Walmart Financial Analysis Essay

Income Statement
Examination
Cost of Goods Sold:
Over the period of 2002-2005, Cost of Goods Sold (COGS) as a percentage of sales decreased from 78% to 76%. The constant COGS explains that Wal-Mart has settled with the over 4 million deliveries to each store they make each year. With such a constant rate over a 4 year period, Wal-Mart has not found any new technique that has lessened the cost of transporting their goods from assembly line to shelf.
Gross Profit:
Gross profit is the difference between sales and cost of goods sold. Over the period of
2002-2005, gross profit has increased from 21% of sales to 23% of sales. Because both net sales and COGS have risen proportionally, gross profit has not fluctuated.
Operating Expenses:
Wal-Mart includes Depreciation and Amortization in its Operating Expenses for purposes of reporting on the Income Statement. Operating expenses have grown from 16% to 17% of sales from 2002-2005.
Because of the mass revenue that Wal-Mart generates, operating expenses will be a small percentage of sales. Although Wal-Mart has numerous expenses, their revenue will always dwarf their expenditures. One of the main reasons for Wal-Mart continued success in the retail industry can be summed up in the fact that their expenses are only 17% of sales. That generates a high expense turnover.
Depreciation and Amortization:
Over the last 4 years, depreciation and amortization has increased 9.25% each year.
Depreciation and amortization for financial statement purposes are provided on the straight-line method over the estimated useful lives of the various assets. The useful lives of equipment at Wal-Mart are 5-50 years. This growth of depreciation expenses shows how much Wal-Mart is growing. Every year, Wal-Mart adds new stores, including 296 in 2006. This number will add to the over 2,500 discount stores and 2,000 supercenters.
Interest Expense:
Another great characteristic of Wal-Mart is their interest expense. In 2002, Wal-Mart had an interest expense of $1.3 billion. In 2005, Wal-Mart had an interest expense of zero. Although this is not an indication that Wal-Mart has no debt, it does indicate
that they are above in the industry average in the amount owed on Long Term Liabilities and
Current Liabilities.
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Operating Margin:
Operating Income has stayed at 5% of sales in the last 4 years. Because Wal-Mart’s sales have steadily grown at an average of 9% each year, operating income has stayed consistent. This consistency explains how efficient Wal-Mart is. Efficient companies create an advantage over their competition. That is how Wal-Mart has succeeded for so long. Net Income:
After having a 20% increase in net income in 2003, Wal-Mart leveled out, averaging an
11% increase in sales each year since. By maintaining a low COGS, Wal-Mart was able to keep depreciation at a low amount and an increases gross profit.