Walmart is a very large chain of retail stores selling consumer goods. As it states in its Form 10-K for fiscal 2015: Wal-Mart Stores, Inc. (Walmart, the Company or we) helps people around the world save money and live betteranytime and anywherein retail stores or through our e-commerce and mobile capabilities. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping. Physical retail encompasses our brick and mortar presence in each market where we operate. Digital retail is comprised of our e-commerce websites and mobile commerce applications. Each week, we serve nearly 260 million customers who visit our over 11,500 stores under 63 banners in 28 countries and e-commerce websites in 11 countries.

Our strategy is to lead on price, differentiate on access, be competitive on assortment and deliver a great experience. Leading on price is designed to earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (EDLP). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Price leadership is core to who we are. Everyday low cost (EDLC) is our commitment to control expenses so those cost savings can be passed along to our customers. Our digital and physical presence provides customers access to our broad assortment anytime and anywhere. We strive to give our customers and members a great digital and physical shopping experience.

For more detailed discussion of Walmarts stores, products, customers, and business model, visit the companys website: www.corporate.walmart.com.

Exhibit 1.19 presents comparative balance sheets, Exhibit 1.20 presents comparative income statements, and Exhibit 1.21 presents comparative statements of cash flows for Walmart for the three fiscal years ending January 31, 2014, 2015, and 2016. Walmart prepares its financial statements in accordance with U.S. GAAP. For more detail on Walmart financial statements, or to download the fiscal 2015 Form 10-K, you can visit Walmarts investor relations page: www.stock.walmart.com/investors/default.aspx.

REQUIRED

Industry and Strategy Analysis

1. Apply Porters five forces framework to the retail industry.
2. How would you characterize the strategy of Walmart? How does Walmart create value for its customers? What critical risk and success factors must Walmart manage?

Balance Sheet

3. Describe how cash differs from cash equivalents.
4. What are Walmarts two largest assets on the balance sheet (in dollar amounts)? How do these assets reflect Walmarts strategy?
5. Walmart reports accounts receivable net of an allowance for uncollectible accounts. Why? Identify the events or transactions that cause accounts receivable to increase and decreas Also identify the events or transactions that cause the allowance account to increase and decrease.
6. How does accumulated depreciation on the balance sheet differ from depreciation expense on the income statement?
7. What is Walmarts largest current liability in dollar amount? What does it represent?
8. What is Walmarts largest liability in dollar amount? In what types of assets did Walmart likely invest this financing?
9. What does Walmart report in accumulated other comprehensive income (loss)? What does this amount represent? When, if ever, will these gains and losses appear in net income?

Income Statement

10. What type of transaction gives rise to the primary source of Walmarts revenues? At the end of each fiscal year, what does Walmart have to estimate to measure total (net) revenues for the fiscal year?
11. What types of expenses does Walmart likely include in (1) cost of goods sold and (2) selling, general, and administrative expenses?

12. Walmart reports interest expense that is much larger than interest income. Why?

Statement of Cash Flows

13. Why does net income differ from the amount of cash flow from operating activities?
14. Why does Walmart add the amount of depreciation and amortization expense to net income when computing cash flow from operating activities?
15. Why does Walmart show increases in inventory as subtractions when computing cash flow from operations?
16. Why does Walmart show increases in accounts payable as additions when computing cash flow from operations?
17. What was the single largest use of cash by Walmart during this three-year period? How does that use of cash reflect Walmarts business strategy?
18. What was Walmarts single largest use of cash for financing activities during this three-year period? What does that imply about Walmarts financial position and performance?

Relations between Financial Statements

19. Prepare an analysis that explains the change in retained earnings from $85,777 million at the end of fiscal 2014 to $90,021 million at the end of fiscal 2015. Do not be alarmed if your reconciliation is close to, but does not exactly equal, the $90,021 million ending balance.

Interpreting Financial Statement Relations

Exhibit 1.22 presents common-size and percentage change balance sheets and Exhibit 1.23

presents common-size and percentage change income statements for Walmart for fiscal years ended January 31, 2014, 2015, and 2106. The percentage change statements report the annual percentage change in each account from fiscal 2013 to 2014, and from fiscal 2014 to 2015.

20. The percentage changes in prepaid expenses and other current assets jumped up 16.5% in fiscal 2014 and then fell by 35.2% in fiscal 2015. Did the changes in the dollar amounts of this account have a huge impact on total assets (see Exhibit 1.22)? Explain.
21. During this three-year period, how did the proportion of total liabilities change relative to the proportion of shareholders equity? What does this imply about changes in Wal-marts leverage?

5. How did net income as a percentage of total revenues change from fiscal 2013 to fiscal 2015? Identify the most important reasons for this change.

23. Does Walmart generate high or low profit margins? How do Walmarts profit margins relate to the companys strategy?

2016 $ 8,705 5,624 44,469 1,441 $ 60,239 188,054 (71,538) 16,695 6,131 $199,581 Exhibit 1.19 Wal-Mart Stores, Inc. Balance Sheets as of January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Assets: Cash and cash equivalents $ 7,281 $ 9,135 Accounts and notes receivable-net 6,677 6,778 Inventories 44,858 45,141 Prepaid expenses and other current assets 1,909 2,224 Current assets of discontinued segments 460 Current Assets $ 61,185 $ 63,278 Property, plant, and equipment-at cost 178,678 182,634 Accumulated depreciation (60,771) (65,979) Goodwill 19,510 18,102 Other assets 6,149 5,455 Total Assets $204,751 $203,490 Liabilities and Equities: Accounts payable $ 37,415 $ 38,410 Current accrued expenses 18,793 19,152 Notes payable and short-term debt 7,670 1,592 Current maturities of long-term debt 4,412 5,078 Income taxes payable 966 1,021 Current liabilities of discontinued operations 89 Current Liabilities $ 69,345 $ 65,253 Long-term debt obligations 44,559 43,495 Deferred tax liabilities-noncurrent 8,017 8,805 Redeemable noncontrolling interest 1,491 Total Liabilities $123,412 $117,553 Common stock + Additional paid-in capital 2,685 2,785 Retained earnings 76,566 85,777 Accum. other comprehensive income (loss) (2,996) (7,168) Total Common Shareholders' Equity $ 76,255 $ 81,394 Noncontrolling interests 5,084 4,543 Total Equity $ 81,339 $ 85,937 Total Liabilities and Equities $204,751 $203,490 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. $ 38,487 19,607 2,708 3,296 521 $ 64,619 44,030 7,321 $115,970 2,122 90,021 (11,597) $ 80,546 3,065 $ 83,611 $199,581 2016 $ 15,080 9,454 (672) (19) (703) 2,008 (472) 1,303 Exhibit 1.21 Wal-Mart Stores, Inc. Statements of Cash Flows for the Three Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Net Income $ 16,695 $ 17,099 Add back depreciation and amortization expenses 8,870 9,173 Deferred income taxes (279) (503) (Increase) Decrease in accounts receivable (566) (569) (Increase) Decrease in inventories (1,667) (1,229) Increase (Decrease) in accounts payable 531 2,678 Increase (Decrease) in income taxes payable (1,224) 166 Increase (Decrease) in other current liabilities 103 1,249 (Income) Loss from discontinued segments (144) (285) Other operating cash flows 938 785 Net Cash Flow from Operating Activities $ 23,257 $ 28,564 Proceeds from sales of property, plant, and equipment 727 570 Property, plant, and equipment acquired (13,115) (12,174) Investments acquired Other investment transactions (138) 479 Net Cash Flow from Investing Activities $(12,526) $(11,125) Increase (Decrease) in short-term borrowing 911 (6,288) Increase (Decrease) in long-term borrowing 2,104 1,270 Share repurchases--treasury stock (6,683) (1,015) Dividend payments (6,139) (6,185) Other financing activities (982) (2,853) Net Cash Flow from Financing Activities $(10,789) $(15,071) Effects of exchange rate changes on cash (442) (514) Net Change in Cash $ (500) $ 1,854 Cash and cash equivalents, beginning of year $ 7,781 $ 7,281 Cash and cash equivalents, end of year $ 7,281 $ 9,135 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 1,410 $ 27,389 635 (11,477) 167 $(10,675) 1,235 (4,393) (4,112) (6,294) (2,558) $(16,122) (1,022) $ (430) $ 9,135 $ 8,705 Percentage Change 2015 2016 Exhibit 1.22 Wal-Mart Stores, Inc. Common-Size and Percentage Change Balance Sheets as of January 31 (allow for rounding) (Integrative Case 1.1) Common Size 2014 2015 2016 Assets: Cash and cash equivalents 3.6% 4.5% 4.4% Accounts and notes receivable-net 3.3% 3.3% 2.8% Inventories 21.9% 22.2% 22.3% Prepaid expenses and other current assets 0.9% 1.1% 0.7% Current assets of discontinued segments 0.2% 0.0% 0.0% Current Assets 29.9% 31.1% 30.2% Property, plant, and equipment-at cost 87.3% 89.8% 94.2% Accumulated depreciation (29.7%) (32.4%) (35.8%) Goodwill 9.5% 8.9% 8.4% Other assets 3.0% 2.7% 3.1% Total Assets 100.0% 100.0% 100.0% Liabilities and Equities: Accounts payable 18.3% 18.99 19.3% Current accrued expenses 9.2% 9.4% 9.8% Notes payable and short-term debt 3.7% 0.8% 1.4% Current maturities of long-term debt 2.296 2.5% 1.7% Income taxes payable 0.5% 0.5% 0.3% Current liabilities of discontinued operations 0.0% 0.0% 0.0% Current Liabilities 33.9% 32.1% 32.4% Long-term debt obligations 21.8% 21.4% 22.1% Deferred tax liabilities-noncurrent 3.9% 4.3% 3.7% Redeemable noncontrolling interest 0.7% 0.0% 0.0% Total Liabilities 60.3% 57.8% 58.1% Common stock + Additional paid-in capital 1.3% 1.4% 1.196 Retained earnings 37.4% 42.296 45.1% Accum. other comprehensive income (loss) (1.5%) (3.5%) (5.8%) Total Common Shareholders' Equity 37.2% 40.0% 40.4% Noncontrolling interests 2.5% 2.2% 1.5% Total Equity 39.7% 42.2% 41.9% Total Liabilities and Equities 100.0% 100.0% 100.0% Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 25.5% 1.5% 0.6% 16.5% (100,0%) 3.4% 2.2% 8.6% (7.296) (11.3%) (0.6%) (4.7%) (17.0%) (1.596) (35.296) na (4.8%) 3.0% 8.4% (7.8%) 12.4% (1.9%) 2.7% 1.9% (79.2%) 15.1% 0.2% 2.4% 70.1% (35.196) le 5.7% (100.0%) (5.9%) (2.4%) 9.8% (100.0%) (4.7%) 3.7% 12.0% 139.3% 6.7% (10.6%) 5.7% (0.6%) (49.0%) na (1.0%) 1.296 (16.9%) 0.0% (1.3%) (23.8%) 4.9% 61.8% (1.0%) (32.596) (2.7%) (1.9%) Exhibit 1.23 Wal-Mart Stores, Inc. Common-Size and Percentage Change Income Statements for the Three Fiscal Years Ended January 31 (allow for rounding) (Integrative Case 1.1) Common Size Percentage Change 2014 2015 2016 2015 2016 Revenues 100.0% 100.0% 100.0% 2.0% (0.7%) Cost of goods sold (75.2%) (75.2%) (74.9%) 2.0% (1.1%) Gross Profit 24.8% 24.8% 25.1% 2.0% 0.5% Selling, general and administrative expenses (19.2%) (19.2%) (20.1%) 2.3% 3.9% Operating Profit 5.6% 5.6% 5.0% 1.0% (11.2%) Interest income 0.0% 0.0% 0.0% (5.0%) (28.3%) Interest expense (0.5%) (0.5%) (0.5%) 5.4% 3.5% Income before Tax 5.1% 4.5% 0.6% (12.7%) Income tax expense (1.7%) (1.6%) (1.4%) (1.5%) (17.9%) Income (Loss) from discontinued operations 0.0% 0.1% 0.0% 97.9% (100.0%) Net Income 3.5% 3.5% 3.1% 2.4% (11.8%) Net income attributable to noncontrolling interests (0.1%) (0.2%) (0.1%) 9.4% (47.6%) Net Income Attributable to Common Shareholders 3.4% 3.4% 2.1% (10.2%) Other comprehensive income items (0.5%) (0.9%) (0.9%) 73.2% 6.2% Comprehensive Income 2.9% 2.5% 2.1% (10.4%) (15.8%) 5.2% 3.0% Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. Exhibit 1.20 Wal-Mart Stores, Inc. Income Statements for the Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Revenues $ 476,294 $ 485,651 Cost of goods sold 358,069 365,086 Gross Profit $118,225 $120,565 Selling, general, and administrative expenses 91,353 93,418 Operating Profit $ 26,872 $ 27,147 Interest income 119 113 Interest expense (2,335) (2,461) Income before Tax $ 24,656 $ 24,799 Income tax expense 8,105 7,985 Income (Loss) from discontinued operations 144 285 Net Income $ 16,695 $ 17,099 Net income attributable to noncontrolling interests (673) (736) Net Income Attributable to Common Shareholders $ 16,022 $ 16,363 Other comprehensive income items (2,409) (4,172) Comprehensive Income $ 13,613 $ 12,191 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 2016 $ 482,130 360,984 $121,146 97,041 $ 24,105 81 (2,548) $ 21,638 6,558 $ 15,080 (386) $ 14,694 (4,429) $ 10,265 2016 $ 8,705 5,624 44,469 1,441 $ 60,239 188,054 (71,538) 16,695 6,131 $199,581 Exhibit 1.19 Wal-Mart Stores, Inc. Balance Sheets as of January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Assets: Cash and cash equivalents $ 7,281 $ 9,135 Accounts and notes receivable-net 6,677 6,778 Inventories 44,858 45,141 Prepaid expenses and other current assets 1,909 2,224 Current assets of discontinued segments 460 Current Assets $ 61,185 $ 63,278 Property, plant, and equipment-at cost 178,678 182,634 Accumulated depreciation (60,771) (65,979) Goodwill 19,510 18,102 Other assets 6,149 5,455 Total Assets $204,751 $203,490 Liabilities and Equities: Accounts payable $ 37,415 $ 38,410 Current accrued expenses 18,793 19,152 Notes payable and short-term debt 7,670 1,592 Current maturities of long-term debt 4,412 5,078 Income taxes payable 966 1,021 Current liabilities of discontinued operations 89 Current Liabilities $ 69,345 $ 65,253 Long-term debt obligations 44,559 43,495 Deferred tax liabilities-noncurrent 8,017 8,805 Redeemable noncontrolling interest 1,491 Total Liabilities $123,412 $117,553 Common stock + Additional paid-in capital 2,685 2,785 Retained earnings 76,566 85,777 Accum. other comprehensive income (loss) (2,996) (7,168) Total Common Shareholders' Equity $ 76,255 $ 81,394 Noncontrolling interests 5,084 4,543 Total Equity $ 81,339 $ 85,937 Total Liabilities and Equities $204,751 $203,490 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. $ 38,487 19,607 2,708 3,296 521 $ 64,619 44,030 7,321 $115,970 2,122 90,021 (11,597) $ 80,546 3,065 $ 83,611 $199,581 2016 $ 15,080 9,454 (672) (19) (703) 2,008 (472) 1,303 Exhibit 1.21 Wal-Mart Stores, Inc. Statements of Cash Flows for the Three Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Net Income $ 16,695 $ 17,099 Add back depreciation and amortization expenses 8,870 9,173 Deferred income taxes (279) (503) (Increase) Decrease in accounts receivable (566) (569) (Increase) Decrease in inventories (1,667) (1,229) Increase (Decrease) in accounts payable 531 2,678 Increase (Decrease) in income taxes payable (1,224) 166 Increase (Decrease) in other current liabilities 103 1,249 (Income) Loss from discontinued segments (144) (285) Other operating cash flows 938 785 Net Cash Flow from Operating Activities $ 23,257 $ 28,564 Proceeds from sales of property, plant, and equipment 727 570 Property, plant, and equipment acquired (13,115) (12,174) Investments acquired Other investment transactions (138) 479 Net Cash Flow from Investing Activities $(12,526) $(11,125) Increase (Decrease) in short-term borrowing 911 (6,288) Increase (Decrease) in long-term borrowing 2,104 1,270 Share repurchases--treasury stock (6,683) (1,015) Dividend payments (6,139) (6,185) Other financing activities (982) (2,853) Net Cash Flow from Financing Activities $(10,789) $(15,071) Effects of exchange rate changes on cash (442) (514) Net Change in Cash $ (500) $ 1,854 Cash and cash equivalents, beginning of year $ 7,781 $ 7,281 Cash and cash equivalents, end of year $ 7,281 $ 9,135 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 1,410 $ 27,389 635 (11,477) 167 $(10,675) 1,235 (4,393) (4,112) (6,294) (2,558) $(16,122) (1,022) $ (430) $ 9,135 $ 8,705 Percentage Change 2015 2016 Exhibit 1.22 Wal-Mart Stores, Inc. Common-Size and Percentage Change Balance Sheets as of January 31 (allow for rounding) (Integrative Case 1.1) Common Size 2014 2015 2016 Assets: Cash and cash equivalents 3.6% 4.5% 4.4% Accounts and notes receivable-net 3.3% 3.3% 2.8% Inventories 21.9% 22.2% 22.3% Prepaid expenses and other current assets 0.9% 1.1% 0.7% Current assets of discontinued segments 0.2% 0.0% 0.0% Current Assets 29.9% 31.1% 30.2% Property, plant, and equipment-at cost 87.3% 89.8% 94.2% Accumulated depreciation (29.7%) (32.4%) (35.8%) Goodwill 9.5% 8.9% 8.4% Other assets 3.0% 2.7% 3.1% Total Assets 100.0% 100.0% 100.0% Liabilities and Equities: Accounts payable 18.3% 18.99 19.3% Current accrued expenses 9.2% 9.4% 9.8% Notes payable and short-term debt 3.7% 0.8% 1.4% Current maturities of long-term debt 2.296 2.5% 1.7% Income taxes payable 0.5% 0.5% 0.3% Current liabilities of discontinued operations 0.0% 0.0% 0.0% Current Liabilities 33.9% 32.1% 32.4% Long-term debt obligations 21.8% 21.4% 22.1% Deferred tax liabilities-noncurrent 3.9% 4.3% 3.7% Redeemable noncontrolling interest 0.7% 0.0% 0.0% Total Liabilities 60.3% 57.8% 58.1% Common stock + Additional paid-in capital 1.3% 1.4% 1.196 Retained earnings 37.4% 42.296 45.1% Accum. other comprehensive income (loss) (1.5%) (3.5%) (5.8%) Total Common Shareholders' Equity 37.2% 40.0% 40.4% Noncontrolling interests 2.5% 2.2% 1.5% Total Equity 39.7% 42.2% 41.9% Total Liabilities and Equities 100.0% 100.0% 100.0% Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 25.5% 1.5% 0.6% 16.5% (100,0%) 3.4% 2.2% 8.6% (7.296) (11.3%) (0.6%) (4.7%) (17.0%) (1.596) (35.296) na (4.8%) 3.0% 8.4% (7.8%) 12.4% (1.9%) 2.7% 1.9% (79.2%) 15.1% 0.2% 2.4% 70.1% (35.196) le 5.7% (100.0%) (5.9%) (2.4%) 9.8% (100.0%) (4.7%) 3.7% 12.0% 139.3% 6.7% (10.6%) 5.7% (0.6%) (49.0%) na (1.0%) 1.296 (16.9%) 0.0% (1.3%) (23.8%) 4.9% 61.8% (1.0%) (32.596) (2.7%) (1.9%) Exhibit 1.23 Wal-Mart Stores, Inc. Common-Size and Percentage Change Income Statements for the Three Fiscal Years Ended January 31 (allow for rounding) (Integrative Case 1.1) Common Size Percentage Change 2014 2015 2016 2015 2016 Revenues 100.0% 100.0% 100.0% 2.0% (0.7%) Cost of goods sold (75.2%) (75.2%) (74.9%) 2.0% (1.1%) Gross Profit 24.8% 24.8% 25.1% 2.0% 0.5% Selling, general and administrative expenses (19.2%) (19.2%) (20.1%) 2.3% 3.9% Operating Profit 5.6% 5.6% 5.0% 1.0% (11.2%) Interest income 0.0% 0.0% 0.0% (5.0%) (28.3%) Interest expense (0.5%) (0.5%) (0.5%) 5.4% 3.5% Income before Tax 5.1% 4.5% 0.6% (12.7%) Income tax expense (1.7%) (1.6%) (1.4%) (1.5%) (17.9%) Income (Loss) from discontinued operations 0.0% 0.1% 0.0% 97.9% (100.0%) Net Income 3.5% 3.5% 3.1% 2.4% (11.8%) Net income attributable to noncontrolling interests (0.1%) (0.2%) (0.1%) 9.4% (47.6%) Net Income Attributable to Common Shareholders 3.4% 3.4% 2.1% (10.2%) Other comprehensive income items (0.5%) (0.9%) (0.9%) 73.2% 6.2% Comprehensive Income 2.9% 2.5% 2.1% (10.4%) (15.8%) 5.2% 3.0% Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. Exhibit 1.20 Wal-Mart Stores, Inc. Income Statements for the Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 Revenues $ 476,294 $ 485,651 Cost of goods sold 358,069 365,086 Gross Profit $118,225 $120,565 Selling, general, and administrative expenses 91,353 93,418 Operating Profit $ 26,872 $ 27,147 Interest income 119 113 Interest expense (2,335) (2,461) Income before Tax $ 24,656 $ 24,799 Income tax expense 8,105 7,985 Income (Loss) from discontinued operations 144 285 Net Income $ 16,695 $ 17,099 Net income attributable to noncontrolling interests (673) (736) Net Income Attributable to Common Shareholders $ 16,022 $ 16,363 Other comprehensive income items (2,409) (4,172) Comprehensive Income $ 13,613 $ 12,191 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. 2016 $ 482,130 360,984 $121,146 97,041 $ 24,105 81 (2,548) $ 21,638 6,558 $ 15,080 (386) $ 14,694 (4,429) $ 10,265