ACC 610 Final Project_Tiana Batiz

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Tiana Batiz SOUTHERN NEW HAMPSHIRE UNIVERSITY | 11/05/2017 Wal-Mart FINAL PROJECT

I. Conceptual Framework The conceptual framework, created by the FASB, was designed to establish a foundation of related concepts, principles, objectives, and definitions that will result in high-quality and consistent accounting standards (Wahlen, J., Jones, J., Pagach, D., 2016). The conceptual framework does not change existing GAAP policies or establish new accounting standards, but it guides the establishment of new standards (FASB, 2017) The conceptual framework and GAAP in disclosing financial information and how to appropriately measure the values for Walmart are the standards that accountants must follow when creating financial reports for Walmart, they must follow the standards established by GAAP. An American company, as Walmart must follow the American guidelines in accounting. Walmart must use the values set forth by GAAP, disclose all information required by GAAP so that external parties have relevant and authentically representational information. The conceptual framework connects why we create financial reports as to how we implement them. Walmart is a publically traded company, failure to comply with the standards set by the FASB and the principles of GAAP, could have them face very harsh consequences from the SEC, which is the Securities Exchange and Commission, their investors and creditors. Creditors are may be a bank, supplier or person that has provided credit to a company. In other words, a company owes money to its creditors. The amounts owed to creditors are reported on the company's balance sheet as liabilities. (accountingcoach.com) Creditors are owed money which was borrowed from Walmart and the debts owed are reported on the balance sheet as liabilities. Creditors are most interested in receiving their money back, therefore they will be observing Walmart’s income statements to see how well the company has performed over the years, how much cash is on hand, and the company’s current assets. Occasionally creditors 1

would be interested in your statement of cash flows as this could show them a lot about the P&L of the company. II. Analysis of Financial Statements For my second milestone, I am asked to write an analysis of Financial Statements. First, I am asked to discuss the financial ratios for Walmart within 2016 and 2017, as of fiscal year ended January 31st. Second, I am to discuss my analysis of the financial reports regarding the cash for 2016 and 2017. Third, I must analyze the changes in the financial reports in reference to the account balances for all of the permanent accounts other than cash. Then, I will describe the valuation method that Walmart uses and explain why it uses that valuation method. Finally, I am to predict how Walmart will perform in 2018 compared to its competitors. I would like to start by discussing the ratios which I feel are important when looking into a company’s financials. The ratios of importance are the liquidity ratios: current ratios, quick ratios and operating cash flow ratios. Liquidity is a company’s ability to pay their debts as they become due. The ratios are used to calculate a measure of liquidity for companies. When examining the current ratio, if the number is above 1.0 this means that the company has more short-term assets than short-term debts. Walmart’s current ratio for 2017 is .86. This ratio is lower than Walmart’s 2016 current ratio, which means the company has accrued more debt than they can pay right away. This leaves Walmart vulnerable to any “bump” economic or business wise. The next ratio to take a look at is Walmart’s quick ratio. The quick ratio measures the company’s ability to meet current liabilities from assets that can be readily sold. Walmart has a quick ratio of .22. This shows that for every $1 of current liabilities, Walmart has 22 cents of 2

liquid assets available. This number is lower than it has been in previous years, 2016’s quick ratio was .24. So seeing that the quick ratio for 2017 is lower than 1.0, Walmart does not have the ability to use their quick assets to extinguish its current liabilities immediately. The final ratio to look at is the operating cash flow ratio. Operating cash flow refers to the amount of cash a company generates from the revenues that it brings in, excluding costs associated with long-term investment on capital items or investments in security. This ratio gives a look at a company’s ability to service their current debt from their current income, rather than through asset sales. Walmart has a ratio of .10 for 2017. This ratio shows that Walmart generates less cash in the period than it needs in order to pay their short-term liabilities. The ratios for 2015 and 2016 were both higher than the 2017 ratio, but it has been decreasing since 2015. This could signify that Walmart’s financial health is not good as recent years and that they could potentially be in trouble in a short-term view. In conclusion, to milestone two, I am to perform a financial analysis of the above information. I need to consider the liquidity reports being assessed, it’s good to look at the financial reports for Walmart as well for 2017. When conducting a financial analysis one must assess the viability, stability, and profitability of a business and in Walmart’s case the profitability the sub-business that Walmart allows to work with them. With the following being said after my analysis of the quick and operating cash flow ratio I can predict that Walmart will be ever growing and increasing its profits. I say this with confidence because Walmart is constantly developing and updating its stores whether it be adding different departments such as auto center, supercenters, fresh grocery sections and/or a wider variety of vendors which they do business with. Walmart’s main competitor such as Target is very close in a range in regards to the ratios but if Walmart keeps up with its never-ending advantages such as growing market and 3

ever growing advances in productivity and material then they will have no issues with staying number one within the retail industry. III. GAAP vs. IFRS Within Milestone I, I am to discuss the steps that would be needed for my portfolio company which is, Wal-Mart, the steps that I am going to discuss will be for the transition from GAAP (Generally Accepted Accounting Principal) to IFRS (International Financial Reporting Standards). Second, I would proceed to explain the differentiation between the financial statements under IFRS and GAAP. Finally, how would the statements for Wal-Mart look like. In order to discuss the two and the transition from GAAP to IFRS one should understand the basis of each. GAAP is rule-based and concentrates on research, and IFRS is principle-based, and focuses on the total patterns. The reason why these two concepts are necessary to understand is because there are a particular set of rules that must be followed under GAAP, whereas IFRS as long as its financials are the same tax-related situations there’s allowed to be a lot of different interpretations of the transactions. IFRS was developed by the IASB (International Accounting Standards Board), which is prospering as the global standard of public company financial statements. GAAP fall under FASB (Financials Accounting Standards Board) which are recognized by the SEC (Securities Exchange Commission). In order for Wal-Mart to transition from GAAP to IFRS the steps they would need to take would be to conduct plenty of research on the financial statements they currently have and research on how those financial statements would change after the transition. Wal-Mart would need to do an ample amount of research in order to determine how much they really do need to adjust in regards to interpreting transactions and making sure all of the transactions are 4

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