Statement of cash flows
Cash flow statements highlight the financial health of a business by highlighting changes in the cash inflows and outflows. The financial statements help the end-users, such as the business owners, to ascertain whether they are in a position to meet financial obligations as they fall due. The cash flow sources include operating, investing, and financing activities. In accounting, cash is the most liquid current asset; as such, any business should have a cash reserve for day to day operating expenses. As such, cash flow statements give an accurate performance of a company as compared to net profit from the income statement, which ignores the time value of money. Additionally, cash flow statements adjust cash flow for non-cash inflows and outflows.
Walmart’s financial statements that include a consolidated balance sheet, comprehensive income statement, and the cash flow statements indicate the financial position of the business. According to the balance sheet, the liquidity position has been below the recommended level. In the year 2018 and 2019, the current ratio was below 1. The indication is that the business is unable to meet its short term obligations as they fall due. Besides, the working capital of the industry is constrained. Therefore, the company has to look for alternative ways of financing its operations. The techniques include increased sales through venturing into new markets and aggressive marketing. Since the company has ventured into various lines of businesses, it can concentrate more on the ones generating more income. Don't use plagiarised sources.Get your custom essay just from $11/page
The statement of comprehensive income indicates a decline in the consolidated net income of $7,179 reported in 2019 as compared to $10,523 in 2018. The decrease occurred due to the continuous growth in the e-commerce business, the adopted financing strategy, and the increased transportation costs. While the increase in net income in 2018 as a result of financial gain on sale Suburbia property amounting to $387 and $47 from the sale of land. Additionally, the ongoing legal proceedings in 2019, which included consumers and employees, negatively affected the performance of the business. Also, the financial statements portray the net income realized from the company as plowed back to the business as retained earnings as per the balance sheet statement.
The net income reported in the statement of comprehensive income forms the first entry in the statement of cash flows. In ascertaining the correct accounting cash flow, the net income from the income statement has to be adjusted by transactions arising out of revenue, expenses and credit transactions. While the balance sheet gives the financial position of a business and the income statement displays the income generated for a while under review, the cash flow statement points put how changes in the two financial statements affect the business’s cash position. The report is, therefore, useful in management decisions in establishing the company’s liquidity position in meeting its operating costs.
Recalculation of current assets and liabilities changes in the statement of cash flow
In a cash flow statement, an increase in current assets reduces available cash, while a decrease in current assets increases cash flow to the business. On the other hand, an increase in current liabilities is an indicator that the company has not paid at the point of incurring the cost; as such, it increases the cash flow. A decrease in current liabilities indicates payment of part of the liabilities, thus reducing the cash flow. Therefore, the changes in the current assets and currents liabilities are as shown below.
| Particulars | Amount | Adjustment | Current balance | Narrative |
| Receivables net | 6,283 | 368 | 7,019 | The negative adjustment indicates more sales on credit. The result is increased receivables net |
| Inventories | 44,269 | 1,311 | 45,580 | The negative adjustment reports more cash committed in stock purchase, therefore inventories increase |
| Account payables | 47,060 | 1,813 | 48,873 | A positive adjustment indicates increased liabilities; thus, the unutilized cash increases the cash flow. |
| Accrued liabilities | 22,159 | 183 | 22,342 | A positive adjustment on accrued liabilities indicates that with increased accrued liabilities, more cash gets freed for other activities within the business. |
| Accrued income taxes | 428 | (40) | 388 | A negative adjustment on accrued income taxes indicates that the business has utilized the cash to reduce the tax owed, thus decreasing both the accrued income tax and the available cash flow. |
The cash flow statement breaks down the sources of cash flows to be either from operating, investing, or financing activities. Based on Walmart’s statement of cash flow, the business relies heavily on operating activities as its source of cash flow. The operating activities include the sale of merchandise such as groceries such as meat, deli, and bakery, frozen foods, floral and dry grocery. Also, health and wellness, such as pharmacy, optical, clinical, and medical products. Additionally, Walmart’s business involvement stretches to entertainment, home furnishing, fuel, and financial services. The negative cash flow from investing activities is due to long term investment, such as business acquisitions. Alternatively, it could be a warning sign for poor investment decisions made by the management of Walmart Company.
The net cash flow from financing activities was negative in 2019 and the previous year. The negative position is attributable to the purchase of stock and the payments done to long term debt and shareholders. The business could reverse the situation by acquiring a new loan and refinancing the existing debt. In small business, a lower percentage on the source of cash is from operation while as the business continues to grow, business owners obtain funding from debt and equity. However, for a well-established business such as Walmart Company, operating activities are a healthy way of getting cash flow from the business. Unlike other sources of cash flow such as investing and financing activities, since it focuses on the core business. As such, it’s a predictor of the financial health of the company. It, therefore, helps the management to generate and maintain sufficient cash for operational efficiency.
Accounting concepts
In the money measurement concept, Walmart operates in U.S dollars as their currency. Therefore the income received from other countries in various currencies gets converted to U.S dollars. Also, Walmart Company is a going concern as the operating activities indicates a position of liquidity. The assets embrace the cost concept as they get recorded in the balance sheet at cost. The business follows the duality concept where for every credit transaction, there’s a corresponding debit entry. Also, the company observes the materiality concept, which advocates ignoring transactions that have minimal impact on a financial statement such that by ignoring them, there’s no misleading of the user. Accrual concept forms a fundamental concept where the business records revenue as it gets earned as opposed to when it’s received. Additionally, the company matches the revenue earned with the expenses incurred based on the matching principle.