Based the information in your table and in the annual report, evaluate the status of Wal-Mart on each of these ratios. What would you conclude based on the information above i

Using Financial Statements.html

Using Financial Statements

The financial statements show the company's operations and results in financial terms. Accountants create these financial statements each accounting period to present the current results of company operations. These financial statements are used internally and externally. These are the four primary financial statements:

• Income statement: describes a company's revenues and expenses along with the resulting net income or loss over a period. (Net income occurs when revenues exceed expenses. Net loss occurs when expenses exceed revenues.) Uses: Used to determine a company's profitability

• Balance sheet: describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time. Uses: Assesses whether the company has enough assets to cover any outstanding liabilities.

• Statement of cash flows: identifies cash inflows (receipts) and cash outflows (payments) over a defined period of time. Uses: Used by creditors to determine whether a company is liquid or not, because the statement tracks inflows and outflows for operating, investing, and financing activities

• Statement of stockholders' equity: explains changes in equity from net income (or loss) and from owner investment and withdrawals over a defined period of time. Uses: Breaks down a company's capital and ownership accounts

Which Statement is Most Important?

Income Statement

Many people consider the income statement the most important of the four financial reports, because it conveys whether a business achieved its profitability goal; in other words, whether the company earned an acceptable level of income or beat the targeted goal. Sometimes, this is referred to as "making your numbers."

Balance Sheet

The balance sheet is frequently viewed as runner-up to the income statement in terms of importance. However, this statement shows the company's financial status at a specific date and indicates how effectively assets are being managed to generate returns. This report is unique in that it presents a view of a business as a holder of resources (assets) that are equal to the claims against those assets. The claims consist of the company's liabilities and the owner’s equity in the company. At all times, the balance sheet must reflect that assets = liabilities + owner’s equity. This is why they call it a balance sheet, because the basic accounting equation must be balanced, and the balance sheet depicts this relationship.

Statement of Cash Flows

The statement of cash flows focuses mainly on a company's liquidity versus a company's profitability or financial position. Cash flows are nothing more than the inflows and outflows of cash in and out of a company. The statement of cash flows illustrates the cash produced by business operations during an accounting period, as well as vital investing and financial activities that occurred during the same period. Keep in mind that this statement uses the cash basis method of accounting. Most corporations use accrual based accounting, so the statement of cash flows may be the only place you can determine the current cash situation.

Statement of Owners’ Equity

Finally, the statement of owners' equity portrays the changes in owners' equity over an accounting period. Typically, net income/loss is added/subtracted from the beginning retained earnings balance. Any withdrawals or dividends that were paid are deducted from this total to determine the ending capital balance.

Keep in mind: Financial statements and account names for real companies are not necessarily structured and organized identically

Financial Ratio Analysis.html

Financial Ratio Analysis

When calculating a ratio, you have data at a point in time. To access the financial health of a company, you need to compare the ratio over time, with similar companies, or with an industry average.

Some describe trend or time-series analysis as horizontal, and cross-sectional analysis as vertical. There are two useful measures to look at the changes in the ratios. These are the percent change and the percent difference.

The percent change formula looks at the change between the most recent ratio, Y2, and the ratio in the previous period, Y1, over the ratio in the previous period.

% Change = (Ratio2 – Ratio1) / Ratio1

The percent difference formula compares the difference between the company ratio, C, and the industry ratio, I, over the ratio of the industry.

% Difference = (Ratio Company – Ratio Industry) / Ratio Industry

For example, suppose your current ratio was 3 this year and 2 last year. Then, the percent change is:

% Change = 3–2 / 2 = 1/2 = 50% Change

The current ratio is the current assets over current liabilities. Thus, the liquidity of the firm has improved by 50%.

Further, let’s say that the industry current ratio is 2.9. The percent difference is:

% Change = 3 – 2.9 / 2 = 0.1 / 2.9 = .0034 = 0.34%

Which means the liquidity of the firm is not much different from the industry.

Critical thinking is the fundamental skill required for success in the MBA program. The key to true critical thinking is to put aside personal views (our biases) and adopt an impersonal and rational view and to understand how we are thinking. Critical thinkers take charge of the thinking process. In taking charge of the thinking process, you question your own and other's assumptions, motivations, and perspectives. You are skeptical of evidence and insist on multiple points of view being brought to bear. Critical thinkers examine the context as well as the content of the problem or decision and explore alternative explanations and solutions before tentatively selecting one, while remaining open to others.

A short article at Emerald Insight, titled "The ability to think critically is a key skill for academic success," offers excellent insights

Developing critical thinking

If you just told yourself, "I don't have time to read that and I already know how to think critically," you have just fallen victim to at least two of the barriers to critical thinking—patience and arrogance—and maybe egocentric thinking and social conditioning as well. To be a critical thinker – keep an open mind, investigate thoroughly, use multiple viewpoints, and be curious.

The Financial Statements.html

The Financial Statements

A complete set of financial statements includes the income statement, balance sheet, statement of cash flows, and notes to the financial statements. There are many different elements that you will use in preparation of the financial statements. The list is as follows:

• Assets
• Liabilities
• Equity
• Investments by owners
• Distributions to owners
• Comprehensive income
• Revenues
• Expenses

To understand the equation itself, you first need to understand the different categories and what goes into them: Assets are resources controlled by a business. These are items that are of value to the business. Examples include: cash, accounts receivable, inventory, supplies, prepaid expenses, buildings, land, equipment, vehicles, patents, copyrights, goodwill, and others. Liabilities are claims by a creditor or other party on the company’s resources. Basically this is the debt of the company and includes any items that they might owe for. Examples include: accounts payable, notes payable, wages payable, interest payable, taxes payable, bonds payable, and others. Owners' Equity is contributions to the business made by owners as well as any profits that have been kept inside of the company. Examples include: capital stock and retained earnings which are the most common accounts. Revenues and Expenses are accounts that are closed into retained earnings after the fiscal year, and so also indirectly affect the owners’ equity account.

The Accounting Equation

Accounting is built on the foundation that everything must balance and equal out to show that we have recognized events correctly. The accounting equation is the foundation that accounting is built on:

Assets = Liabilities + Owners' Equity

What this means is that if we have an increase on one side of this equation then we need to either have a decrease on the same side or an increase on the other side to keep this in balance. You will see assets categorized into current and noncurrent assets; liabilities will be current and noncurrent liabilities. Equity will include contributed capital and retained earnings. This enables companies to prepare a classified balance sheet showing subtotals in each category.

The Balance Sheet

The balance sheet is a record of the assets, liabilities, and owners’ equity of a company as of a point in time. The Assets need to = the Liabilities + Owners’ Equity totals.