Question

WRITTEN PROJECT for Walmart as a company!

1. Obtain the most recent annual report for two companies that operate in similar industries. The reports should contain at least three years of income statement data and two years of balance sheet data.

2. Analyze at least 3 (three) items on the income statement for your base company that would be important to an investor, and discuss whether your company's performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer.

3. Analyze at least 3 (three) items on the balance sheet for your base company that would be important to an investor, and discuss whether your company's performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer.

4. Analyze your base company's investing and financing activities for the most recent year as identified in the statement of cash flows, specifically identifying the two largest investing activities and the two largest financing activities. Discuss whether you agree or disagree with the investing and financing strategies that your company appears to be employing.

5. Identify 2 (two) items not included in (or derived from) the financial statements that you think would be important to someone considering whether to invest in your company. Discuss your reasons for believing that these two items about the company would be important in making an investment decision.

6. Compare your base company's financial statements with those of the second company. If were making a decision to invest in one of the two companies, which company would you choose? Why? (Note: your answer in this section must include some financial issues, but your answer need not be limited to a discussion of financial issues.)

Answer 1

I have choosen Walmart and Costco companies for analysis, these two are from Retail industry.

Below are the snapshots and source links of Walmart and Costco Income Statements.

Walmart Source : http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx

CostcoSource : https://www.sec.gov/Archives/edgar/data/909832/000090983217000014/cost10k90317.htm#s2B2726A2F9236B4C13516A0B7C073944

Below are the snapshots of Walmart and Costco Balance Sheets.

2. The 3 items on the income statement for Costco, which is important to an investor are,

a. Revenue growth rate

b. Operating Income growth rate

c. Earnings(Diluted EPS) growth rate

Though Walmart is bigger player in the industry, Costco's Revenue, Operating Income and EPS growth rate was far better then the Walmart since 2014 through 2017.

- Revenues of Costco grown 11% during 2014 to 2017, during the same period Walmart revenues grew by 0%

- Operating Income of Costco grown 13.4% during 2014 to 2017, during the same period Walmart operating income grew by -16.1%

- Diluted EPS of Costco grown 13.2% during 2014 to 2017, during the same period Walmart operating income grew by -13.3%

From the above analysis it is clear that Costco performance is improveing year by year, where as Walmart performance is deteriorating.

3. The 3 items on the balance sheet of Costco that would be important to an investor are,

a. Improvement in cash position

b. Improvement in receivables

c. Long Term Debt Levels

Costco Balance sheet had more improvement in the Cash holding and Receivables net, where as Walmart has reduced there long term debt levels vs increase in Costco's.

- Cash & equivalents of Costco was 3379 Millions in 2016 and 4546 Millions in 2017, but Walmart's Cash & equivalents? decreased from 8705 Millions in 2016 to 6867 Millions in 2017.

- Receivables of Costco was 1252 Millions in 2016 and 1432 Millions in 2017, in Walmart's receivables there was little change from 5624 Millions in 2016 to 5835 Millions in 2017.

- Long term debt of Costco was grown from 4061 M to 6573 M, where as Walmart debt decreased from 38214 M to 36015 M.

Though Costco's raise in long term debt vs Walmart's repayment is a worry, it can be justified from the revenue growth rates (expansion or addittion to Property & Plant in cashflow of 2502M, which is high from previous years) where as Walmart investments were are negative from previous years, which is a concern for Walmart investors.

4. The two largest Financing activities of Costsco are Issuance of Long term debt (Inflow) 3782 M and Cash Dividend Payments (Outflow) 3904 M. Two largest Investing activities of Costco are Addittions to Property & Equipment (Outflow) 2502 M and Sale of Short term investments (Inflow) 1385 M. I agree with the largest items both Investing and financing activities numbers because all those are related to expansion of businnes, dividend payment to share holders.

5. The two items which are not included in the financial statements are

- Revenue per square foot

- Revenue from pravite label goods

The above two are very important to investors because, Revenue per square foot lets you know the efficiency of the retailer and Margins in the private label goods are very high compare to the branded goods so it is interesting to know the trend in private label goods for future margins.

6. After comparing the above two companies financials (Costco & Walmart), I choose to invest in the Costco.

Below are the reasons,

- Walmart's revenues are huge when we compared to Costco but revenue growth rates and earnings growth rates are negative, where as growth numbers of costco are positive and very attractive.

- Walmart is a matured company, its expansion is limited and its number of new stores opening are reducing year by year. Costco's is expanding very fast compared to walmart.