Financial Performance Management Assignment Sample

Pages: 20 Words: 4922

Introduction:

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This report will be described the financial performance of the company. The main purpose of this report is to give an understanding of evaluating the financial performance of the company. In this report measure the financial performance of Walmart Company of the year 2019 and 2020 through calculating financial ratios of company. The financial performance of Walmart also compares with the closest competitor that is Costco Company. Walmart has many discount grocery and departmental stores. This company is providing a quality product at a cheaper rate. Costco Company also runs wholesale stores. They provide products wholesale at cheaper rates. Both companies are American. The financial performance of both companies will be analyzed by calculating financial ratios like Current ratios, debt-equity ratios, inventory turnover ratio, assets turnover ratio, interest coverage ratio, net margin ratio, return on equity, return on assets, and operating profit ratio. A balanced scorecard of the company will be constructed in this report. A balanced scorecard helps in measuring the performance of the business by using both the non-financial and financial data of the company. There are four perspectives of the balanced scorecard – Financial perspectives, Customer perspectives, internal process, and growth perspectives. According to these perspectives will discuss objectives, measures, targets, and initiatives of the company. Critically analyze the challenges and benefits of adopting the integrated reporting in Walmart in this report.

Financial Performance:

Walmart:

Walmart is an American company. It is founded in 1962 and the founder of this company is Sam Walton. Headquartered of Walmart is in Bentonville, Arkansas. This company is famous for having discount grocery stores, departmental stores all over the world. The company provides products at cheaper prices and customers can buy through an online platform or can buy through retail stores. The slogan of Walmart is to save money. The pricing philosophy of this company is EDLP (Everyday low price) which means the company provides products at lower prices. The commitment of company is (EDLC) Everyday low cost, which means controlling the expenses (Walmart.com, 2018)

Costco is also an American company and it is the biggest competitor of Walmart. Costco Company is founded in 1983 and the founders of company are Jeffrey H. Brotman and James Sinegal. Headquartered of Costco is in Issaquah, Washington, US. The company operates a chain of retail stores (big-box). They provide products at wholesale and at the cheapest price to the members which means who have a membership. The strategy of company is to provide good quality products to their members at lower prices Merchandise they offer is: Fresh foods, soft-liners, Ancillary, Hardliners, food & sundries.

The criteria of identifying the competitor are business of company as both companies are operating the chains of retail stores. Other criteria are products as both companies sell the same kind of products in various countries. The third criterion is strategy. Both companies have a strategy to provide quality products at a cheaper price (Costco Wholesale Corporation, 2021)

Evaluation of the financial performance of Companies: ($million)

Ratio Analysis:

Current Ratio: Current ratio indicates the liquidity position of the company. The idle current ratio is 2:1 which means current assets should be double of current liabilities.

As per the comparison of the current ratio between both the companies it is founded that the liquidity position of Costco company is a little better than Walmart. The liabilities of Walmart Company is lesser than current assets, which shows that company is not able to fulfill their short-term obligations. Current ratio of Walmart is 0.79 in both years 2019 and 2020. It indicates that Current liability is more than current assets. Current ratio of Costco Company is 1.01 in 2019 and 1.13 in 2020, which means the liquidity position of Costco is better in 2020 than in 2019. (Nufus et al, 2020)

Debt- Equity ratio: This ratio indicates the contribution of shareholders and creditors in the company. The idle ratio is 1:1.5 which means financing from equity should be 1.5 more than debt financing. As per the analysis of both company debt-equity ratios. The debt-equity ratio of both the company is higher than idle ratio, which means both companies is financing more from the debt.

Interest coverage ratio: This ratio indicates that how many times an organization can cover the interest expenses from its operating income. Therefore, the interest coverage ratio of Costco Company is more than Walmart in both the years, which means Costco can cover more interest expenses from operating income than Walmart.

Inventory turnover ratio: This ratio indicates that how many times a company sold and purchase its inventory at a particular time. A high inventory turnover ratio means high sales and the company reorders its stock frequently and vice-versa. So Costco's inventory turnover ratio is high in both years as compared to Walmart.

Asset turnover ratio: This ratio indicates that how efficiently a company using its assets for generating revenue. Asset turnover ratio of Walmart in 2019 was 2.32 and in 2020 were 2.19, which means a company not using their assets efficiently in 2020. Costco's asset turnover ratio is 2019 was 3.28 and in 2020 were 2.93. Costco Company also not used its assets efficiently in 2020. (Alimohammadlou & Bonyani, 2018)

Return on Asset ratio: This ratio indicates that how efficiently a company converts its investment amount into income. If there is a higher, ROA, which means the company, is generating higher revenue and vice-versa. Walmart’s ROA in 2019 was 3% and in 2020 was 6.3%, which means Walmart has earned more from their investment in 2020. Costco’s ROA in 2019 was 8% and in 2020 were 7.2%, which states that the company generated less income from their assets in 2020.

Net Margin ratio: This ratio indicates that how much net income earned a company from its net sales. If there is a high net profit margin, which means the company earns a high profit and vice-versa. The net margin of Walmart in 2019 was 1.3% and in 2020 were 2.8%, which depicts that the company, is earning more profit in 2020. The net margin of Costco in 2019 was 2.4% and the same in 2020. Therefore, Costco has earned the same profit in 2019 and 2020.

Return on Equity: This ratio indicates that how effectively a company deploys the shareholder’s capital for generating profit. ROE of Walmart in 2019 was 8.37% and in 2020 were 18.24%, which states that the company generates more income from its equity in 2020 and ROE of Costco in 2019 were 23.47% and in 2020 were 21.39%, which states that the company is generating less profit in 2020 as compared to the previous year.

Operating profit margin ratio: This ratio indicates the profitability of company that how much company generating profit from its operating activities. If there is more operating profit margin, which means company, is earning more profit from its operations. The operating margin ratio of Walmart in 2019 was 4.35% and in 2020 was 3.95%, which means company is generating a high income from its operating in 2019 as compared to 2020. The operating margin of Costco in 2019 was 3.17% and 2020 was 3.32%, which shows that company has earned high in 2020 from its operation as compared to 2019.

If compare the financial performance of Walmart between 2019 and 2020 then financial performance was good in 2020. The profitability of Costco Company is less in 2020 as compared to 2019. If compare the revenue, profits, assets, etc in dollars then Walmart is better than Costco as Walmart’s revenue, profits are higher than Costco Company (Laitinen, 2018).

Balanced Scorecard of Walmart:

The model of Kaplan and Norton’s balanced scorecard was constructed in the 1990s. It helps in measuring the performance of the business by using both non-financial and financial data of the business. The objective of a Balanced scorecard aligns the activities of the business according to the strategy and vision of the company, improves the external and internal communication, and reviews the performance of the business against the strategic aim.

There are four perspectives of Balanced Scorecard:

Financial Perspective
Customer Perspective
Internal process
Learning & Growth/ Organizational Capacity (Quesado et al, 2018)

Walmart
Strategic Objectives	Measure	Targets	Initiatives
Financial	Increasing sales of company	Market share of company	5% growth in revenue	Launching websites
	Accelerate the e-commerce, club, store sales growth	Revenue of company	3% decrease in expenses	Growth in E-commerce platform
	Strategically capital allocation	Income percentage	Increasing the growth of e-commerce sales	Modification in policy and procedure of company
	Strengthening the Competitive position	10% increase the market share
Customer	Increasing the base of customer	Total no. of customer	serve 290 million customers every week	Home delivery service to the customer
	Customer satisfaction	Feedback of customer	Service of Next day delivery
	Attracting new customer	Addition of new customer	Provide a wide range of Products
	Provide a quality product at a reasonable rate
Internal Process	Opening new retail stores globally	Rate of turnover	Increasing the base of online stores globally	Increase employee benefits
	Launching new websites	Total no. of customers	Serve 290 million customers every week	Changes in investment policy
	Decreasing turnover rate of employees	The efficiency of operating activities	Increasing operating efficiency by 20%
	Improving service quality
Learning & Growth	Provide training to employees	Employee growth	5% Growth in revenue	Launching new training programs for the development of employees
	Motivate employees for increasing productivity	Compare revenue and sales growth	Decreasing employee turnover rate by 10%	Increasing the salary or wages of employees
	Effectively respond to the customer preferences	Rate of turnover
	Growing e-commerce business

Financial Perspective:

Strategic Objective: The main financial objective of Walmart is to increase the sales of company, accelerate the growth of e-commerce sales, club sales, and store sales, strategically capital allocation is also one of the financial objectives of Walmart. They want to allocate their capital so that company can get higher returns. Another objective of Walmart is to strengthen its competitive position in the market.
Measure: There are various measures that company can estimate its financial performance and growth of company. Through analysis, the market share of a company can estimate the progress of the company, by comparing the revenue of company from the previous year, competitors can estimate the company’s growth, by comparing the percentage of income from the previous year, and competitors can identify the profitability growth of company (Krylov, 2019)
Targets: Walmart's target is increasing the market share. Company wants to open new stores in a foreign market for increasing its market. Another target is to increasing the revenue by 5% and decreasing expenses by 3%. Another target is to increase the growth of e-commerce sales by opening online platforms in various countries.
Initiatives: The company takes initiatives for launching a new and unique website and modify some policies and procedures so that they can increasing the profitability of company. Delivery through an online platform is also one of the initiatives of Company.

Customer perspective:

Strategic objective: The main objective according to customer perspective is increasing the base of customer and the satisfaction of the customer. Attracting new customers is also one of the objectives of company. Provide the best quality product at a reasonable rate as per the preference of the customer is also the objective of the company.
Measures: There are various measures for estimating customer growth like a comparison of the total number of customers from previous years. A total number of additional customers, Customer feedback is also the measure for identifying the growth in the base of customers.
Target: The main target of company according to customer perspective is to serve 290 million customers every week. Right now company is serving 275 million customers every week.
Initiatives: The company takes the initiative of providing home delivery to their customer and provide the service of next-day delivery. Customers need not go anywhere it gives comfort to the customers. Another initiative is to provide a wide range of products to customers.

Internal Process:

Strategic objective: The strategic objective as per the internal process perspective is to opening new retail stores in the foreign market and launching the new website of the company. Another objective is to decreasing the employee turnover rate and improving the quality of services they provide to customers.
Measures: Company can measure the internal performance of a company by estimating the rate of employee turnover, by reviewing the efficiency of operating activities of a business, by estimating the growth rate of customers.
Target: The target of the company is to increase the number of online stores globally for increasing the revenue, market shares, and profit of the company. Another target is to serve 290 million customers every week and it can be achieved through providing the best product to customer at cheaper rate and home delivery etc. Another target is to increase the operating efficiency of the business by 20%.
Initiatives: Initiatives of the company is to increasing the benefits of the employee so that employee can work efficiently and productivity will be increase. Another initiative is changing some investment policies.

Learning & Growth:

Strategic objective: The main objective according to the growth perspective is providing training to employees, motivate employees for increasing productivity it leads to increasing the growth of the company. Another objective is to respond to the customer preferences effectively for increasing the sales of company and increasing e-commerce sales.
Measures: Company can measure the growth of company by evaluating the growth of employees, by evaluating the revenue and sales of the company, and by analyzing the turnover rate of employees of company.
Target: The target of company is to increasing in the revenue by 5% and decreasing the turnover rate of employees by 20%. It leads to the growth of company.
Initiatives: The initiatives of a company as per the growth perspective is launching the new training programs for improving the knowledge and skills of employees and another initiative is to increase the salary and wages of employees for retaining the valuable employees of company as it helps in increasing the growth of company (Nørreklit et al, 2018)

Integrated Reporting

The presentation of financial and non-financial information in one single report is called integrated reporting. It helps in providing access to the financial and non-financial information available at the same place. Nowadays investors are most interested in seeing the non-financial performance of the company along with financial performance. The information related to environment, society, and ESG parameters are all presented in the report. The main objective of the report is to provide the investors ability to recognize sustainable development of the company. The main is to merge the sustainability strategy with the financial reports of the company (Neri, 2021).

The company must be serious about incorporating sustainability into the core business. The impact of the operations of the company into the business and reduce the effects of the same help in balancing environment. The informed decisions are taken and overall performance can be improved with this. A streamlined organization can be created and there is increase in collaboration with other departments. The brand loyalty and the customer value can be improved (Muda et al., 2021).

Benefits of Integrated Reporting

There are several benefits of integrated reporting as per ACCA. These are reflected as below-

Integrated thinking and management –the management of the company is at stake with integrated thinking in the management of the company. There Is need to enhance effective combination to determine goals and objectives that an organization can achieve.
Clarity over business issues and performance- the business performance can be better examined with the implementation of IR. The performance can be easily measured that can bring uniformity in the organization (Rezaee, 2017).
Improvement in corporate relations and relationships with stakeholder –the stakeholders is the customers, investors, suppliers, government and all the parties interested in organization. The company can transmit better presentation of the financial and non financial aspects of the company.
Efficient reporting of the users and preparers of the reports –the reporting requirements can be fixed over the users and those who prepares the reports of the company. The responsibilities can be fixed.
Engagement of employees –the employees of the company can be engaged in the core activities of the company and can be engaged in decisions making with the management of the company.
The gross margins can be improved although it has been highlighted that financial benefits take time to exhibit results (Neri, 2021).

Challenges of Integrated Reporting

With various advantages there are certain disadvantages carried with Integrated Reporting-

Value Creation –it is stakeholders of the company could perceive the weakness of organization that how value. The identification of key stakeholders of the company and engaging value to be developed for them.
Connectivity –there are certain issues with the connectivity as existing procedures are required to be broke down and change in data collection process is required. The documents must be in concise format (Neri, 2021).
Materiality –the needs of different stakeholders cannot be met with same report. This found to be challenging in front of the company. With some survey it has been found that only 465 of the reports are able to satisfy all the stakeholders.
Conciseness –the large reported are not interested to be read by anyone associated with the company. Good practice for conciseness must be adopted by the company. The digital technology could help meet the goals of the company (Muda et al., 2021).
Reliability and Completeness –it is the serious concern on the part of the company. Limited reports can bring good and bad news under equal pressure (Neri, 2021).

“Environmental, Social and Governance (ESG) and Integrated Reporting” by Stephen Vertigans, Samuel O. Idowu.

According to Stephen and Vertigans, the environment, society and economy cannot be separated with the success of the better performance of the company. It must have to be involved in each and every aspect of the organization. There is importance for understanding the accounting and reporting on the ESG matrix. It is important to be continue to referred on non financial and aspects from the financial report of the company. The chief of Walmart is also of the same view as suggested in the article. Almost all the companies are heading towards executing the same in the organization (Harrison, 2019).

In the annual reports of 2020, Walmart represents that the company have environment and health and safety measures that would help in measuring long term effects in the organization. The food measures are adopted by the company as prescribed by government and quality services are provided in this context. The report has been presented combining all the environmental, social and legal aspects of the company. The emissions of CO2 has been reduces by the company that has been created from its operations. The disposition of waste material is also done on well defined measures (Muda et al., 2021).

With respect to social issues the company Walmart, paid full and part time bonuses to the associates of the employees. The jobs of greater responsibility and higher pay have been seen. The stakeholders engagement in the various aspects of the company to organize relatively efficient source of information about the company. It is important to analyze the balance between the same (Harrison, 2019).

International Integrated Reporting

The international Integrated Reporting framework aims to improve the quality of information that has been available to be provided and allocation of capital in a productive way. It is used to provide cohesive and enable decision making in the facts of materiality in the company. The value can be created in the eyes of the stakeholders of the company with the implementation of IR framework (Harrison, 2019).

The accountability can be assured and fixed with the broad base of capital of the company. The independence of the understanding can be promoted accordingly. The human integrated thinking, making of decisions and actions are supported that help in promoting value over short, medium and long term. IIRC’s mission is to establish integrated reporting and thinking within mainstream business practice as the norm in the public and private sectors (Muda et al., 2021). The IIRC’s vision is a world in which capital allocation and corporate behaviour are aligned to the wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking (Harrison, 2019).

Conclusion:

This report has been analyzed the financial performance of company that is Walmart. It is one of the leading companies in America, which provides products at a lower rate. Company is selling product at online platform also and have many retail stores in various countries. The US market share of company is 67% and Walmart's international market share is 22%. The financial performance of company has been evaluated through calculating financial ratios of 2019 and 2020. Liquidity ratio, efficiency ratios, profitability ratios have been calculated in this report. The financial performance of company has also compared with the closest competitor of Walmart that is Costco. Costco is also one of the leading companies in America, which provides products wholesale at cheaper rates. The market share of Costco is 15.35%. As per analyzing the financial ratios of company profitability of Walmart company is greater than Costco in 2020. If compares in revenues then revenue, profits of Walmart company is higher than Costco company. Kaplan and Norton’s balanced scorecard has also been constructed in this report, which helps in measuring the performance of the business. There are four perspectives of this scorecard – Financial, Customer, internal process, and growth perspective. The company’s main objective is to deliver products at the lowest price, provide home delivery to their customer, increasing the customer base, increasing e-commerce, store, and club sales of company, increasing the revenue of company. At the end of this report critically analyzed the challenges and benefits of adopting the integrated reporting in Walmart.

References:

Alimohammadlou, M. & Bonyani, A., 2018. A comparative analysis of dynamic and cross-sectional approaches for financial performance analysis. American Journal of Finance and Accounting, 5(3), pp.253-275.

Costco Wholesale Corporation, 2021. INVESTOR RELATIONS OVERVIEW | Costco Wholesale Corporation. [online] Available at: https://investor.costco.com/investor-overview [Accessed 8 Apr. 2021].

Harrison, V., 2019. Legitimizing private legal systems through CSR communication: a Walmart case study. Corporate Communications: An International Journal.

Krylov, S., 2019. Strategic customer analysis based on balanced scorecard. Ekonomicko-manazerske spektrum, 13(1), pp.12-25.

Laitinen, E.K., 2018. Financial reporting: Long-term change of financial ratios.

Muda, I., Indra, N. & Dharsuky, A., 2021. The community Walmart uncertainty model: A review of ownership and capital structure aspects. Uncertain Supply Chain Management, 9(1), pp.49-56.

Neri, S., 2021. Environmental, Social and Governance (ESG) and Integrated Reporting. Global Challenges to CSR and Sustainable Development, p.293.

Nørreklit, H., Kure, N. & Trenca, M., 2018. Balanced scorecard. The international encyclopedia of strategic communication, pp.1-6.

Nufus, K., Muchtar, A., Supratikta, H. & Sunarsi, D., 2020. Analysis of Financial Performance: Case Study of Pt. X Employee Cooperative/Analisis del desempeno financiero: Estudio de caso de la cooperativa de empleados PT X. Utopía Y Praxis Latinoamericana, 25(S10), pp.429-445.

Quesado, P.R., Aibar Guzmán, B. & Lima Rodrigues, L., 2018. Advantages and contributions in the balanced scorecard implementation. Intangible capital, 14(1), pp.186-201.

Rezaee, Z., 2017. Business sustainability: Performance, compliance, accountability and integrated reporting. Routledge.

Walmart.com, 2018. Walmart Investor Relations - Investors. [online] Available at: https://stock.walmart.com/investors/default.aspx [Accessed 8 Apr. 2021].

Appendix

Ratio	Formula	2019 ($ million)	2020 ($ million)
Current ratio	Current Assets/ Current Liability	Walmart: 61897/77477 = 0.79 Costco: 23485/23237 = 1.01	Walmart: 61806/77790 = 0.79 Costco: 28120/24844 = 1.13
Debt – Equity ratio	Total Debts/ Shareholder’s equity	Walmart: 139661/79634 = 1.75 Costco: 29816/15584 = 1.91	Walmart: 154943/81552 = 1.89 Costco: 36851/18705 = 1.97
Interest Coverage ratio	Operating income/Interest expenses	Walmart: 21957/2346 = 9.35 Costco:4737/150 = 31.58	Walmart: 20568/2599 = 7.91 Costco: 5435/160 = 33.96
Inventory turnover ratio	Cost of goods sold/ Average inventory	Walmart: 385301/44269 = 8.7 Costco:149351/11395 = 13.10	Walmart: 394605/44435 = 8.88 Costco:163220/12242 = 13.33
Asset turnover ratio	Net Sales/ Average total Assets	Walmart: 510329/219295= 2.32 Costco: 149351/45400 = 3.28	Walmart: 519926/236495 = 2.19 Costco: 163220/55556 = 2.93
Return on asset ratio	Net Income/ Total Assets	Walmart: 6670/219295100 = 3% Costco: 3659/45400100 = 8%	Walmart: 14881/236495100 = 6.3% Costco: 4002/55556100 = 7.2%
Net margin ratio	Net profit/ Net sales	Walmart: 6670/510329100 = 1.3% Costco: 3659/149351100 = 2.4%	Walmart: 14881/519926100 = 2.8% Costco: 4002/163220100 = 2.4%
Return on Equity ratio	Net Income/ shareholder’s equity	Walmart: 6670/79634 = 8.37% Costco: 3659/15584 = 23.47%	Walmart: 14881/81552 = 18.24% Costco: 4002/18705 = 21.39%
Operating profit ratio	Operating income/ Net sales	Walmart: 21957/510329 = 4.30% Costco:4737/149351 = 3.17%	Walmart: 20568/519926 = 3.95% Costco:5435/163220 = 3.32