MBS513 Assignment: Income Statement

MBS513 Assignment: Income Statement

Introduction

This paper presents a discussion of the structure and major elements of “Wal-Mart” and “Costco Wholesale” company income statement and focuses on similarities and differences. It also presents description on the methods used to recognize and measure income and expenses. It also presents an analysis of income statements regarding the strengths and weaknesses of each company's financial performance.

Wal-Mart Company Overview

Wal-Mart Stores is the world's largest retailer and grocery chain by sales. According to its annual report, the company generated consolidated revenue of $419.0 billion in fiscal 2010 (latest annual data available) through its 8,970 stores worldwide (Wal-Mart, 2012).

Structure and Major Elements of Wal-Mart Income Statement

With growing sales, Wal-Mart US operating income also remained positive, steadily rising from $16.6 billion in 2006 to $20.0 billion in 2010. Income is expected to further increase slightly in 2011 about 1.4% (Reuters, 2012). Nonetheless, higher operating expenses have offset some of the company's income, especially during the recession. Higher utility and health benefit costs led to a 7.3% increase in expenses during 2011 (Ibis World, 2012). For the year ended 2011, Wal-Mart had a sales revenue of $421,849 million that accounts for the major element of the income statement. Second important element of the Wal-Mart is the operating income which stood at $25,542 million in the year 2011. Net income is the third major elements, which stood at $ 16,389 million for the year 2011 (Wal-Mart, 2012).

Strengths and Weaknesses of Wal-Mart's Financial Performance

In the five years to 2011 the number of Supercenters increased from 2,262 to 2,907 (Ibis World, 2012). As a result, Wal-Mart's share of Department Stores revenue has been falling steadily over the five-year period (Wal-Mart, 2012).

In the five years to 2011, revenue generated from Wal-Mart US's general merchandise stores declined at an average annual rate of 5.8% to $52.0 billion (Wal-Mart Inc, 2012). Wal-Mart's US division's revenue is anticipated to increase on average 3.0% annually to total $262.3 billion over the five years (Wal-Mart Inc, 2012). The company's strong performance can be attributed to rising traffic during the recession; as households faced high unemployment and low disposable income, they redirected their purchases toward low-priced items Wal-Mart sells. Operating income margin of the company stood at 6.09% that increased 5.92% from previous showing major saving in costs and improvement in revenues. However, net profitability of the firm stood at 3.9% in 2011 as compare to 3.54%, ...