There are 1 documents upload with 2 classmate on this document that I need a response for. Each response is a 100 words. Please read the guide response for the requirement. You have to response to each person on each on the document not just one.
Week 1 – Discussion Forum
Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
For week’s discussion, I’ve decided to look at Walmart’s annual reports to find its current and profit margin ratio for the last two years. To find the current ratio, you must divide the current assets by the current liabilities.
2019 – 61,897 / 77,477 = .80 to 1
2020 – 61,806 / 77,790 = .79 to 1
While this may seem like an extra step, the absolute dollar amount is flawed in what it reflects because what is a significant amount of capital for one company may not be to a mom and pop store. Also, the absolute dollar doesn’t account for progression or regression within a company. Therefore, while three million was a lot of capital at the beginning stages of a company, now that it’s established, it may not be enough to satisfy the companies needs today. Our text explains that “In general, the higher the current ratio, the more liquid the company” (Porter & Norton, 2018, p. 20). Walmart may not have a 3 to 1 ratio, but that doesn’t mean they are doing poorly within the market. When trying to gain an accurate representation of how well/poor Walmart is doing, compare them to its rivals to get an idea of Walmart’s market competitors.
To figure Walmart’s profit margin, you divide net income by sales.
2019 – 514,405 / 6,670 = 13%
2020 – 523,964 / 13,881 = 26%
With that said, Walmart’s profit margin has doubled since last year. For every $1.00 sold at Walmart, they earn 26 cents of profit. Both numbers tell different stores of the financial health of the company. The current ratio may not be as higher than a 1 to 1 ratio, but that doesn’t mean Walmart can’t pay its short term debts, a ratio like this can be standard for this market. The profit margin increased drastically over the last year, which can be an indicator of future growth.
After reading the Management Discussion and Analysis, it seems like they want the chance to explain noticeable changes in primary factors of the annual statement. Next, it acknowledges what Walmart considers comparable sales, and what it doesn’t, and how currency exchange rates are converted from one country’s currency to the U.S. dollar to ensure the money is the same for all.
The Auditor’s Report explains that they oversee the reporting of the financial information and regularly check in on Walmart’s monetary policies, procedures, and rules. The paragraph also describes how they are independent and report objectively. Finally, the auditors meet often with and without Walmart’s management present to discuss financial statements.
My overall assessment of Walmart after doing a quick review is it’s financially sound. Their profit margins have doubled since last year and have grown steadily over the previous years. They are well established and sell a variety of goods which makes it essential to customers. They have expanded internationally, and have the money, power, and staffing to continue to grow.
Porter, G., & Norton, C. (2018).
Using financial accounting information: The alternative to debits and credits
(10th ed.). Retrieved from
https://www.cengage.com (Links to an external site.)
Walmart, Inc. (2020). 2019 Annual Report. https://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx
Amazon is an e-commerce company with a global presence. Determining its Current Ratio (CR) and Profit Margin Ratio (PMR) will help in understanding the liquidity and profitability of the company, respectively (Porter & Norton, 2018). First, the CR is a ratio of current assets to current liabilities and informs one whether the company can fulfill its obligations.
If the current ratio is high, then the liquidity of the company is also high. Generally, a rate of two to one is often accepted as indicating that the company is in good health. In some industries, a higher ratio, such as three to one or a lower ratio, such as that of almost one to one as is the case of Amazon, is necessary for survival (Porter & Norton, 2018). For instance, a company can operate with a lower current ratio if its inventories and accounts receivable amounts are not significant. If a company has a large value of current assets, the ratio will be higher. Second, the PMR is the ratio of net income to net revenues or sales, as calculated below.
When the ratio is high, it indicates the company is managing its expenses well. Therefore, while it is minimizing the costs, it is also generating revenue. When the PMR decreases, it might indicate the company is facing a challenge in controlling particular costs. In 2018, the PMR percentage was 4.325%, which means that 4.325% of every sale went to profit while the rest went to expenses (Bishnoi & Devi, 2017). In 2019, the decrease in PMR was insignificant, as it stood at 4.131%. It is because of the company’s focus on long-term growth through reinvestment as opposed to short-term profit, as depicted below (Richter, 2020).
Based on the 2019 report, the management acknowledges their inventory risk is significant due to the nature of their business. The restricted cash balances, which stood at 321 million dollars in 2019 and 426 million dollars in 2018, negatively affect liquidity that explains the low CR ratio (Amazon, n.d.). Therefore, the inventory risk can significantly affect the operating result of the company. Besides, according to management, the company has significant amounts of investments and expenses that are fixed and always pegged on the sales. If the sales are not adequate, it becomes difficult for the company to adjust its spending quickly. As a result, the company uses good controls to ensure the PMR remains relatively constant, translating into long-term growth.
The audit on the latest annual report of the company relied upon in this paper was done by an independent and registered public accounting firm known as Ernst & Young LLP. According to the firm, the company’s financial position is fairly reported per the United States principles of accounting (Amazon, n.d.). The firm adhered to the Public Company Accounting Oversight Board of US set standards while arriving at this opinion. Therefore, the CR and PMR ratios used in this paper fairly represent the position of Amazon.
Please see attached images
Amazon. (n.d.). Annual reports, proxies and shareholder letters. Amazon.com, Inc. – Overview.
https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.aspx (Links to an external site.)
Bishnoi, T. R., & Devi, S. (2017). Profitability. Banking Reforms in India, 165-185.
https://doi.org/10.1007/978-3-319-55663-5_6 (Links to an external site.)
Porter, G. A., & Norton, C. L. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Cengage Learning.
Richter, F. (2020, February 3). Infographic: Amazon’s impressive long-term growth.