Organizations try to maintain steady cash flow in the business. More active cash flows in business mean that the business is booming. All the transactions carried out have to be entered in the financial books like balance sheets and income statements. These books always help the financial managers to keep track of the movements of money in the organization. This also helps in ensuring that the money is not used for unnecessary expenses. The companies I will be discussing today are Walmart and Costco. They are companies in the retail industry. They are located in the United States but have branches in other countries worldwide. They have established themselves to be some of the most profitable businesses in the world. My base company will be Walmart.
The figures in the income statement of Walmart range in millions. The most current revenue for the company is $500,343,000. As an investor, one would look at research and development, sales, general and administration and earnings before interest and tax. From the income statement, Walmart has not been investing in research and development because values have been at $0 for the last three years. An investor would choose to put their money in researching for new markets and new products that people are demanding for. The return on investment for this would be more than half.
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Sales, general, and administration costs have been improving for the last three years. The improvement has been from $97,041,000 to $106,510,000 in the past three years. An individual would choose to invest here because it is evident the business is on the rise. He would offer to increase their cost of sales. From Walmart’s, income statement, earnings before interest and tax have been reducing for the past three years. An individual could choose to invest in the provision for taxes. This would increase the profits of the company hence more earnings for the investor (Aitken, 2017).
The items in the balance sheet are high value hence a better gap for an investor. The best options for an investor are in the inventory, short and long-term investments, and accounts payable. Company inventory has stagnated for the past three years with a slight decrease in the first two years. It has ranged between $44 million and $43 million. An investor could choose to help the company increase inventory. This does not necessarily mean for the product types already available in the business but also for new products in the market. He would co-own the new product with the company. This could help increase total sales.
Both the short term and long term investments in the company have been at $0. This is a real opportunity for an investor as he could obtain a contract to help the company acquire new branches. The difference between accounts payable and accounts receivables for the current period is 91% with the accounts payable being more. Accounts payable have increased for the last three years from $58,615,000 in 2016 to $68,859,000 in 2018. This could cripple the company progress as they could be fighting to pay their debts. An investor could offer to be a third party in the debt resolution. He could offer provision for it for part ownership in the company.
Walmart has to run its business smoothly hence has to be financed, and it has to invest. Its investing activities have been in inventory and assets. These values are unchanged from previous years and yet remain low. Its financing activities are in accounts payable and sales. The financing activities are higher than the investing activities but still stagnate within a small range. Maintaining the balance has given Walmart high revenue. However, the revenue could be higher if they could increase the values of the investing activities (Sanchez-Cervantes et al. 2018).
I chose Walmart over Costco because Walmart maintains high revenues in its books. When the amount drops, they try to improve it or maintain it from a further drop. I would advise a prospective investor to invest in Walmart because they have an impressive financial trend, which would deliver more returns. On the other hand, Costco does not portray a consistent financial performance because its financial statements increase and decrease unreliably. As such, this would not be the best option for somebody to invest his or her money because of the unpredictability of its financial performance.
Links to financial statements
https://www.nasdaq.com/symbol/cost/financials?query=balance-sheet
https://www.nasdaq.com/symbol/cost/financials?query=income-statement
https://www.nasdaq.com/symbol/wmt/financials?query=balance-sheet
https://www.nasdaq.com/symbol/wmt/financials?query=income-statement
References
Aitken, R. (2017). IBM Forges Block chain Collaboration with Nestle and Walmart in Global food industry .
Sanchez-Cervantes, J. L., Alor-Hernandez, G., del Pilar Salas-Zarate, M., Garcia-Alcaraz, J. L., & Rodriguez-Mazahua, L. (2018). FINALGRANT: A Financial Linked Data Graph Analysis and Recommendation Tool. Exploring Intelligent Support Systems (pp. 3-26). Springer, Cham.
