Financial Report for Walmart, Essay Example

Wal-Mart uses many sources of finance in order to perpetuate its growth. It combines tactics including the use of short-term borrowings, long-term debt, and the company share program to manage its cash flows. According to the 2014 fiscal report, the company’s short-term borrowings increased $911 million. The previous year, there was an increase of $2.8 billion, indicating that the total amount of short-term borrowings have decreased significantly. This funding has been used for several purposes, including the ability to fund “operations, dividend payments, share repurchases, capital expenditures and for other cash requirements and corporate purposes as needed” (Wal-Mart, 2014).

Six instances of long-term debt was required by the company during the fiscal year 2013-2014. Four loans were taken out on April 11, 2013 and two loans were taken out on October 2, 2013. The proceeds from these loans are approximated to be $6.7 billion, and have been used to pay off or refinance already existing debt and to promote the expansion of the company. While this was the bulk of long-term debt accrued by the organization, there is approximately $0.4 billion worth of funds that have been accrued from other sources as well. However, this borrowing was not reported in detail because it is negligible compared to the prices of the other loans. Overall, it can be said that the company procured approximately $7 billion in long-term loans.

The company share program helps Wal-Mart employees gain shares in the company in a manner that both funds the company’s projects and allows workers to take pride in knowing that they own a portion of the organization. Ultimately, the company offers employee stock as a part of their employee payment plan, and workers can agree to set aside a certain portion of their paychecks to buy stock. Therefore, this purchasing works directly and any stock can be immediately considered a part of their personal assets after their paychecks are issued. As a consequence, Wal-Mart continuously earns money from these investments on behalf of their employees in addition to interested shareholders that do not have any affiliation with the organization in order to help it enhance its business practices.

The company aims to achieve a growth of its sales by “increase its operating income at a faster rate than the growth in net sales by growing its operating, selling, general and administrative expenses (“operating expenses”) at a slower rate than the growth of its net sales” (Wal-Mart, 2014). A related concept is that the company depends on a return on investment and an effective management of working capital through cash flow. The working capital deficits were $8.2 billion at January 31, 2014 and $11.9 billion at January 31, 2013. Therefore, it is clear that the company employs a large working capital in order to achieve its business goals.

While it is necessary for large businesses to have a large working capital in order to make profit, as it is important for businesses to spend money in order to make money, it is important to consider that the amount of working capital utilized should reduce over time. The company has appeared to have accomplished this goal between the 2013 and 2014 fiscal years, and it would be beneficial for it to continue to do so over time. Since Wal-Mart is a large company, it has been using this working capital it order to make many expansions and to refine its ability to do business by optimizing shipping routes and other practices. However, this working capital currently seems too large to be necessary for Wal-Mart’s 2014 to 2015 operations. Since the company has a lot of net profit, it would be important to start using these funds to compensate for some of the working capital being used.

Ultimately, having a high degree of working capital during this phase of business is detrimental because it causes the profits of the company to be misleading and its accounting needs to become more complex. While the organization is not investing in excess of assets, it currently has a high working capital ratio and would benefit from reducing this. This should occur slowly over time so that the company will be able to complete its current projects before needing to determine how to reduce this excess.

The company does not have a particularly high exposure to risk. While there are risks involved in their daily operations and there are market risks due to “changes in interest rates and fluctuations in currency exchange rates” due to the company’s involvement in international markets, the company takes many actions to minimize these risks. Of particular importance is the fact that the company has a presence in many different parts of the world under several different company names. As a result of this widespread presence, the company has essentially diversified its risks. If the economy of a particular country crashes therefore, and Wal-Mart makes negative profit in this area, this profit loss is highly likely to be compensated as a consequence of the economics strength of another area. This effect also helps protect against currency exchange rates.

In order to optimize their practices, Wal-Mart regularly conducts risk projections to determine potential risk both in sense of their individual operations and market changes. No other assumptions are made in this model, even though the organization is aware that other variables could come into play in terms of risk. However, since Wal-Mart has concluded that these are the two most important factors of risk for their company, there is no great need to include these other variables in their risk calculations.

According to the company, interest rates poses a major risk because they have many short-term and long-term investments. A part of this interest is hedged “by managing the mix of fixed and variable rate debt” (Wal-Mart, 2014). Furthermore, interest rate swaps were entered and a comprehensive list of values that could be impacted by the changing economic climate have been listed for analysis to ensure that these changes could be reasonably tracked, and interventions could be applied as they occur. The information that is tracked for this purpose includes short-term borrowings, as noted by their variable rates and weighted-average interest rates. Long-term debt is summarized in terms of the fixed rate and associated weighted-average interest rate in addition to the variable rate and the associated weighted-average interest rate. Interest rate derivatives are described in terms of interest rate swaps, and summarized as variable to fixed, weighted-average pay rate, and weighted-average receive weight. Overall, it appears that the company is successful in managing its risk, as it is able to beneficially conduct the risk projections and to determine reasonable interventions for these issues prior to their occurrence.

While Wal-Mart is constantly expanding, its primary focus on corporate restructuring activities is related to its presence on the Internet. Since the company is a multinational organization, restructuring is necessary in order to enhance the communication between corporate centers around the world. Furthermore, computerized systems are needed to optimize business practices. Of particular concern is the company’s ability to deliver its products to different parts of the world in a time efficient manner. Therefore, complex shipping routes have been developed to help deliver items to warehouses and store locations in a manner that would allow their delivery to be achieved in the quickest and cheapest manner. Restructuring activities are constantly needed to accomplish this because the cheapest and quickest options may constantly change. Furthermore, different components of the company must communicate effectively throughout the process in order to ensure that these processes are successful.

The organization has not taken on any subsidiary companies recently, although this is an approach it has taken in the past. However, there is no need to do this because Wal-Mart has already cornered its market in most parts of the world. Overall, it can be said that the company’s strategies have been successful, as it has learned from trial and error over the past several decades. It is possible that the company would consider more significant restructuring in the future if it deems that these practices would be beneficial. However, it appears that Wal-Mart is currently enjoying the stability it has worked to gain over the past several decades and that it will make no significant changes unless it feels threatened and determines that it will be necessary to do so.

References

Wal-Mart. (2014). 2014 Annual Report. Retrieved from http://stock.walmart.com/files/doc_financials/2014/Annual/2014-annual-report.pdf