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ANNUAL FINANCIAL REPORT PROJECT ON WALMART - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Wal-Mart Stores Inc. (WMT) Wal-Mart is a huge name in the retail industry. It is highly popular among a class of the society that thinks a lot before purchasing. Wal-Mart is engaged in the operation of retail stores in over 50 states of United States. It has six merchandise units including grocery, entertainment, stationery and books, health, apparel and home…
Wal-Mart values its inventories at the lower of cost or market value, which essentially means if the market value of inventory falls, the company will write-down the inventory value in its balance sheet. Wal-Mart is divided into three segments: Wal-Mart U.S, Wal-Mart International and Sam’s Club. All of the merchandise related to the U.S segment is valued using the Last in First out (LIFO) method. LIFO is an inventory valuation method allowed under US GAAP but not under IFRS (CFA institute, 2012). LIFO assumes that inventory items purchased most recently are sold first and hence the items remaining in the inventory are assumed to be the oldest items purchased. In period of rising prices, LIFO reports a higher cost of sales and lower ending inventory figure than other inventory valuation methods. Higher cost of sales lead to lower gross profit and hence results in tax savings. The company reports a LIFO reserve in its annual statements for reconciliation of LIFO cost of sales and inventory with FIFO cost of sales and inventory. This is to ensure that comparisons can be made with other companies in the retail industry that use FIFO as their inventory valuation method. Wal-Mart’s inventory turnover rate has been on the lower side considering the diverse range of product it sells. ...
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