Equity, Cash Flow, and Notes Analysis
Introduction
The success of a business entity depends on its ability to properly create, understand and analyze the financial statements. Financial statement analysis is important for understanding profitability and a firm's financial condition. These documents help a firm in many ways, such as in making better financial decision and creating a clearer picture to attract creditors and investors. In highlighting the financial numbers for Wal-Mart, Team A will address the owner¡¦s equity and the cash flow pieces of the business ending fiscal period January 31, 2004. Supportive explanatory notes will help in providing the analysis needed to understand the firm and to state our position in support
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The analysis of Wal-Mart includes:
X Retained earnings have increased steadily over the past three years from 29,984 to 37,576. This would be an increase of about 27%. Retained earnings are a measure of profitability of the business to date, less all dividends declared on all classes of stock. Success will be reflected in an increased stock price.
X Dividends paid to shareholders increased from $0.28 to $0.36 for a 27% increase. This is a sign of rational management. The company is returning money to shareholders that they cannot invest at above-average rates of return.
X Return on shareholders equity was 19.4 % in 2002, 20.9% in 2003 and currently 21.3% for 2004.
X Wal-Mart also purchased company stock. This affect the company¡¦s after-tax cost of borrowing, total capitalization targets and expected future cash needs.
X The number of outstanding shares of stock has decreased as a result of the company buying back stock.
X Stock options exercised by executives have increased by 50%.
X Net Income from continuing operations has increased from 6,448 to 8441. This represents an increase of 37%.
X There was also a pension liability adjustment in 2003.
Statement of Cash Flows
One of the hardest financial statements to read an interpret is the Statement of Cash Flows. This financial statement ¡§explains why cash changed during a fiscal period. Cash flows from operating, investing, and financing activities are shown¡¨
There are large and small businesses all across the country, with many different public and private accounting firms that handle their accounts. Many of these businesses are raking in millions and millions of dollars a year. Wal-Mart is one of them. We will be exploring Wal-Mart and how it came about as a business, along with examining their balance sheets, income statement, and the cash flow statement. We will also be taking a look at what Wal-Mart’s current revenues are over the annual reporting periods, and who handles their accounting process.
Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.
share increased an average of 27% per year. This remarkable increase in earnings did not go
Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity.
The return on equity (ROE) has also shown an increase in 2009 over the previous year suggesting a successful investment by shareholders. This increase, coupled with the fact that the basic earnings per share (EPS) has increased significantly from 61.78 cents in 2008 to 88.26 cents in 2009 (143%) shows great improvement in the profit per share. Please note that the basic EPS has been used in this analysis as the diluted EPS includes employee options (JBH Annual Report, 2009), skewing and reducing the value of the EPS.
$10,644,800 / $2,271,400 = 4.69 Times Return on Common Stockholders’ Equity (2002) $647,645 / $1,928,960 = 33.58% Return
After analyzing Wal-Mart’s annual report for 2010, attention has been brought to several items that require closer examination. A common “red flag” to questionable accounting has been found within Wal-Mart’s statement of cash flows and income statement. There is an increasing gap between the company’s reported income and the cash flow from operating activities. In the year 2008 reported income and cash flow from operating activities differed by $484 million. However the difference increased a considerable $2,249 and $4,183 billion in the years 2009 and 2010 respectively. This increasing gap is a significant warning sign that the company may be changing accrual estimates.
The organization that I have chosen for the purpose of this corporate finance analysis is Wal-Mart. As is well known, Wal-Mart is the global market leader of
During this period, the Return on Assets increased from 5.7% in 2012 to 34.6% in 2013. This implies the number of cents earned on each dollar of assets increased from 2012 to 2013. This shows that the business has become more profitable. Equally, the Return on Equity also increased from 12.0% in 2012 to 46.5% in 2013. This similarly implies that the company in 2013 was more efficient in generating income from new investment. This, also can be attributed to the sale of the Digital Business Brand which enabled the company appraise its strategic plan.
The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).
Net income totaled $97.8 million in 1984, an increase of 5% from 1983.when looking at the Consolidated Balance Sheet (Exhibit2), we found that the total assets grew 15% to $2.7 billion at the end of fiscal 1984 due to addition of real estate inventories as part of the acquisition of another company. The ratio of debt to total capitalization jumped to 43% at 1984 from 20% at previous year.
Retained earnings are profits generated by a company that are not distributed to shareholders as dividends but are either reinvested into the business or kept as a reserve for specific objectives these being to pay off debt or purchase a capital asset. As you can see in Humbros statement of financial position under capital and reserves they have retained earnings at 9,100 in 2011 and 10,500 in year 2012 this has shown an increase which means there is more capital available for growth and higher returns on investments and shareholder equity.
Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation
Financial Statements basically show the historical performance or record of the company at some previous point of time. By the time when financial statements are made public, changes are many economical areas such as market conditions, currency exchange rate and inflations can change the values of assets and liabilities. In this case there often exist discrepancies between book value of assets and their market values.