Asset liability refers to the mechanism, which is applied in controlling the risks that occur as a result of the mismatches between assets and liabilities. This process of asset liability management is a very important one in any given company because it ensures that the books of accounting for a given business are in balance (Copeland & Labuski, 2013). The function of asset liability management in a company involves both control of risks and strategic planning. It is vital to note that asset liability management is not just a concept that involves the mitigation or hedging of the risks, which come up from the interaction between assets and liabilities, but also entails long-term aspects. One such long-term aspect is ensuring the success within the process of maximizing assets with an aim of settling the complex liabilities in order to increase the level of profitability in the company. Consequently, the contemporary asset liability management includes the allocation and control of components like assets, equity, interest rate and the credit risk. It also involves the calculation of the entire company tools within the frameworks of risk with the purpose of maximization and control in the local regulatory and capital environment. In essence, ALM framework passively balances assets and liabilities through full hedging, leaving the surplus to be managed actively. This paper examines the asset liability management of Wal-Mart Retail Company, which is currently ranked at the top of the Fortune 500 list. The focus is on the five aspects of asset liability management that include liquidity, interest rates, capital projects, currency, planning for profitability as well as growth and funding at this selected organization.
Wal-Mart asset liability management
It is very important to understand that Wal-Mart is a retail company in the United States of America, which has managed to grow and develop into a very large corporation of international reputation. This company deals in merchandise goods. The company has a number of discount and grocery stores as well as hypermarkets across America. Since it has huge assets and is leveraged, Wal-Mart must ensure there is a good match between its assets and the liabilities in order to avoid liquidity, currency, profitability, growth, asset and equity risks. It does this function of asset liability management perfectly as will be explained in this paper.
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For Wal-Mart Supermarket, the management of its assets and liabilities is a very essential function needed for business success. In this case, the aim of Wal-Mart Company is to ensure that there are no assets that lie idle and unemployed within the business processes. Moreover, the goal of this company in this function is to make sure that the level of leverage is not significantly beyond its assets. The reason for this asset liability management is that increase in the level of leverage may make the company to become insolvent.
The finance department of Wal-Mart Company is responsible for the ensuring proper management of the assets and liabilities of the company. The Body of Governing Directors also assists the Finance Department of this company in ensuring there is effective and efficient management of assets and liabilities. It is vital to note that Wal-Mart Company is governed by a total of 15 members of the board of directors. Shareholders of Wal-Mart Company are responsible for the appointment of the members to the board of directors. The election of these directors is done each year. The members of the Board of Directors at Wal-Mart appoint the right experts who are hired and given the mandate of managing this company’s assets and liabilities. The hired experts work under the stewardship of the Finance Department of the company. This Board of Directors is currently led by Gregory B. Penner. It is also responsible for making decisions related to the increase in profitability and growth of the corporation.
The Finance Department of Wal-Mart is responsible for controlling the liquidity level of the company. This department comes up with the right decisions regarding the optimal amount of cash at hand and at bank to keep daily. The Finance Department also ensures that the company has enough assets that can be readily converted to cash in the event of an emergency. This department has the responsibility of ensuring it keeps track with the existing interest rates in the financial market so that the company borrows when it is economically viable to do so.
Mitigating risks at Wal-Mart
Mitigating risks is the process of preventing the likelihood of a negative thing happening to the company (Stickney, 2010). The management of Wal-Mart is normally responsible for ensuring the company does not face risks related to liquidity, interest rates, currency and profitability.
An example of a way Wal-Mart can mitigate its risks is through avoidance. Risk avoidance is a very useful technique of mitigating risks since it entails implementing measures meant to completely prevent the occurrence of a given hazard. Wal-Mart must ensure it avoids financial risks through better management strategies. For instance, Wal-Mart should always ensure it keeps a sufficient amount of cash at hand so that it avoids liquidity risk. Loans should be taken at a time when the interest rates are low in order to avoid the risk of very high cost of borrowing through huge rates of interest. The company must borrow to a level that can be sustained by its assets so that its liability level does not exceed its assets leading to insolvency. Asset liability management is essential in mitigating the equity risks.
References
Copeland, N. & Labuski, C. (2013). The world of Wal-Mart: discounting the American dream . New York: Routledge.
Stickney, C. (2010). Financial accounting: an introduction to concepts, methods, and uses . Mason, OH: South-Western/Cengage Learning.
