The organization researched is a multinational called Walmart. The chain store is a retailer organization whose home office is located in America. The company operates by providing products to its customer through a chain of retail outlets. The public owned organization is the largest in the global market. The company has grown over the years through implementing policies that allow it to sell at a lower price that its competition. The company is the largest retailer is the globe with majority of its shares held by the public. The founding family still has a controlling share of the business with the family controlling over 48% of the shares. The company founded in 1962 and incorporated in 1969 is among the most successful companies in the globe. Its headquarters is located in Arkansas and is currently the largest grocery retailer in the market (Albuquerque, De Francisco & Marques, 2008).
The organization grew through implementing policies that ensured that quality and the customers enjoyed affordable pricing of products. The organization at times supported the suppliers to ensure that the products acquired were affordable to the customers. The organization has also benefited from a trained workforce and a dedicated management team, which is in charge of decision-making. The company has expanded its operations into 15 countries. The company has 8500 stores registered under different names. The company has tried expanding into other countries unsuccessfully but some of its ventures have been successful. Its expansion has been through opening up of new stores in foreign nations, through acquisitions and mergers. The expansive nature of the business into foreign nations creates a problem for the organization due to accounting. The nations that the organization has outlets do not use the same currency. The nations also use different accounting systems thus the need to ensure that all branches finances undergo evaluated at the head office.
2. Discuss the direct impact of current, historical, and average exchange rates in the context of foreign currency translation on the corporation you selected.
Foreign currency translation is an accounting term that refers to conversion of accounting information recorded in one currency in the financial reports. Concerning the organization, the difference in the accounting standards used by organizations in the foreign nation and home nation differ. The difference in currency used for trading purposes also significantly influences foreign currency translation. Walmart head office is located in America thus the outlets in the nation use U.S. GAAP regulations. According to the regulations, the balance sheet items recorded at the exchange rate value on the last day of the year. The income statement items entry based on the weighted average rate during the year. The use of international accounting standards enables the organization to ensure uniformity in its accounting information.
Walmart uses the American dollar to record its operations in the financial statement. The international currencies that the company uses include the euro, Mexican peso Australian and Canadian dollar. The foreign currencies are predominant when dealing with expenses to the company. Foreign currency translation ensures that all the currencies conversions march the American dollar. The liabilities, revenue and expenses require conversion into a common currency for accounting purposes. Conversion of the foreign currencies to the American dollar during translation uses applicable rates. The differences that arise due to the valuation of the currencies used affect the values in the consolidated accounts (Hunton, Libby & Mazza, 2006).
In case the dollar is stronger than the foreign currency then the consolidated account reflects a profit while a weak dollar reflects a loss. The fluctuation of the foreign currency compared to the dollar affects the cost of the items during consolidation. The financial report can therefore give different results due to the increase or decrease of the American dollar. The volatility of foreign currency has affected the company's ability to predict future earnings. The company can therefore measure its volatility through comparing diluted earnings per share based on a currency neutral basis. The company offers its shares to the public thus the need to represent the financial position of the company to investors. The use of non-GAAP methods allows the investors and management to evaluate the profitability of the venture. The consolidation results show that the diluted net earnings have been increasing from 3.16$ in 2009, 3.30$ in 2010 and 3.38$ in 2011. The translational impact within the same period has been decreasing with a value of 0.22 recorded in 2009, 0.04 recorded in 2010 and (0.08) recorded in 2011.
3. Determine whether the corporation you researched should use foreign currently translation as a restatement process, a re-measurement process, or both, and explain why.
Walmart has many branches in foreign countries. The branches registered under 55 different names as they acquisition was from smaller companies. The branches in the foreign nations use the currency of the foreign nation unlike the branches situated in America, which use the American dollar. The head office is located in America thus the need for the organization to reconcile all the financial reports from the branches in the foreign nations. Reconciliation of the financial records of the foreign nation enables the organization to determine the dividend to pay the shareholders and to let investors know the viability of the investment.
Walmart should use foreign currency translation as a restatement process and as a re-measurement process. Using foreign currency translations as a restatement requires the organization to translate the record using the common standards to ensure that all records have the same parameters. The organization uses a suitable lending rate to convert the foreign currency into the local currency. Using foreign currency translation as a restatement process enables shareholders to understand the nature of their investment. The management is able to make informed decisions easily as the local currency compared to the foreign currency. Decision-making becomes easier for the managers who have a clear picture of the cost of investment as the figures are in a currency the management team can understand.
The management of the organization should also use foreign currency translation as a re-measurement process to ensure that all the stakeholders in the organization understand the growth trends of the organization. The growth of an organization evaluation uses the earnings generated per share. Through evaluation of the translational impact, the organization is able to measure dilution of its earnings per share. The organization can also evaluate its currency neutral earnings per share growth. Translational impact refers to the differences in reported earnings per share and translation of net profit for the current year's exchange rate. The figure reported as a percentage of growth from previous year's earnings per share (Bartov, 1997).
The investors and management can use the information to determine how to handle their investment. The use of foreign currency translation for restatement and re-measurement process thus enables the parties to make accurate informed decisions. The use of both processes also enables the management to evaluate the income tax paid by the organization. The use of the two processes enables the organization's stakeholders to evaluate volatility in the exchange market.
4. Analyze the financial statements of the company you selected to determine which earnings numbers provide the best metric for an investment analyst. Explain your rationale.
Investment analysts give advice on various investment options in the market and provide the customer with an option that suits his finances. Evaluating the profitability of an organization does not necessarily require the individual to focus on the profitability of the organization. The investor should consider the growth treads of the organization. This requires the investor to evaluate the increase in value of the shares over a long time. The investor should consider his agenda for his shares in that an investor may choose a share where he expects to make quick cash. Some investors buy for dividend proposes thus the need to consider the needs of the investors.
Financial statement elements can be manipulated using accounting ratios used to ensure that the investor makes an informed decision. The debit ratios used to determine the financial stability of the organization. The credit ratio evaluates the organizations ability to pay its debtors. This information sends a clear signal to investors that their investment is safe. Profitability ratios enable the organization to show investors that their investment will yield income. Capital budgeting ratios enables the investors to evaluate the control of the organizations by creditors (Akta? & Kar?
n, 2011).The investors should ensure that suppliers do not control the organization they are investing.
The use of efficiency ratios enables the organization to determine the organizations ability to use its resources. A stable organization should have a steady source of resources and use them efficiently. The investor should use the marketing ratios to determine whether Walmart is profitable. The marketing ratios ensure that the investor's response towards owning a company's stock and the cost associated with earning a stock. The marketing ratios also enable the investors to evaluate the return on investment for shareholders and its…