Advanced Financial Reporting
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- Date Submitted: 11/17/2010 12:18 AM
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PartⅠComparison of Performance Metrics
Performance metrics are significant for individual investors to understand and assess company’s financial performance and finally make informed decisions, because they indicate situations and changes in key items in financial statements. However, different companies usually establish different performance metrics.
1.1 Wal-Mart’s 5 Performance Metrics
Wal-Mart, a leader in the retail industry worldwide, establishes 5 main performance metrics: total sales and comparable store sales, operating income, earnings per share, return on investment and free cash flow.
1.1.1 Total Sales
Total sales indicate the amount of money Wal-Mart brought in during one past financial year. Total net sales is a more accurate figure by deducting returns, allowances for damaged or missing goods and any discounts allowed from total sales. Comparable store sales is a measure of performance of existing retail stores by comparing sales for such stores for a particular period with the corresponding period in the prior year.
1.1.2 Operating Income
Operating income shows the amount of profit realized from a business’s own operations, excluding operating expenses and depreciation from gross income. The ratio of operating income and net sales refers to operating margin, which indicates the left proportion of a company’s revenue after paying for variable cost of production (Investopedia, 2010).
1.1.3 Earnings per Share
Earnings per share indicates Wal-Mart’s profitability by showing the portion of a company’s profit allocated to each outstanding share of common stock. It is calculated as: EPS = (net income – dividends on preferred stock)/weighted average outstanding shares.
1.1.4 Return on Investment
Return on investment is a simple, popular and flexible financial metric for evaluating the efficiency of an investment. The general formula is ROI= (gain from investment-cost of investment)/cost of investment. In Wal-Mart, ROI is modified as adjusted...
Performance metrics are significant for individual investors to understand and assess company’s financial performance and finally make informed decisions, because they indicate situations and changes in key items in financial statements. However, different companies usually establish different performance metrics.
1.1 Wal-Mart’s 5 Performance Metrics
Wal-Mart, a leader in the retail industry worldwide, establishes 5 main performance metrics: total sales and comparable store sales, operating income, earnings per share, return on investment and free cash flow.
1.1.1 Total Sales
Total sales indicate the amount of money Wal-Mart brought in during one past financial year. Total net sales is a more accurate figure by deducting returns, allowances for damaged or missing goods and any discounts allowed from total sales. Comparable store sales is a measure of performance of existing retail stores by comparing sales for such stores for a particular period with the corresponding period in the prior year.
1.1.2 Operating Income
Operating income shows the amount of profit realized from a business’s own operations, excluding operating expenses and depreciation from gross income. The ratio of operating income and net sales refers to operating margin, which indicates the left proportion of a company’s revenue after paying for variable cost of production (Investopedia, 2010).
1.1.3 Earnings per Share
Earnings per share indicates Wal-Mart’s profitability by showing the portion of a company’s profit allocated to each outstanding share of common stock. It is calculated as: EPS = (net income – dividends on preferred stock)/weighted average outstanding shares.
1.1.4 Return on Investment
Return on investment is a simple, popular and flexible financial metric for evaluating the efficiency of an investment. The general formula is ROI= (gain from investment-cost of investment)/cost of investment. In Wal-Mart, ROI is modified as adjusted...