Generally Accepted Accounting Principles and High Asset Turnover Essay

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October 16, 2012
To: Management Committee
From: Erik Grothman Re: Wal-Mart WMT

Walmart has been around since 1945, first started by Sam Walton in Arkansas. Since then, Walmart has expanded to have 3900 stores in the United States and around 2700 in other countries. Walmart became publicly traded in 1970 and currently employees 2.1 million people worldwide. This company is very successful as it provides customers with the lowest prices on many goods because they buy most of it in bulk. Wal-Mart has also shown continued success in their use of information technology with e-commerce, a system that allows managers to view point-of-sale information.

Return on Equity is defined as the amount of net income returned as a percentage of shareholders to equity. It measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The three components of calculating Du Pont ROE are Net profit margin, asset turnover and financial leverage. Net profit margin is calculated by dividing net profit by revenue and is defined as how much a company makes profit per 1 dollar it generates. Secondly, asset turnover is sales revenue divided by total assets and is defined as how well a company is utilizing its assets to produce revenue. The last part of Du Pont ROE is financial leverage which is shareholders debt divided by shareholders equity and is how well a company uses borrowed money. Walmart Statistics | | Du Pont ROE | 22.73 | Net Profit Margin | 3.51 | Asset Turnover | 2.39 | Financial Leverage | 2.71 |

Compared to the table of average large companies Walmart seems to be higher in all the categories accept for net profit margin

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