Introduction to Financial Statements
Financial accounting statements are important indicators of the performance of a given business. They indicate the extent to which the company has achieved its financial objectives as outlined in the strategic plans. Zimmerman (2010) highlights the important link between business operations and transactions. According to Zimmerman (2010), these two elements have a direct impact on financial accounting statements. The organization’s performance and its fiscal position make up the financial accounting statements. Zimmerman (2010) identifies four main types of accounting statements. They include the balance sheet, income statement, cash flow statement, and statement of changes in equity (Zimmerman 2010).
In this paper, the author will analyze Wal-Mart’s latest financial statements. To this end, the author will assess how the company’s statements are affected by its business operations and transactions. In addition, the fiscal information will be used to resolve problems identified within the firm’s financial framework. Finally, the importance of ethics in business operations in relation to Wal-Mart will be reviewed.
An Analysis of Wal-Mart’s Financial Statements
According to Zimmerman (2010), the growth or decline of a business can be seen in the figures represented in the company’s financial statements. Wal-Mart Stores Incorporated is no exception. Its performance in the market can be gauged using the fiscal returns reported by the management. Wal-Mart is one of the fortune 500 companies in the world (Wal-Mart annual report, 2013). Its performance in the period ending 2013 illustrates a positive growth in profits (Wal-Mart annual report 2013). Zimmerman (2010) points out that when there is growth in business, a corresponding surge in the income statements is apparent. In addition, changes in the market climate affect the status of the financial accounting statements. For instance, Wal-Mart Stores Incorporated adopted a number of strategies to allow for the growth in profits, as illustrated in the fiscal reports. Such a move is reflected in the changes made in the equity of a given company.
The dynamic nature of business is experienced on a global scale. What this means is that the world market is not a static phenomenon. It changes on a regular basis, depending on prevailing conditions. A good example of the effects of economic fluctuations on the performance of a company is seen in the case of Wal-Mart Stores Incorporated. In this instance, changes in the American economy were regarded as major factors behind the growth of the company (Wal-Mart annual report 2013).
Zimmerman (2010) affirms that changes in the global economy affect business transactions and operations. With regard to business operations, an organization is forced to adjust its fiscal policies to respond to the said dynamics. Wal-Mart’s 2013 financial report indicates that the company made changes to its cash flow statements to ensure that growth is realized. Consequently, the financial accounting systems of a company are seen as dependent on the core operations of the organization.
Resolving Problems within a Financial Framework
Issues associated with the financial framework of a company can be addressed using the entity’s fiscal and accounting information. In the case of Wal-Mart, return on investment (ROI), return on net assets (RONA), and residual income will be used to highlight the various fiscal issues.
Return on Investment
As far as the financial statements of a company are concerned, return on investment enables the accountant and other stakeholders to appreciate the performance of an organization in a comprehensive manner. According to Zimmerman (2010), ROI evaluates the efficiency of a given investment undertaken by a firm. To this end, financial statements need to outline the actual return associated with a given investment and the initial cost incurred in acquiring the same.
Wal-Mart Stores’ 2013 financial report indicates a decline in ROI between 2012 and 2013. Based on the figures presented in the report, 2012’s ROI stood at 18.6%. The figure dropped slightly to 18.2% in 2013. Zimmerman (2010) is of the view that the return on investment is computed based on the acquisitions made by a company over a given period of time. The prevailing exchange rates are also taken into consideration when determining this figure. In light of the figures given above in relation to Wal-Mart, it is apparent that ROI is seen as a problem in the company’s financial framework. The problem can be resolved once all the constituent elements are factored in during the calculations.
Wal-Mart’s Return on Net Assets
Return on Net Assets (RONA) is another financial ratio that enables one to evaluate the financial performance of a given organization. The ratio is also regarded as a problem within the financial framework of an entity. Zimmerman (2010) argues that RONA is obtained based on three main factors. Net income, fixed assets, and networking capital are seen as the constituent elements of a firm’s RONA. In light of this, the ratio is arrived at by obtaining the sum total of fixed assets and the networking capital. A quotient of the net income and the sum mentioned gives rise to the RONA of an organization.
An analysis of Wal-Mart’s RONA between 2012 and 2013 shows a slight gain in this figure. The figure is an indication that the returns made on the company’s assets increased within this period (Wal-Mart annual report 2013).
Ethical Standards of Running a Business
The growth of a business entity is affected by a number of ethical standards. According to Zimmerman (2010), effective management of a company requires the stakeholders to take into consideration a number of ethical issues. The most common ethical element is honesty. To this end, Zimmerman (2010) argues that it is important for the company to be sincere in its communications and actions. The running of a business requires the managers to disseminate accurate information to stakeholders, such as investors. Honesty requires these professionals to give a precise account of the company’s core operations. Wal-Mart tries to achieve this ethical objective by contracting the services of external auditors, who are involved in the generation of the company’s financial statements.
Integrity is the second ethical component that business executives require to address. Zimmerman (2010) points out that this is a personal initiative that individual members of an organization ought to employ. A business should be operated on principles that are not affected by external pressures. For instance, integrity manifests itself when managers fight attempts to inflate figures to indicate the growth of a business. Wal-Mart managers adhere to this provision by making sure that they provide the right information to the investors.
Conclusion
In addition to honesty and integrity, managers need to be loyal to the shareholders. Loyalty is particularly important in the service industry. To this end, the manager should ensure that they meet the expectations of their clients by avoiding deceit. Wal-Mart has maintained a loyal base of consumers, which helps in maintaining the financial performance of the company.
References
Wal-Mart annual report 2013, Web.
Zimmerman, 2010, Accounting for decision making and control, 7th edn, McGraw-Hill, London.