Answer all the questions

MBA-520 | Integrative Case – Wal-Mart | BakerWalmart is a very large chain of retail stores selling consumer goods. As it states in its Form 10K for fiscal 2015: Wal-Mart Stores, Inc. (‘‘Walmart,’’ the ‘‘Company’’ or ‘‘we’’) helps people
around the world save money and live better—anytime and anywhere—in retail stores or
through our e-commerce and mobile capabilities. Through innovation, we are striving to create
a customer-centric experience that seamlessly integrates digital and physical shopping. Physical
retail encompasses our brick and mortar presence in each market where we operate. Digital
retail is comprised of our e-commerce websites and mobile commerce applications. Each week,
we serve nearly 260 million customers who visit our over 11,500 stores under 63 banners in 28
countries and e-commerce websites in 11 countries.
Our strategy is to lead on price, differentiate on access, be competitive on assortment and
deliver a great experience. Leading on price is designed to earn the trust of our customers every
day by providing a broad assortment of quality merchandise and services at everyday low prices
(‘‘EDLP’’). EDLP is our pricing philosophy under which we price items at a low price every day so
our customers trust that our prices will not change under frequent promotional activity. Price
leadership is core to who we are. Everyday low cost (‘‘EDLC’’) is our commitment to control
expenses so those cost savings can be passed along to our customers. Our digital and physical
presence provides customers access to our broad assortment anytime and anywhere. We strive
to give our customers and members a great digital and physical shopping experience.
For more detailed discussion of Walmart’s stores, products, customers, and business model,
visit the company’s website: www.corporate.walmart.com.
Exhibit 1.19 presents comparative balance sheets, Exhibit 1.20 presents comparative income
statements, and Exhibit 1.21 presents comparative statements of cash flows for Walmart for
the three fiscal years ending January 31, 2014, 2015, and 2016. Walmart prepares its financial
statements in accordance with U.S. GAAP. For more detail on Walmart financial statements, or
to download the fiscal 2015 Form 10-K, you can visit Walmart’s investor relations page:
www.stock.walmart.com/investors/default.aspx.
REQUIRED
Industry and Strategy Analysis
a. Apply Porter’s five forces framework to the retail industry.
b. How would you characterize the strategy of Walmart? How does Walmart create value
for its customers? What critical risk and success factors must Walmart manage?
Balance Sheet
c. Describe how ‘‘cash’’ differs from ‘‘cash equivalents.’’
d. What are Walmart’s two largest assets on the balance sheet (in dollar amounts)? How
do these assets reflect Walmart’s strategy?
e. Walmart reports accounts receivable net of an allowance for uncollectible accounts.
Why? Identify the events or transactions that cause accounts receivable to increase and
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
1
MBA-520 | Integrative Case – Wal-Mart | Baker
decrease. Also identify the events or transactions that cause the allowance account to
increase and decrease.
f. How does accumulated depreciation on the balance sheet differ from depreciation
expense on the income statement?
g. What is Walmart’s largest current liability in dollar amount? What does it represent?
h. What is Walmart’s largest liability in dollar amount? In what types of assets did Walmart
likely invest this financing?
i. What does Walmart report in accumulated other comprehensive income (loss)? What
does this amount represent? When, if ever, will these gains and losses appear in net
income?
Income Statement
j. What type of transaction gives rise to the primary source of Walmart’s revenues? At the
end of each fiscal year, what does Walmart have to estimate to measure total (net)
revenues for the fiscal year?
k. What types of expenses does Walmart likely include in (1) cost of goods sold and (2)
selling, general, and administrative expenses?
l. Walmart reports interest expense that is much larger than interest income. Why?
Statement of Cash Flows
m. Why does net income differ from the amount of cash flow from operating activities?
n. Why does Walmart add the amount of depreciation and amortization expense to net
income when computing cash flow from operating activities?
o. Why does Walmart show increases in inventory as subtractions when computing cash
flow from operations?
p. Why does Walmart show increases in accounts payable as additions when computing
cash flow from operations?
q. What was the single largest use of cash by Walmart during this three-year period? How
does that use of cash reflect Walmart’s business strategy?
r. What was Walmart’s single largest use of cash for financing activities during this threeyear period? What does that imply about Walmart’s financial position and
performance?
Relations between Financial Statements
s. Prepare an analysis that explains the change in retained earnings from $85,777 million
at the end of fiscal 2014 to $90,021 million at the end of fiscal 2015. Do not be alarmed
if your reconciliation is close to, but does not exactly equal, the $90,021 million ending
balance.
Interpreting Financial Statement Relations
Exhibit 1.22 presents common-size and percentage change balance sheets and Exhibit 1.23
presents common-size and percentage change income statements for Walmart for fiscal years
ended January 31, 2014, 2015, and 2106. The percentage change statements report the annual
percentage change in each account from fiscal 2013 to 2014, and from fiscal 2014 to 2015.
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
2
MBA-520 | Integrative Case – Wal-Mart | Baker
t. The percentage changes in prepaid expenses and other current assets jumped up 16.5%
in fiscal 2014 and then fell by 35.2% in fiscal 2015. Did the changes in the dollar amounts
of this account have a huge impact on total assets (see Exhibit 1.22)? Explain.
u. During this three-year period, how did the proportion of total liabilities change relative
to the proportion of shareholders’ equity? What does this imply about changes in Walmart’s leverage?
v. How did net income as a percentage of total revenues change from fiscal 2013 to fiscal
2015? Identify the most important reasons for this change.
w. Does Walmart generate high or low profit margins? How do Walmart’s profit margins
relate to the company’s strategy?
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
3
MBA-520 | Integrative Case – Wal-Mart | Baker
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
4
MBA-520 | Integrative Case – Wal-Mart | Baker
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
5
MBA-520 | Integrative Case – Wal-Mart | Baker
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
6
MBA-520 | Integrative Case – Wal-Mart | Baker
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
7
MBA-520 | Integrative Case – Wal-Mart | Baker
Adapted From: Wahlen, Financial Reporting, Financial Statement Analysis and Valuation, 9th Edition;
Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation
8

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