Working Capital Strategies Paper

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Working Capital Strategies Paper


April 20, 2011

Professor Tara Batemon

Week 4: Working Capital Strategies Paper - Wal-Mart

Team B will analyze Walmart’s financial reports, such as balance sheets, statements of cash flow, management comments, and footnotes to financial statements, in order to clarify how each current asset and liability account has affected cash management strategies. Working capital is the quantity in which a company’s current assets surpass its current liabilities. In addition, assuming that Walmart’s next year’s forecasted revenues increase by 20%, we will provide a detailed working capital recommendation to senior management based on next year’s increase in revenue along with assumptions made regarding other line items in the pro forma financial statements. Team B will discuss the effect of this revenue increase on Walmart’s working capital policy, identify lessons learned, and discuss areas for further development.

Working Capital Recommendation

To provide recommendations on Walmart’s working capital, the company’s current assets and liabilities must be assessed. Furthermore, the exchange of current assets into cash is necessary to meet current liability requirements (Gitman, 2005). According to their 2010 annual report, Walmart’s current assets included cash, receivables, inventories, prepaid expenses, and current assets of discontinued operations; totaled $48,331 billion (Walmart, 2010). Nevertheless, current liabilities in the same period totaled $55,561 billion – leaving a the 2010 fiscal year deficit by over $7 billion.

While Walmart’s 2010 annual report shows a deficiency between current assets and current liabilities, Walmart’s increased operating influence increased earnings before interest and taxes (EBIT). In 2009, EBIT was $20,898 billion. In 2010, EBIT increased 5.59% to $22,066 billion, yet the increase in net sales increased by 0.99% for the same period (Walmart, 2010). The degree of operating leverage...