Walmart’s Income Statement
Introduction
The financial Plan highlights Walmart’s projected financial statement and the assumptions developed when generating them. This financial statement and analysis have been developed for the first operational year. The plan assumes that the market development phase will commence on the 1st of January 2017 with the operational year ending on 31st December 2017. Following the projected statements is followed by a detailed analysis in regard to the operative statements to justify how the assumptions and projections were developed. The purpose of this report is to justify the recommended market expansion into Vietnam electronics specialty industry while demonstrating the projected financial and operations for the first operational year. Walmart is the leading retailing firm in the globe and will particularly be focused on the provision of electronic specialty retailing services to consumers within Vietnam. Based on the financial projections the expansion has been recommended as a beneficial and potential one that will grow the company’s income source and market. This is report will present an analysis of the made financial assumptions and justification of the projected positive net worth.
Income statement for the year ended December 31st 2018
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Start Up costs Year (0) |
Revenue and Expenses Costs Year (1) |
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Legal $1,000 Insurance $300 Rent $500 Consultants $5,000 Research, Training and Development $800 Equipment $4,000 Others $5000
Total Expense $16,600
Startup Assets $400,000 Short-term Long-term assets $0 |
Revenue/sales $1,000,000 Less Cost of goods Sold $350,000 Gross Profit $650,000 Less Operating expenses $140,000 Depreciation $10,000 ……………….. Earnings Before Interest & Taxes $400,000
Less Interest Expense $150,000 …………….. EBIT $250,000 Less income tax $80,000 …………….. Net Income $170,000 |
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Total Assets $416,600 |
Net Income/profit $170,000 |
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Total Requirements $433,200 |
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Revenue Forecast and Assumptions
Walmart is a stable retailing company that is categorized to be the global leader based on its resources, market share and revenue generation. In this case, the startup capital will be acquired directly from the company’s revenue without creating any form of debt that might alter the anticipated outcomes. The company will provide 1,000,000 dollars to support the business to commence in the selected Vietnam market for the electronic specialty. The most important assumptions that guides the success of the company are that it will operate in a consistently developing market without any major recession, no predictable changes in electronic purchases and no national instability that might threaten the steadiness and fitness of the nation and its public thus affecting business growth.
Sales revenue will make up 90 to 95 percent of the total acquired revenue for the first operational year with the rest being acquired from consultation services. Salaries, marketing, and rent are the primary expenses while depreciation is still an additional important cost that is bound to rise as the operations of the firm begin to rise. Despite the fact that the purchase of electronic specialty items are expensive and thus, a consistent replacement will necessary so that the cost of depreciation can be reduced significantly and sustain the competitive position (Sofat, 2016). In addition, so that a stable gross margin can be maintained, salaries and promotion expenses are unlikely to grow within the foremost operational years unless the flow of cash from sales increases significantly and outweigh the set expectations (Pride, 2017).
With an increased flow of revenue, while the expenses remain relatively stable with minimal expansions as the operations increases in general, revenue will experience an equal increase for every evaluation year (Weihrich, Koontz & Cannice, 2013). It is anticipated that the revenue will double by the fourth operational year with corresponding positive balances amid cash flow and expenses. The performance financial assumptions are grounded on that the firm will acquire annual revenue progress rate of about 8 percent annually for the first three years and the company will not acquire any additional debt charges as the starting capital will be acquired from its revenue.
Cost Forecasts and Assumptions
It is projected that the operating expenses will be lower than the revenue as the market is not yet mature despite the existing competition. Most of the expenses will be incurred from salaries and marketing operations. In that, the company will need to employ a significant number of employees since the market is new and more focus will be conducted on marketing which will see to create awareness and familiarity. For the first year cost of goods sold is projected to be worth 350,000 dollars since the company will still be trying to establish itself firmly with a revenue of 1,000,000 dollars which implies that the gross revenue will be 650,000 dollars. The company will focus mainly on marketing while trying to reduce its operating expenses by the time it turns to the second operational year in order to support its economies scales and the need to provide affordable products as a way of overcoming competition.
The company will spend 10 and 15 percent in respect of both salaries and marketing. On the other hand, rent will account for 5 percent of the revenue since the stores will only be located limitedly for the first year while trying to assess those areas that are characterized by higher opportunities. In order for the objective of increasing sales while augmenting satisfaction to be achieved there is a need to focus more on promotion. In addition, based on the need for awareness and high marketing and the ever-changing economy 5 percent of the revenue will be invested in research, training as well as development programs. In that, the employees need to feel appreciated and motivated while still in operation. In this context, by investing in training this will seek to increase their knowledge and develop their skills to deal with the ever-changing market (Mupepi & IGI Global, 2017). There is also a need for more research in regard to the market needs and the anticipated changes so that the firm can adjust its capacities to suit the general need of the market. These expenses will reduce with time because the workers will be well informed in regard to their roles as well as expenses (Conaway & Laasch, 2014).
Financial Results
Based on the above analysis it is clear that the first operational year will be a positive one that is characterized by good returns. In that despite the fact that the company will be required to invest more in regard to marketing and salaries in the quest of supporting its affordable strategy and lower operating expenses the strategic approach will be essential in overcoming such hurdles. The company will incur some startup expenses of about 433, 200 dollars plus the starting up capital that is necessary for supporting its business operations. From the revenue of 1,000,000 dollars that the company will generate in the first operative year the expenses will be minimal which will result in a net worth of $170,000 and a gross profit of 650,000 dollars. This result demonstrates that the venture in the market is a positive one that can be increased with time to suit the anticipations of the global retailing leader.
The income statement indicates that at the end of the first operational year, the net income will be a positive one and consistently rising by the end of 2018. From the income statement table, the highlighted expenses and revenue ratios indicate an authoritative financial increment and a remarkable opportunity for investment opportunities, creating more expansions and focusing on additional growth which is very viable based on the made predictions. The positive assumptions are mainly driven by the fact that Walmart is a large corporation that is associated with more resources and a reputable name. In addition, the market to be ventured is a stable one that is characterized by a high populace and increased buying potential (Galka & Baran, 2016).
Conclusion
Based on the analysis above it is apparent that the venture will yield positive results by resulting in net gain and no losses. This is a financially viable entry approach since the market is stable with a higher number of consumers and this support the objective of high items sales. In addition, the venture is considered to be viable based on its low operating expenses that will support the goal of providing affordability and convenience. The major risks from the assumptions are based on high marketing and salaries expenses based on the need to familiarize with the market and its consumers. The factors that should be monitored closely in a balanced scorecard are employee’s satisfaction, positive consumer relationship and reduced costs of operations. In that this factors might affect the performance and potential of the business.
References
Conaway, R. N., & Laasch, O. (2014). Principles of responsible management: Global sustainability, responsibility, and ethics. South Western.
Galka, R. J., & Baran, R. J. (2016). Customer Relationship Management: The Foundation of Contemporary Marketing Strategy. Taylor & Francis. 401-403
Mupepi, M., & IGI Global. (2017). Effective talent management strategies for organizational success.24-27
Pride, W. M. (2017). Foundations of business. Cengage Learning
Sofat, R. (2016). Strategic financial management. Place of publication not identified: Prentice-Hall of India.
Weihrich, H., Koontz, H., & Cannice, M. (2013). Management: A global, innovative, and entrepreneurial perspective. McGraw Hill.
