Financial Statement Analysis

  • Financial statements is a set of indicators on integration, as reflected in the form of specific tables and characterizing the movement of assets, liabilities and financial position of the company during the reporting period. Financial reporting is a system of data on the financial situation of the company, financial results of its operations and changes in its financial position and is prepared based on accounting data.

    The main objective of financial statements is to provide information about financial condition, results of operations and changes in financial condition of the company. Reporting should include information on the assets and liabilities of the company, results of operations, events and circumstances that change the assets and liabilities. This information is needed by a wide range of users in making economic decisions. It should be noted that the tasks assigned to the financial statements and different accounting systems are the same.

    Wal-Mart Stores, Inc. is the US based retailer, which manages the worlds largest retailer, operating under the brand name Wal-Mart. Its headquarters is based in Bentonville, Arkansas. The company ranks as the 1st in the Fortune Global 500 (2010). The leader of the worlds retailers, Wal-Mart is led by the worlds top Global Powers of Retailing 2013, compiled by Deloitte. Wal-Mart accounts for more than 10 % of total revenues of TOP 250. As it was already noted, the Wal-Mart is the worlds largest retail chain, which includes (as of 2012), more than 10,130 stores in 27 countries. Among them can be seen hypermarkets and supermarkets that sell food and industrial products. The strategy of the network includes such terms as the maximum and minimum range, aiming to wholesale prices.

    Exxon Mobil Corporation is the U.S. Company, the largest private oil company in the world, one of the largest corporations in the world by market capitalization ($ 417.2 billion on January 28, 2013, $ 336.5 billion in May 2009, the market capitalization of rated FT 500). Exxon Mobil is the worlds largest oil and gas organization, whose shares are publicly traded securities. The company and its related companies are represented in many countries around the world. Exxon Mobil operates manufacturing facilities and sells its products throughout the world, as well as carrying out exploration for oil and natural gas on six continents. This organization is a leader in the oil and gas industry in almost all the areas of energy and petrochemicals. In 2007, the company won the 2nd place in the list of the largest public U.S. companies, in the Fortune 1000 list of the worlds largest corporations, Fortune Global 500. The company produces oil in different regions of the world, including the U.S., Canada, the Middle East and others. ExxonMobil has interests in 45 refineries in 25 countries, has a network of filling stations in more than 100 countries. Proved reserves are 22.4 billion barrels of oil equivalent.

    Profitability is a relative measure of economic efficiency. Profitability of the complex reflects the degree of efficiency in the use of material, human and financial resources, as well as natural resources. Cost-benefit ratio is calculated as the ratio of profit to assets, resources, or streams. It can be expressed as a profit per unit of invested funds, and in return that carries each received monetary unit. Net income margin is determined as the net income divided by the total revenue and multiplied by 100. Thus, the net income margin of the Wal-Mart in 2012 is calculated as (111,82/ 443,854)*100 = 25,19%, in 2011  (106,56/ 421,85)*100 = 25,26% (WMT Annual Income Statement, 2013). The income margin of Wal-Mart has not faced any significant changes, thus, the companys performance effectiveness has not changed. The net income margin of Exxon Mobile in 2012 is calculated as (44,880/ 453,123)*100 = 9,9%, in 2011  (41,060/ 467,029)*100 = 8,79% (Publications of ExxonMobil, 2013). The net income margin of Exxon Mobile has grown. It means that profitability of the company increases and also its performance efficiency increases, and the company better uses its assets in the performance.

    The debt-to-equity ratio is the ratio of debt to equity of the organization. It belongs to the group of the most important indicators of financial situation of the company, which include similar within the meaning coefficients of autonomy and financial dependence. The term financial leverage is often used in a more general sense, referring to the basic approach to financing business when using borrowed funds from venture formed leverage to enhance returns from the equity invested in the business. The debt-to-equity ratio of the Wal-Mart in 2012 was 47,079/ 71,315 = 0,66. The companys financial performance is rather effective and its financial obligations are low. The debt-to-equity ratio of Exxon Mobile in 2012 was 11,581/ 165,863 = 0,07. The companys performance is highly effective and it has little financial obligations that set the management of the company in the rather effective and efficient level.

    Working capital is the financial resources invested in facilities, the use of which is carried out by the company or as part of a production cycle or within a relatively short period of calendar time (usually no more than one year). It is determined as the difference between current assets and current liabilities. The working capital of the Wal-Mart in 2012 is calculated as 54,975 - 62,300 = -7,324. Thus, the Wal-Mart Company has poor liquidity level. The working capital of Exxon Mobile in 2012 is 321; the company has poor liquidity.

    For both companies it is important to increase their liquidity. Thus, the management should pay attention to the ways of improving the liquidity and solvency of the company that depend on the factors causing their decline. External factors include decline in production in the country, bankruptcy of debtors, obsolete technology, inadequate legislation, etc. To reduce the impact of these factors the company can release new shares to raise funds. Thus, it is necessary to make deeper analysis of the companies performance in order to understand what factors of the external environment of the companies have influenced their performance in terms of poor liquidity.

    The article was conducted by Alex Seed, an editor at essay checker