From the course: Financial Accounting Part 1

The Walmart income statement

From the course: Financial Accounting Part 1

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The Walmart income statement

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- So let's look at an example of a typical income statement. Here's Walmart's income statement for the year ending January 31st, 2018. Note also that the previous two years income statements are also provided for comparability purposes. I've divided each year's numbers by total revenues for the year to allow us to easily compare changes from year to year. Now, where did I get this top secret information? From the Securities and Exchange Commission's website. All financial statements for all companies whose stock is publicly traded in the United States are available through the SEC's website. First, notice that Walmart's revenues for the year end of January 31st, 2018 topped one half a trillion dollars. Anyone who thinks Walmart is on the ropes because of competition needs to think again, half a trillion dollars in revenues is a lot of money. Next, notice that cost of sales as a percentage of total revenues is relatively constant across time at about 75%. That means that if Walmart is selling an item for $1, that item costs Walmart 75 cents. Now, when Walmart says in its advertising that it uses its buying power to lower its cost and then passes the savings onto you the customer this is evidence that that statement is true. If they are able to lower their cost of sales, they lower their selling price as evidenced by the constant cost of sales as a percentage of revenues. Walmart operating income for 2018 was just over $20 billion. As a percentage of revenues that's down from the prior two years. In 2016 and 2017, the operating income percentage was at 5% and this year it dropped to 4%. Now, recall that operating income is the income earned from what Walmart does every day selling products to customers. From operating income Walmart subtracts its interest. Note the term net. This means that Walmart combines the interest it incurs with any interest that it might have earned and just provides a net figure. It looks like Walmart retired some of its long-term debt in 2018. I suppose Walmart refinanced some of its higher interest rate, long-term debt with some debt that had a lower interest rate. Now we are down to income before income taxes. Recall that this number is the amount of income earned by all of Walmart's activities except for the amount of income tax it has incurred for the period. From income before taxes is subtracted, income taxes resulting in consolidated net income. You can see that Walmart earned for the year over $10.5 billion, as a percentage of total revenues, this figure was down 1% from the prior two years. Now, let me call your attention to the top of this income statement. You see the word consolidated? Almost all big publicly traded companies provide consolidated financial statements. What this means is that they own other companies in whole or in part, these other companies are called subsidiaries. In this case because Walmart controls these other subsidiaries all of the subsidiaries income is included in Walmart's net income. But Walmart doesn't own all of that income. The shareholders of the subsidiary other than Walmart owned some of that income. The amount of net income that these other groups own is subtracted from Walmart's net income to arrive at the consolidated net income attributable to Walmart. It's not a lot of money, but it is important to understand what that adjustment represents. Finally, notice that Walmart provides two earnings per share figures, basic and diluted because these two figures aren't that different from one another, this indicates that Walmart doesn't have a lot of stock options or convertible debt outstanding. Well, there you have it, the income statement for one of the biggest companies in the galaxy, and you understand what it means. How did Walmart do at what it does every day? We call that operating income. How did they do as a company before they accounted for taxes? We call that income before income taxes. How did they do overall? We call that net income, and there you have it.

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