Wal-Mart Financial Statement Analysis

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The Paul Merage School of Business at UC Irvine | Financial Statement Analysis & Reporting: Earnings Quality and Asset Analysis | Company - WALMART |

Kian BolooriHee Jun ChungDaejune Min |

1. Qualitative Analysis for the environment and the company (1) INDUSTRY ANALYSIS

Walmart is in the discount retailer industry. This industry started in the 1950s, grew in the 1960s, and matured in the 1970s. With exception to a moderate growth period in the 1990s, the industry had remained stagnant since the 1970s. Today, three major players in the industry are Walmart, Target and Costco. The state of the discount retail industry is best understood through the Porter’s Five Forces analysis.

* Competition: HIGH
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For example, Walmart has partnered with companies in South Africa, China, and Brazil in order to expand into those markets. These opportunities have already proven profitable and continue to be a focus for the major discount retail firms.


Walmart’s business strategy is to keep costs low and pass the savings down to the customers. Walmart accomplishes this strategy through several means. First, Walmart cuts costs in its procurement channels. Walmart cuts out the manufacturers’ representatives and works with suppliers directly. In doing so, Walmart saves 3-4% on costs. Also, Walmart is able to use its IT networks to make sure the company orders the right about of inventory from suppliers so that the Walmart stores experience neither overstock nor stock-out. Second, Walmart keeps its labor costs low. Walmart maintains a frugal culture for all employees. For example, executives at the company are prohibited from accepting meals and gifts from third parties. Additionally, Walmart provides store workers with wages and benefits that are below those given by competitors. Third, Walmart invests in ways to cut distribution costs. For example, Walmart mastered the large-scale “cross-docking” to transfer merchandise directly from inbound trucks to store-bound trucks without storing the good in its distribution centers. Through these innovations, Walmart has been able to save 3-4% on
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