Annual report for Walmart

Annual Report Project Guidelines

To begin assessing the quality of a company’s financial statements, think specifically about:

1. The types of underlying transactions and events that effect the company,

2. How well the financial accounting model (i.e. generally accepted accounting principals “GAAP”) reflects those transactions and events

3. The aggressiveness or conservatism or management’s account choices,

4. How well the annual report helps you assess the company’s risks, financial position, earnings, etc.

Listed below are common questions to address in your project.

Financial Ratios

Calculate each of the basic following financial statement ratios for each of the last two years. Is there a trend? If there are other ratios that you believe apply to your company, include those ratios also. Please be sure to provide the details of your computations.

Stockholder Profitability:

Earning per share (EPS)

Price/earnings ratio (P/E)

Profitability:

Gross profit margin

Return on total assets

Profit Margin

Return on stockholders’ equity (ROE)

Liquidity:

Current ratio

Quick or acid test ratio

Cash flow from operations to sales

Stability:

Debt ratio

Times interest earned

Book value per common share

Unusual events

Describe all significant unusual or nonrecurring items during any of the fiscal years. How significant was the impact on the earnings? Did these items have a significant effect on the profitability ratios? Are these items likely to occur again in the future? Why or why not?

Transaction and Recognition Methods

Describe the company’s revenue transaction and recognition methods. Are the timing or cash receipts from customers different than the timing of revenue recognition? Are there any uncertainties about the collectibles of customer receivables? What is the likelihood of significant product returns by customers? Trends in bad debt allowances? Business risks associated with estimates? Concentrations of revenues to one business or industry? Footnote disclosures that are of concern?

Inventory

Describe inventory and related costs. What types of inventory are included in the balance sheet? Working in process, finished inventory? Identify inventory valuation methods and are they reasonable for this type of business? Effect on balance sheet if inventory method changed or if business showed down.

Property

Describe the major types of property, plant and equipment (PP&E). What depreciation methods are used and are they current (life of the asset?). Are these assets undervalued or overvalued on the balance sheet? The nature of the company’s assets. Effects on the balance sheet if these assets were carried by a different deprecation method. Do you agree with management’s deprecation method? Should it be changed? Can it be changed? Business risk’s associated with the company’s assets. Should there be a more aggressive or less aggressive write down of impaired assets?

Intangibles

What are the major types of intangibles? Are all of them on the balance sheet? What does research and development, advertising or other types of intangibles look like?

Collateral

Are any of the company’s assets pledged as collateral? If they are, please explain, if they are not, why not? If they are is the company in compliance with its covenants?

Contingencies

What are the company’s contingencies and commitments? Any off balance sheet leases? How does the company accrue for its liabilities? Any significant litigation? What is your opinion of management? Use of estimates in contingent liabilities? What would be the impact if the company were unsuccessful in defending claims against it?

Warranty Liabilities

Are product warranty liabilities are overstated or understated? Does the company have product warranties? Does it have insurance against a claim? Warranty Costs? And are they accounted for?

Pension plans

Describe the types of pension plans and other post-employment plans. Are the plans over-funded or under-funded? Any liabilities from the pension fund not stated? Or potential asset’s in pension fund?

Taxes

What is the company’s effective tax rate? Major sources of deferred income assets or liabilities? Some analysts believe deferred taxes should be omitted from the company’s balance sheet. What impact would this have on your company?

Assets and Liabilities

What are the company’s current assets and current liabilities? Have you done a ratio analysis and if so what is your opinion of management’s use of its current assets and liabilities?

Cash Flow

What are the company’s major sources and uses of cash? What are the company’s operating cash flows?

Balance Sheet Analysis

What does the balance sheet tell you? Is the company managing its assets and liabilities? What would you do differently? Even if this is a large or publicly traded company, management may not be running it correctly.

Market Value/Book Value

Compare the market value of the stock with its book value. What does this comparison suggest about the accounting valuation of the assets and liabilities?

Income Statement Analysis

Do the reported revenues and expenses appear to fairly represent the results of the revenue producing activities and are the costs associated with those activities? Why or why not? Be sure to consider your earlier evaluation of management accounting practices.

Your written report should demonstrate that you have a complete understanding of the issues you discuss. It is essential that your report be thorough.

Read, review and analyze your company and determine what needs and should be reviewed. Ask brokerage firms for their analyst’s reports and check the Internet for any analyst of your company. Explain whether it is reasonable for an item to apply to your company. If an item does not apply to your company, you should state so explicitly.

Make sure your notes on the financial statements provide adequate and understandable information about the accounting policies, assumptions, risks and transactions.

Finally, your report should contain professional terminology as well as proper grammar and spelling. Please don’t CUT and PASTE from web sites or annual reports.