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Essay about Equity, Cash Flow, And Notes Analysis

Decent Essays
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¡¨
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