The analysis recommends taking a buy option for the Walmart’s stock. Currently the share price is about $66. Using the discounted cash flow method and Abnormal Earnings Method the share price is valued at $85.67 and $91.35 respectively. This shows that it is likely that the company’s stock is undervalued which leads me to my recommendations. The analysis assumes that the tax will rise to 34%, the company sales will grow by 4.02% and the expenses will grow by 2.0%.
- Key Accounting Policies
The Company’s fiscal year under the GAAP is made up of 52 or 53 weeks, ending on the Saturday that is closest to the last day of January. The financial statements of Walmart are prepared according to the USA GAAP which affects the assumptions made. Walmart considers cash and cash equivalent as the highly liquid, short term instruments that are purchased with an original maturity that is three months or less Christensen et al., 2015). The company recognizes the revenue at the sales time and the sales return are recognized time when the returns are made. The company uses different accounting methods for the inventory. These are usually valued at the lower of the market or cost as it is determined by the retail accounting method, using the LIFO method for all the US segments’ inventories.
The internal segments of the company are valued using the FIFO method. As such the company inventory valuation is the balance between the two methods. The inventory valuation method affects the ending inventory value and as such it affects the company’s profitability. Other accounting policies adopted by the company include carrying property and equipment at cost, using straight-line method of depreciation, and the long term assets are reviewed for impairment when changes in situation indicate that the carrying amount of the asset cannot be recovered under SFAS No. 144 (Hribar, 2014).
- Degree of Accounting Flexibility
Walmart operates in different countries that uses different accounting policies. The retail store also operates an online store that helps it to sell mainly electronics to different people located at different jurisdictions. In this case the company has an average degree of flexibility when it comes to choosing different accounting estimates and policies in certain situations that have an effect on the amount reported in the accompanying consolidated financial statements. For instance, Wal-Mart records large amount of accounts receivable every year from its retail price stores. This means that there exist low likelihood that materially different amounts would be reported. On addition to this, the company has an option on how to amortize or depreciate intangible assets like goodwill. The company uses the financial accounting standard N0 142. Concerning intangible assets and good will. According to these accounting policies the company can have difference between estimable and…………….