Analysis of Wal-Mart Managerial Accounting Process Essay

Company interpretationFor the final project of managing finance Wal-Mart Stores Inc is chosen as the give-and-take target. beingness one of the grocery retail shop leaders in the world, Wal-Mart (WM) operates phone line with 10,000 retail units in 27 countries with ab step up USD444 million of sales in 2012 (Wal-Mart home rogue 2012). Driven by the corporal strategies, WM growth rapidly around the world. To concur the growth, grapplerial usefulness in the unconscious processs is very important. Since calculate is the first base step which put managers programme into operation, lets take a close look at WMs budgeting adjoin.Budgeting workBudget reflects a play alongs plan, both long and lilliputian landmark, to accomplish chore objectives. The focus of the WMs budgeting remains is on providing remediate quality and services to the customers. WM follows needed considerations in its budgeting offshoot and procedures. They implements flexible budget in its business th at identifies over precede speak to drivers and allocates seat of government to those over head be properly. through with(predicate) this way, WM is able to make a budget for various levels of activity. WM set goals and objectives and define their mission and vision clearly in their budgeting process. They plan for the stock requirement in collection to achieve the forecasted level of sales. Budgeting process is besides helperful to measure the performance of divers(prenominal) de infractments in WM. It enables them to manage costs of different levels of action by weighing the existent costs against the budgeted cost (Plunkett, Attner & Allen, 2011, p. 558-560).WM takes corrective action to control those costs in ordinate to make this closer the flexible budget prepared in advance. WM commune goals and targets of each employee through budget and continuous bailiwick back to the corporate on operation, investing funds and financial activities based on budget teaching . Its budgeting procedures help WM to be competitive in cost and to economically use the resources that do better revenue for the company. In contrast to this, in this procedure, prediction is laborious for the manager because they believe on a range of estimates of what to expect financially. In addition, this process also depends on various variables that affects to each other. It is very change to prepare and difficult to understand for other employees of the company (Axson, 2010, p. 132-140).Management story SystemManagement manner of accounting constitution (MAS) in WM play a crucial role to rectify their business activities utileness. Management accounting data are collected, stored and prepared through use of well designed accounting swearation system. It simplifies getting information to people outside of the organization when necessary. Through use of MAS, WM stops its initial purchase price of raw material including subsequent operating and maintenance costs. M AS help to evaluate the pricing structures effectiveness by showing cost, sales and revenue data. It gives idea to the company to decide the price of the product to be competitive in the marketplace. WM disseminates this information to its various parties through conductingformal and informal meetings, conferencing, global acquitwork and employees peck proficiencys (Needles, Powers & Crosson, 2010, p. 720-722).Moreover, WM mainly uses its accounting insures based on principles of GAAP to make inform its stakeholders about its financial position. WM uses the strategic management accounting system which helps to conjure up the effectiveness of decision making within the company. WM use MAS for everything from entering in new market to vendors/products selection and even new pricing process, promotional material strategies and to distribution (Needles, Powers & Crosson, 2007).The accounting information from MAS of WM helps in planning, controlling and other managerial activities . Their system also able to come up all diversity of alternatives with integrated accounting information which assist management to find out the best strategy for organizational effectiveness improvement (Wal-Mart homepage 2012). WM disseminate managerial accounting information through budgets for all departments which help all departments to drive proper integration in all kind of activities within the company.WM currently uses Vision Suite accounting software package that includes different aspects of finance interchangeable AR/AP, general ledger, check writing and external accounting integration. This software is faster and relatively cheaper and generates accounting documents automatically. Through this, many types of useful reports after part be generated for management to make decisions. On the other side, it rump be susceptible for computer viruses and hackers. In absence of proper control and security, it foot create problems for the confidentiality of the company ( Gilbertson & Lehman, 2008, p. 6, 437 ). appealing SystemIn term of cost process, WM is focus on inventory control since that is the most important part of their business to determine its advantageousness. To determine the cost of inventory, WM uses several cost method. In order to reduce inventory cost as well as determining accurate cost of products, WM uses both LIFO and FIFO. By victimization the retail method of accounting, inventories are at low cost or at to the lowest degree at market rate. This will help to enlarge the effectiveness of operation since WM is retailbusiness and this will facilitates competitive good over competitors. According to WMs 2012 annual report, they use LIFO to determine weighting average cost for products in US and for inventories for international operations are using the FIFO method (Wal-Mart annual report 2012, page 31). These differences way of costing will enhance effectiveness of the company in managing cost. WM accomplish their strategy, e veryday low cost approach (EDLC) through these costing method (Wal-Mart annual report 2012, page 18).So as to allocate cost to different products, WM uses the activity based costing (ABC) system. ABC system enables the WM to better understand the cost structure and cost drivers. On the stern of this, WM takes effective decisions regarding price structure. The ABC approach croupe exhibit the actual work done relating with production more accurately in order to be useful in management accounting. The ABC system is use by management to collect a full cost view. VM can reduce the overhead cost by minimizing the number of cost drivers (Leitner, 2007, p. 5).In contrast to this, there is possibility that as per this method, costs can be more than profits. Apart from this, it also requires data input from multiple departments that can create greater risk of failure of data inputs. The cost of managing the system is also high ascribable to having more cost pool volume. For instance, Wal-M art is a large organization, as cost accounting information is difficult to separate, due to the presence of multiple product lines and numerous machine setups in compound production environments (Drury, 2006, p. 350-362).Capital Decision Making ProcessEvaluation of investment appraisal techniques is useful in slap-up decision making process by bringing together financial and strategic aspects of the project. The peachy investment decisions of WM are mainly driven by its financial priorities such(prenominal) as growth, leverage and returns on investment. The major concern of WM is international expansion and its profitability (Wal-Mart annual report 2012, page 28). WM select and manage projects through the downstairs steps1. Project information collection collect information such as past performance, costs, benefits and associated risks. 2. Evaluating the project Use cost benefit outline, net present value, IRR etc to evaluate the project. WM uses discounted hard cash flow ( DCF) investment appraisal technique in jacket crown decision making process. They only invest its capital in projects that meet stringent payback periods and yield at least a required rate of return in a DCF analysis (Brigham & Daves, 2012, p. 544-549). 3. Selecting project WM uses NPV and IRR method to evaluate projects alternative. For selecting projects, they will based on different criteria of the projects, but also fetching into account the incremental revenue, time, company temper etc..The above help WM to ensure optimal utilization of their capital resources. For example, WMs new solar project in California, they foc utilize on DCF method to decide that it should invest its capital in this project or not. afterwards implementing this technique, WM determined the average payback period for its energy saving projects that was 6.3 months. It also provided an annual return on investment of 190 percent on these projects that was profitable for the company. Therefore, WM wants to consider these discount flow values for its new solar project in order to make profits as forthcoming prospective (Ailworth, 2012).Capital StructureIn term of capital scholarship decision, the main criteria are the long term sustainability and stability in performance. The cash flow is the main source of capital that ensures the long term success. WM considers market position, market trend, credit policy, financial status and stakeholders interests before deciding the best sources of acquiring financial capital. Sometimes, it also considers the financing cost to arrange the capital for running its operations. Credit rating of the company influences the WMs decision on capital structure because its good rating helps it to take the credit from the financial institutions (Kronwald, 2010, p. 5-16).Instead of issuing common justness, WM is relying more on funds adoption from market. Additionally, capital structure of WM is risky as their financingrely severely on debt or loans t hat may impact earnings. WM has been operating at 1.71 debt equity ratio (Yahoo pay, 2012). Funding decisions of WM is associated with capital rising through debt more because of taking benefits of tax deduction and lower financing cost. It has some implications such as funds generation positive impact on financial upshot or company performance and meeting needs on operation and investment (Seidman, 2004, p. 77-80). This is important to maintain low capital cost firearm achieving the company goals in the capital structure of the company (Wal-Mart Annual report 2012 page 28).ConclusionIn order for the company to make effective managerial decision, various kinds of processes and approaches in budgeting and costing are necessary. WM implemented a well quality budgeting process which improves their effectiveness in accomplishing their objectives. Their budgeting process helps to actuate and improve effectiveness of employees and also help to create long term objective for the organi zation. They use MAS to do have the most cost effective vendors and products selection and also to manage all the accounting information to improve the effectiveness of the managerial decision. In order to reduce the total cost of products and maintain competitive position in the market, WM selected the appropriated costing process and procedure. granted their effective method of capital resources and effective capital structure for obtaining capital which helps WM to be efficiency in a lot of capital decision making as well as objectives accomplishment. In summary, the overall managerial accounting practices with WM is quite effective.Information Sources and MethodologyMost of the information of this discussion was collecting from the annual report of WM for 2012. In addition, finance text books, journals and meshing sites are being used as well. For the annual report, 3 geezerhood has been reviewed in order to have a more clear portray of their growth as well as if there were any managerial practices or process been changed. A lot of information about WMs financial and managerial accounting systems such as budgeting/costing process, capital structure etc are available in thoseresources. Observation methodology is used to analyze information.ReferencesAilworth, E. (2012). Walmart to install solar panels on 27 stores in Mass. Retrieved from http//bostonglobe.com/business/2012/05/14/walmart-install-solar-panels-stores-mass/kxHjt9sQrPxSvN5sPWTjsN/story.html Accessed on Oct 25, 2012Brigham & Daves, P. R. (2012). Intermediate Financial Management. USA Cengage Learning.Drury, C. (2006). Cost and Management be An Introduction. USA Cengage Learning EMEA.Gilbertson, C. B. & Lehman, M. W. (2008). Fundamentals of Accounting Course 1. USA Cengage Learning.Kronwald, C. (2010). Credit Rating and the Impact on Capital Structure. Germany smiling Verlag.Leitner, A. (2007). Activity Based Costing. Germany GRIN Verlag.Needles, B. E., Powers, M. & Crosson, S. V. (2010). F inancial and Managerial Accounting. 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