Financial Statement Analysis of Walmart and Costco: Project Report

This project presents a comprehensive financial statement analysis of two publicly held companies, Walmart and Costco, using their annual reports and 10-K forms. The analysis employs horizontal, vertical, and ratio analysis techniques to assess the companies' financial performance and position. The report examines the revenue, cost of revenue, gross profit, and net income trends through horizontal analysis. Vertical analysis is used to determine the proportion of different items in the financial statements and to compare the financial position of the companies over the period. The ratio analysis focuses on liquidity, profitability, and efficiency ratios, such as current ratio, quick ratio, and debt-equity ratio, to evaluate the financial health of both companies. The findings reveal that Costco demonstrates a stronger financial position with better liquidity and profitability, while Walmart requires more focus on managing its debt obligations. The conclusion provides investment recommendations based on the analysis.

Running head: ANALYSIS OF FINANCIAL STATEMENT
ANALYSIS OF FINANCIAL STATEMENT
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ANALYSIS OF FINANCIAL STATEMENT
Table of Contents
Introduction................................................................................................................................2
Horizontal Analysis....................................................................................................................2
Vertical Analysis........................................................................................................................3
Ratio Analysis............................................................................................................................4
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Introduction
In this report, we are going to focus on two publicly held companies, namely Walmart
and cost Costco. Walmart is a multinational American retail company located in the United
States (Walmart.com, 2020). It deals with various products such as electronic, clothing,
footwear and many other retail products. Costco Wholesale Corporation is a multinational
corporation and is one of the world’s leading retailer of organic food, choice and prime beef,
and rotisserie chicken. By looking into the annual reports of these public companies, we are
going to analyze the financial statements of both these companies thus getting a clear idea
about their financial position in the competitive market (Acharyya & Dey, 2018). In this
report, we will mainly focus on the horizontal, vertical and ratio analysis of these companies
and will measure their current profitability, earnings, liquidity, position in the global
competitive market (Nobes, 2014).
Horizontal Analysis
First, we are going to discuss the Walmart company income statement and position
statement (Vo, Huynh & Ha, 2019). By evaluating the consolidated financial statement, we
are going to assess a horizontal analysis to get clear picture of the company income or loss
and financial position during a particular financial year (Carreras-Simó & Coenders, 2019).
Horizontal analysis of the income statement states that the total revenue of the company is
2.81% and the cost of the revenue comes to 3.19% thus resulting in a gross profit of 1.70%.
In year 2019, the total revenue of the company was more as compared to total revenue of the
previous year. However, with an increase in revenue, the cost also increased, but the
proportion of cost incurred was more as compared to last year. The selling and administrative
expense of the company comes to 0.60% thus leading to an operating income of 7.44%. The
company net income comes to -32.37% as the net income of the company earned during the

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financial year 2019 was less as compared to previous fiscal year. The weighted average
shares outstanding of the company resulting in -2.20% and this number is significant for a
company for measuring the financial information such as earning per share (Fauceglia 2015).
The horizontal analysis of the balance sheet reflects that the totals liabilities and stakeholders
equity was 7.22% which was more than the previous year and even the retained earnings of
the company were -5.08% (S2.q4cdn.com, 2020). The company needs to increase it's retained
earning so that it could deal with any obligation that may arise in future however the
company was able to maintain impressive goodwill of 70.93% that was more than the
previous year.
Similarly, we are going to conduct horizontal analysis of the Costco company. The
company has earned the revenue of 7.86% and has incurred a cost of 7.90% that gives a total
gross profit of 7.56% and the gross profit earned during the financial year 2019 was more as
compared to previous year (Investor.costco.com, 2020). The net income of the company is
16.75%, which was more than the previous year and even in 2019, the company was able to
keep more provision for income taxes that will prove beneficial for the company in the
coming year. Even by analyzing the balance sheet, the total asset of the company is 11.19%,
the company was able to raise its current assets, and the total current asset is 246.11%. By
increasing the existing asset, the company would be able to pay off its short-term obligation
efficiently. Even the retained earnings of the company are 30.06% and were more than the
previous year.
Vertical Analysis
In this part, we are going to conduct vertical analysis of both the companies. The
Walmart company reflect 74.90%, cost incurred during the financial year 2019, which was
more as compared to the financial year 2018. Thus, the gross profit of the company decreased
to 25.10%, in 2019, from 25.37%, in 2108. However, the income tax expense and interest

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expense for the financial year 2019 is 0.83% and 0.46% respectively, that is low than the
previous year. The net income of the company is 1.30% in 2019 and 1.97% in 2018. The
company needs to increase its net income, thus maintaining a stable position in market. The
vertical analysis of the balance sheet states that current asset is 28.23% in 2019 and 29.17%
in 2018. Even in 2019, the goodwill comes to 14.22% that is more than the previous year
goodwill, which was 8.92%. However, the total debt of the company is 63.69%, and there is
an increase in liabilities of the companies. Thus, the company needs to reduce its liabilities to
remain more competitive in the market and to reduce its debt obligations.
The vertical analysis of income statement reflects that the net income from the
continuing operations is more in the financial year 2019, as compared to its previous year.
However, there is a 2% increase in the continuing operations and is similar to its last year.
The balance sheet of the company reflects that the total current assets of the company
increased and amounts to 51.73% (Investor.costco.com, 2020). Thus, the company can set off
its debt obligation whenever it incurs in the company. The retained earnings of the company
increased from the previous year and amount to 23%, even the total non-current liabilities is
15% in the year 2019 and was 20% in 2018. This shows that the company have reduced its
non-current liabilities in the financial year 2019.
Ratio Analysis
In this part, we are going to conduct ratio analysis for measuring liquidity,
profitability, and efficiency position of both the companies. The current ratio of the Walmart
Company is 0.80 in 2019 and was 0.76 in 2018. Even though the company has increased its
current ratio in 2019 but still the company’s liquidity position is not stable as it is assumed
that to obtain a stable liquidity position the liquidity ratio of the company must be more than
one. In this case, the quick ratio of the company is 0.23 and is lower than the previous year.
The company needs to increase its current assets so that it could be able to pay off its short-

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term obligations (Ehiedu, 2014). The debt-equity ratio of the company is 1.93 in 2019 and
was 1.59 in 2018. This reflects that the company may not be able to generate enough cash to
satisfy its debt obligations. It will be beneficial for the company if it tries to decrease its total
liabilities thereby reducing its overall burden even the debt ratio of the company is 0.64 in
2019, and it reflects that the company needs to reduce its obligations to avoid any risk that is
associated with the business.
The current ratio of the Costco company is 1.01 in 2019 and was 1.02 in 2018. This
reflects that company has decreased its current ratio. However, the company is reflecting a
stable liquidity position in the market. Even the company needs to increase its quick ratio,
that is 0.52 so that the company has ample cash with it to deal with short-term obligations.
The debt-equity ratio of the company is 1.98 in 2019 and was 2.19 in 2018
(Investor.costco.com, 2020). The company has reduced the debt-equity ratio, thus reflecting
that it has achieved a better efficiency position in the market as compared to previous year.
Conclusion
Lastly, the report concludes that analyzing the consolidated income statement and
financial position of the companies reflected various information about the company’s
existing position in the market (Armijo, Mühlich & Tirone, 2014). It can be said that the
Costco company is performing well in the market and even having a better liquidity and
profitability position that will attract more investors and lenders. Similarly, the Walmart
company is one of the leading company in retail industry and even performing well in the
market and maintain its leading position. However, the company needs to give more focus on
the debt obligation so that it might not face any risk in coming period.

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References
Acharyya, R., & Dey, A. (2018). Importance of dilatancy on the evolution of failure
mechanism of a strip footing resting on horizontal ground. INAE Letters, 3(3), 131-
142.
Armijo, L. E., Mühlich, L., & Tirone, D. C. (2014). The systemic financial importance of
emerging powers. Journal of Policy Modeling, 36, S67-S88.
Carreras-Simó, M., & Coenders, G. (2019). Principal component analysis of financial
statements. A compositional approach. Revista de Métodos Cuantitativos para la
Economía y la Empresa, 29.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies:
The financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), 81-90.
Fauceglia, D. (2015). Credit constraints, firm exports and financial development: Evidence
from developing countries. The Quarterly Review of Economics and Finance, 55, 53-
66.
Investor.costco.com. (2020). Retrieved 16 April 2020, from
https://investor.costco.com/static-files/05c62fe6-6c09-4e16-8d8b-5e456e5a0f7e
Nobes, C. (2014). International classification of financial reporting. Routledge.
S2.q4cdn.com. (2020). Retrieved 16 April 2020, from
https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-2019-AR-
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Vo, D. H., Huynh, S. V., & Ha, D. T. T. (2019). The importance of the financial derivatives
markets to economic development in the world’s four major economies. Journal of
Risk and Financial Management, 12(1), 35.
Walmart.com. (2020). Walmart.com | Save Money. Live Better. Retrieved 16 April 2020,
from https://www.walmart.com/