EX 2-24 horizontal analysis of income statement

The following data (in millions) were taken from the financial statements of Walmart Stores, Inc:

Recent Year Prior Year Revenue $446,950 $421,849 Operating expenses  420,392 396,307 Operating income $  26,558 $  25,542

a. For Walmart Stores, Inc., determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for:

1. Revenue

2. Operating expenses

3. Operating income

b. Comment on the results of your horizontal analysis in part (a).

c. Based upon Exercise 2-23, compare and comment on the operating results of Target and Walmart for the recent year.

Answer:

a. 

1. Revenue: 

$25,101 million increase ($446,950 – $421,849) 

6.0% increase ($25,101 ÷ $421,849) 

2. Operating expenses: 

$24,085 million increase ($420,392 – $396,307) 

6.1% increase ($24,085 ÷ $396,307) 

3. Operating income: 

$1,016 million increase ($26,558 – $25,542) 

4.0% increase ($1,016 ÷ $25,542) 

b. During the recent year, revenue increased by 6.0%, while operating expenses increased by 6.1%. As a result, operating income increased by 4.0% 

from the prior year. 

c. Because of the size differences between Target and Walmart (Walmart has more than 6 times the revenue), it is best to compare the two companies on the basis of percent changes from the prior year. Walmart's revenues increased by 6.0% while Target's revenues increased by only 3.7%. The expenses of both companies increased by approximately the same percent as revenues, which indicates no major change in operations for either company. Walmart's operating income increased by 4.0% while Target's operating income increased by only 1.3%. Overall, it appears that Walmart had a better operating performance in the past year than Target.