Wal-Mart Ethics and Compliance 1

Wal-Mart Ethics and Compliance

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In Rogers, Arkansas, the founder of Wal-Mart and Sams Club, Sam Walton opened his
first Wal-Mart department store in 1962. Today, Wal-Mart is one of largest corporations in
America whose ethics and compliance standards play an important part in the companys
Wal-Mart Ethics and Compliance 2

financial environment. Wal-Mart employees in diverse areas and levels are responsible for
understanding and complying with the companys Statement of Ethics (Walmartstores, 2008).
The role of ethics and compliance are the essential role of Wal-Marts pledge for success
in the companys financial environment. These essential roles consist of Sam Waltons three
basic beliefs in Wal-Marts principles and values (Walmartstores, 2008).
Respect for the individual
Service to our customers
Striving for Excellence
Wal-Marts Statement of Ethics introduces Wal-Mart Inc. employees to different
categories of attitudes and conduct that produce an honest, fair, and legal work environment. In
addition to the three Basic Beliefs in Wal-Marts financial environment, the company also has an
open door communication policy. According to Wal-Marts Statement of Ethnics the open-door
communications process is the most direct way to voice any concern to a manager
(Walmartstores, 2008).
The Financial Markets
The financial market in the United States is a system designed to facilitate the exchange
the financial instruments of money and credit. The market includes individuals, small, and large
businesses and corporations, and intermediaries. Each of these categories contains some form of
borrower, saver (investor), or financial institution (intermediaries). These financial exchanges
can occur as simply as one opening a savings account at a local bank, to the complex nature of
selling securities in the primary and secondary markets (Titman, Keown, & Martin, 2011). The
basic framework of the financial markets unites borrowers and lenders together with the help of
intermediaries. For instance, a small business owner become incorporated and sells securities in
Wal-Mart Ethics and Compliance 3

the primary market to fund new equipment and operations. This exchange occurs with the help
of a financial intermediary such as an investment firm.
The intermediaries involved in the United States Financial markets can range from a
small commercial bank to a larger non-bank investment firms. Some examples include financial
services companies such as General Electric (GE) Capital Division, investment banks, such as
Goldman Sachs, insurance companies, and investment companies offering products, such as
mutual funds and hedge funds (Titman, Keown, & Martin, 2011). These entities drive the
exchange of commerce of financial products and services, regulated by the Securities and
Exchange Commission (SEC). This governing body of the United States government monitors
and ensures the integrity of the products and serves to protect consumers involved in the
exchange (U.S. Securities and Exchange Commission, 2012). This entity is one that
differentiates the United States Financial markets from international markets. In addition, the
market in the United States has another distinguishing characteristic.

Activity
The Current Ratio measures the Current Assets over the Current Liabilities and acts as a
liquidity short-term measurement. Wal-Marts Current Ratio for 2010 and 2011 follow:
2011 Current Ratio 2010 Current Ratio
Current Assets $51,893 Current Assets $48,331
Current Liabilities $58,484 Current Liabilities $55,561
Current Ratio- 0.9% Current Ratio-0.9%
The current ratio for 2010-2011 reflects a healthy financial ratio in reference to liabilities
compared to assets.
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Days Receivable
Accounts receivable turnover is computed by AR/Total daily sales credits. The daily
credit sales was not available on the income statements for Wal-Mart, only one line for revenue;
therefore, we can assume that all sales are performed through credit, meaning no cash sales. The
total Revenue for Wal-Mart is reflected below:
2011 Total Revenue 2010 Total Revenue
43,252 39,474
The total receivable for Wal-Mart is reflected below:
2011 Total A/R 2010 Total A/R
4683.0 4389.0
43252 = 11.0 39474 = 11.0
Total Receivable Net (or total sales) divided by the Total Revenue for both years is 11%.
This equates to 40.15 days sales outstanding; meaning customers generally pay for product
purchased on credit in 40 days.
Accounts Receivable turnover can answer questions whether or not collecting on sales
after providing credit to customers is happening within an acceptable timeframe. The formula is
dividing sales made on credit by average accounts receivable. I discovered that many companies
do not disclose total sales on credit; therefore there is a shortcut one can use by using total
sales instead. When comparing with other companies it is important that the process remains
consistent figuring ratios. In other words, comparing credit based with total sales would be
misleading. It is also important to know if the firm operates on a cash basis only or not. A high
ratio implies either that a company operates on a cash basis or that its extension of credit and
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collection of accounts receivable is efficient. A low ratio implies the company should re-assess
its credit policies.
The Accounts Receivable Turnover ratio for Wal-Mart for both 2011 and 2010 was 11.0.
This ratio reflects that Wal-Mart turns its receivables 11 times per year which indicates good
management of credit and collections. Inventory Turnover for 2011 was 17.15 and 17.24 for
2010. It is calculated by taking the total revenue and dividing it by the total inventory.
For Wal-Mart the calculations for 2010 and 2011 are reflected as follows:
43252 39474
2522=17.15 2290=17.24
When a product is sold for the equal to the amount of money invested in the product, we
have turned on inventory. The inventory turnover rate measures the total times we turned over
the inventory during a 12 month period. Here is an example: (process only; not related to Wal-
Mart)
Annual Cost of Goods Sold Inventory Investment Annual Inventory Turns
Annual Cost
of Goods Sold
Inventory Investment Annual Inventory Turns
$10,000 $10,000 1
$10,000 $5,000 2
$10,000 $2500 4

Wal-Mart had a high turnover for both 2011 at 17.15 and 17.24 in 2010. Their total
inventory for 2011 was 2522 and 2290 in 2010. Inventory is moving in and out of their
Wal-Mart Ethics and Compliance 6

warehouse at a consistent basis at a high ratio. This reflects effective management of the
companys inventory.
Debt
Debt ratio indicates how much debt is used to finance a firms assets. To see the
profitability a firm has to compare the difference between debt-to-equity mixes. The company
should evaluate how do they finance their assets, do they use debt? There two types of debt,
short-term and long-term debt, realizing the remaining percentage must be financed by equity.
The amount of debt a firm uses depends on its proven income record and the availability of
assets that can be used as collateral for the loan and how much risk management is willing to
assume. When a company borrows money to finance business there is a certain requirement that
the company pay off the interest on debt. The company should increase debt relative to equity,
but only up to the point when it doesnt hazard the companys financial position. The basic issue
to acknowledge is the use of debt versus equity, financing the assets by debt or financing by
equity. Debt Ratio of Wal-Mart was 0.66 in 2011 and 0.50 in 2010.
Debt Ratio = Total Liability
Total Assets
2011 Debt Ratio = 23,888.0 = 0.66
35,994.0
2010 Debt Ratio = 17,394.0 = 0.50
34,628.0
Profitability
The return on assets (ROA) for Wal-Mart in the year of 2011 was 14% and in 2010 it was
16%. Because the ROA was still profiting, the managers at Wal-Mart are utilizing their assets
Wal-Mart Ethics and Compliance 7

available to them within the company. The managers may need to consider revising their sales
goals in order to make sure that there is not another decline in sales for the year of 2009. Return
on Assets is an indicator of how profitable a company is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".
The return on equity (ROE) for Wal-Mart in the year of 2011 was 42% , and in 2010 it
was 33%. ROE is a term to define how well a company managed reinvested earnings to generate
additional earnings. Firms earning a return on investment greater than the cost of the debt; then
the higher its return on equity will be. Wal-Mart has a 66% debt ratio for 2011 with a 42%
R.O.E., and a 50% debt ratio with a 33% R.O.E. for 2010. The ratios reflect that when the debt
ratio increased so did the R.O.E. for both years; therefore, it can be possible that the higher
return is coming from the use of debt financing.
Return on Assets (R.O.A)= Net Income
Total Assets
2011 5,142 = 0.1428
35,994.0
2010 5,658 = 0.1633
34,628.0
Return on Equity (R.O.E.)= Net Income
Total Equity
2011 R.O.E. 5142 = 0.42
12,106
2010 R.O.E. 5658 = 0.33
17,234

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Organization Financial Health
As a whole, Wal-Marts financial is showing good health from 2010 to 2011. Wal-Marts
current ratio was 0.9% both in 2010 and 2012. With Ratios lower than 1 means that Wal-Mart
might fall short of paying its short-term liabilities because of a lack of assets. With its 0.9%
ratios, Wal-Mart should be able be about to survive its short-term liabilities.
With a Days' Sales in Receivables of 40, which means that it usually took Wal-Mart
customers 40 days to finalize the payments for their credit purchases. Lower the Days' Sales in
Receivables mean that the company will be running smoothly and more efficiently because they
are finalizing their sales quicker, therefore increasing revenue. Wal-Mart is an efficient company
in this case meaning that their cash flow is not immobile, therefore adding value to the company.
With a debt ratio of 0.50 in 2010 and 0.66 in 2011, Wal-Mart should be in good shape to
pay their debt because of the assets outweigh their debts. Debt ratios are evaluated by how close
to 1 the ratio number is. The lower it is from 1, the more assets a company has in its possession.
Wal-Marts debt ratio increased by 0.16 from 2010 to 2011, meaning that they had to carry more
debt or had less assets. Even though, the debt ratio increased, Wal-Mart will keep on running
efficiently because their debt ratio is far from 1, therefore, there will enough assets to survive.
Return on Equity is evaluate by how much profit a company generated out of every $1 of
shareholders equity. The return on equity (ROE) for Wal-Mart in the year of 2011 was 42% ,
and in 2010 it was 33%. These numbers means that in 2010, Wal-Mart made $0.33 for every $1,
and in 2011, it made $0.42. With a 0.09%, increase Mal-Mart has boosted its shareholders profit
by 0.09 cents for every $1. With a resume like that, the company will attract more shareholders
and bring satisfaction to its current shareholders.

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Conclusion
In conclusion, Wal-Mart has established a statement of ethics that will monitor
company associates who conducting business in countries overseas, including Wal-Mart board of
directors, managers, and employees across the country. Wal-Mart has also accomplished
establishing a new Corporate Compliance team that will manage the companys compliance in
several other areas, such as employees pay, working hours, and break time.

















References:
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Titman, S., Keown, A. J. and Martin, J. D. (2011), Financial management: Principles and
application (11
th
ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. Retrieve from
University of Phoenix eBook Collection database.
Bullard, J. C. (2009). Systemic Risk and the Financial Crisis: A Primer, review (00149187),
91(5), 403.
Wal-Mart, 2010, Wal-Mart Statement of Ethics, retrieved July 19, 2012
http://www.walmartstores.com/media/cdnpull/statementofethics/pdf/U.S_SOE.pdf
U.S. Securities and Exchange Commission (2012), The Investors Advocate, retrieved from
http://www.sec.gov/about/whatwedo.shtml
Wal-Mart (2012), Wal-Mart Corporate Statement of Ethics, Retrieved from
http://www.walmartstores.com/media/cdnpull/statementofethics/pdf/U.S_SOE.pdf