business strategy, plans, goals or objectives,” (Walmart 10K Report, p. 3).

With discussing negative or positive changes, income tax increase appears to have a negative impact on the net earnings because of activities within the global enterprise. Initially, the net income tax was positive, and the accrued income taxes continue to increase year to year. Adjustments to reconcile income from continuing operations to net cash has a forward moving impact to deferred income taxes. "The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the income in the period that includes the enactment date," (Walmart 10K Report, p. 61).

As aforementioned, marginally the numbers for 2011 and 2012 denotes a positive movement toward sale increases within the local, and global stores for both Wal-Mart and Sam’s Club stores. However, if the company is unable to obtain control over the growing increase of income tax, it will influence the company’s ability toward further growth in market.