Walmart's ethics, compliance, and financial performance evaluation 2011-2012

Walmart

Role of ethics and compliance

Compliance and SEC Regulations

Evaluation of financial performance

Trend of ratios and financial health

Wal-Mart Stores, Inc. (WMT) is an American publicly traded retail stores corporation. The operations of Wal-Mart are divided into three segments, namely the Wal-Mart International segment, Wal-Mart U.S., and the Sam's Club segment. Sam Walton was the founder of the company whereby Wal-Mart is the world's largest retail stores chain. Based in Bentonville, Arkansas, the U.S., Wal-Mart U.S. is the largest business segment of the company that accounts more than 60% of the total business of Wal-Mart. With operations in more than 14 countries internationally, 25% of the business is related to Wal-Mart International. With more than 2 million employees, the company has subsidiaries such as Asda, Sam's Club, Walmex, and Seiyu Group. The main business operations of Wal-Mart are conducted through hypermarkets, supermarkets, superstores, supercenters, warehouse clubs, discount stores, and cash & carry stores. Wal-Mart's 2011 and 2012 revenues were $418.952 billion and $443.9 billion respectively (Annual Report, 2011; Annual Report, 2012).

The main rationale of this report is related to describing the role of ethics and compliance in the financial and corporate reporting of Wal-Mart. This paper will also describe the procedures that Wal-Mart adopts to ensure ethical behaviors within the organization and communities where it operates. This paper will also analyze company's performance during fiscal years 2011 and 2012 while key financial ratios such as current ratio, debt ratio, and return on equity will also be reported. These key financial ratios will help assess the future performance of Wal-Mart with respect to recent economic challenges that large scale retailers face in the recessed economy of the U.S. And Europe. This will be used to evaluate the financial health of Wal-Mart.

Role of ethics and compliance

Wal-Mart is the world's largest private employer and manages largest retail store network in the U.S. And abroad. This earns the company high recognition for its services as a private employer but there are many challengers as well. The company has to maintain ethical behavior both within and outside the organization. Wal-Mart is one of the few organizations that have effectively managed its ethical aspect of operations and organizational development. The company issues 'Statement of Ethics' for reporting the ethical compliance by the organizational executives and concerned stakeholders. The main stakeholders that are covered in the Ethics Statement are:

Directors and Associates of Wal-Mart

Third parties (Wal-Mart, 2013)

Since the footprint of company's operations is such vast that until it does not brings its suppliers and other third parties associated to the company within the fold of its ethical compliance, there remain considerable chances that Wal-Mart would be criticized for not responsible as a corporate citizen. The company engages many law firms, consultants, public relations firms, contractors, and suppliers. All these are covered within the Statement of Ethics. The company has specifically established Global Ethics Office where each and any ethics issue can be reported by the company associates. The company has also established a self-reporting mechanism for business violations and each associate of the company is entitled to report such violations through the Global ethics office of Wal-Mart. To comply with the regional and respective country's regulatory frameworks, the company has developed an organizational structure incorporating the position of Global Compliance Officer (Wal-Mart, 2012).

Evaluation of financial performance

Wal-Mart has performed well during the last two years and company's net sales along with the operating income have increased during the last two years. Wal-Mart's net sales for fiscal years 2011 and 2012 were $418 billion and $443 billion respectively. Gross profit of Wal-Mart also increased from $103 billion in 2011 to $108 billion in 2012. The operating income of Wal-Mart's three main business segments i.e. Wal-Mart International, Wal-Mart U.S., and Sam's Club Segment remained $25 billion in 2011 and $26 billion in 2012. Thus, an increment of approximately $1 billion in operating income of the company took place during the fiscal year 2012.

Wal-Mart's credit rating is also maintained well during the past two years whereby Standard and Poor's (S&P) ranked company's credit rating at AA whereas Moody's Investor Services ranked Wal-Mart at Aa2. Fitch ratings of the company were AA and so were the ratings given by BBRS Limited. Any large scale enterprise places special importance to the ability of long-term financing as this is vital for the company to finance its new operations. The company in its Annual Report 2012 stated that "At January 31, 2012 and 2011, the ratio of our debt-to-total capitalization was 42.8% and 42.1%, respectively (Annual Report, 2012, Pg. 25). This indicates the debt-to-total cap ratio of Wal-Mart was stable and displayed sings of strengthening.

The current ratio is basically one of the three main liquidity ratios along with the other two being the quick ratio and cash ratio. Current ratio of a firm is calculated by dividing the current assets of a firm by the current liabilities. Following is the detail of current ratio of Wal-Mart during 2011 and 2012. Total current assets in 2011 were $51, 893 and liabilities were $58, 484 billion. The current ratio is 51, 893/58484 = 0.88. Current ratio for 2012 was also 0.88. This indicates that the company maintained its liquidity ratio same in 2012 as was in 2011 (Annual Report, 2011; Annual Report, 2012).

Return over equity is calculated by multiplying 100 by the consolidated net income of Wal-Mart and dividing total Wal-Mart shareholders equity. Return over equity of Wal-Mart in 2011 was 100*16389/68542 = 23.91 same ratio for the year 2012 was 100*15699/71315 = 22.01 this indicates that the company improved its ROE in year 2012 marginally (Annual Report, 2011; Annual Report, 2012). These ratios indicate that the company performed well and earned fair return over its equity in both the fiscal years 2011 and 2012. On the other hand, the company did not maintain a reasonably high liquidity ratio due to heavy investments that it made in expanding the operations worldwide.

Trend of ratios and financial health

The financial ratios of Wal-Mart indicate that the company is managing a huge portfolio of operations on a worldwide scale. For this reasons, the company has over the years expanded aggressively. Due to increased investments, the company could not maintain industry average ratio of liquidity. Industry average ratio of current ratio was 1.20. The company had only 0.88 as the current ratio. This indicated that company did have enough assets in the short-term to satisfy its financial obligations. However, in real world the companies and those with such huge operations do not operate at ideal liquidity ratios. Further, a high ROE ratio indicates the company has earned reasonably high return over the invested equity. The long-term and short-term trend indicates that Wal-Mart is poised well to maintain its leadership position in the industry of retail and discount stores throughout the U.S.

These financial ratios also indicate the company is not operating on the average industry ratio benchmarks. Since the operational footprint of Wal-Mart is vaster as compared to the competitors, there will remain significant constraints on the company's financial health indicators. It also indicates that the company may leverage upon its current investments and obtain higher return over its investments in the future. Nonetheless, each new firm in the discount retail sector of the U.S. tends to decrease the market share held by Wal-Mart. To mitigate this impact, the company may invest heavily in the emerging markets such as India and China.