Analysis of Wal-Mart Managerial Accounting Process Essay

Company DescriptionFor the final project of managing finance Wal-Mart Stores Inc is chosen as the tidings target. Being one of the grocery retail shop leaders in the world, Wal-Mart (WM) operates business with 10,000 retail units in 27 countries with about USD444 million of sales in 2012 (Wal-Mart homepage 2012). Driven by the corporate strategies, WM growth rapidly around the world. To support the growth, draw offrial dominance in the operations is very important. Since budget is the early step which put motorbuss plan into operation, lets take a blotto look at WMs budgeting serve up.Budgeting ProcessBudget reflects a confederacys plan, twain coarse and short term, to accomplish business objectives. The focus of the WMs budgeting dust is on providingbetter quality and function to the customers. WM follows needed considerations in its budgeting process and procedures. They implements flexible budget in its business that identifies smasher price drivers and everyocates peachy to those over head be properly. Through this way, WM is able to make a budget for different levels of activity. WM sterilize goals and objectives and define their mission and vision surpassly in their budgeting process. They plan for the stock requirement in methodicalness to achieve the forecasted level of sales. Budgeting process is overly helpful to measure the performance of different departments in WM. It enables them to manage costs of different levels of execution by weighing the actual costs against the budgeted cost (Plunkett, Attner & Allen, 2011, p. 558-560).WM takes corrective action to control those costs in say to make this closer the flexible budget prepared in advance. WM communicate goals and targets of each employee through budget and continuous report back to the corporate on operation, investiture and financial activities ground on budget tellation. Its budgeting procedures help WM to be competitive in cost and to economically use the resource s that made better revenue for the participation. In contrast to this, in this procedure, prediction is difficult for the manager because they believe on a range of estimates of what to expect financially. In addition, this process as well as depends on dissimilar variables that affects to each other. It is very complicated to prepare and difficult to understand for other employees of the company (Axson, 2010, p. 132-140).Management accountancy SystemManagement history system (MAS) in WM play a crucial role to modify their business activities effectiveness. Management accounting information are collected, stored and prepared through use of well designed accounting information system. It simplifies getting information to people outside of the organization when necessary. Through use of MAS, WM determines its sign purchase price of raw material including subsequent ope rating and master(prenominal)tenance costs. MAS help to evaluate the determine structures effectiveness by showing cost, sales and revenue data. It gives idea to the company to check the price of the product to be competitive in the market. WM disseminates this information to its various parties through conductingformal and unaffixed meetings, conferencing, global network and employees survey techniques (Needles, Powers & Crosson, 2010, p. 720-722).Moreover, WM in the first place uses its accounting reports based on principles of GAAP to make inform its stakeholders about its financial position. WM uses the strategic foc use accounting system which helps to enhance the effectiveness of decision fashioning within the company. WM use MAS for everything from entering in new market to vendors/products selection and even new set process, promotion 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 kind of alternatives with integr ated 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 facilitate proper integration in all kind of activities within the company.WM currently uses Vision Suite accounting software that includes different aspects of finance manage 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 throne be generated for management to make decisions. On the other side, it can be susceptible for computer viruses and hackers. In absence of proper control and security, it can constitute problems for the confidentiality of the company (Gilbertson & Lehman, 2008, p. 6, 437 ).Costing SystemIn term of be process, WM is focus on inven tory control since that is the most(prenominal) important part of their business to determine its profitability. To determine the cost of inventory, WM uses several costing method. In beau monde to reduce inventory cost as well as determining accurate cost of products, WM uses both last in first out and FIFO. By using the retail method of accounting, inventories are at low cost or at least at market rate. This will help to increase the effectiveness of operation since WM is retailbusiness and this will facilitates competitive advantage over competitors. According to WMs 2012 annual report, they use LIFO to determine weighting average cost for products in US and for inventories for outside(a) 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, everyday 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 nates of this, WM takes effective decisions regarding price structure. The ABC approach can exhibit the actual work done relating with merchandise more than(prenominal) accurately in sight 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 payable to having more cost pool volume. For instance, Wal-Mart is a large organization, as cost accounting information is difficult to s eparate, due to the presence of multiple product lines and numerous machine setups in complex production environments (Drury, 2006, p. 350-362).Capital determination Making ProcessEvaluation of investment appraisal techniques is useful in detonator decision do process by bringing together financial and strategic aspects of the project. The capital investment decisions of WM are mainly driven by its financial priorities such 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 below move1. Project information collection collect information such as past performance, costs, benefits and associated risks. 2. Evaluating the project habituate cost benefit analysis, net present value, IRR etc to evaluate the project. WM uses discounted cash flow (DCF) investment appraisal technique in capital decision making process. They only invest it s capital in projects that meet stringent payback full stops 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 taking into account the incremental revenue, time, company reputation etc..The above help WM to ensure optimal engagement of their capital resources. For example, WMs new solar project in California, they focused on DCF method to fix that it should invest its capital in this project or not. After 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 future pro spective (Ailworth, 2012).Capital StructureIn term of capital acquisition 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 onwards deciding the best sources of acquiring financial capital. Sometimes, it also considers the financing cost to arrange the capital for caterpillar track 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 equity, WM is relying more on funds get from market. Additionally, capital structure of WM is risky as their financingrely heavily on debt or loans that whitethorn impact earnings. WM has been operating at 1.71 debt equity ratio (Yahoo Finance, 2012). Fundi ng 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 extension positive impact on financial result or company performance and meeting require on operation and investment (Seidman, 2004, p. 77-80). This is important to maintain low capital cost while 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 motivate and improve effectiveness of employees and also help to create long term objective for the organization. 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. Given 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 web sites are being used as well. For the annual report, 3 years has been reviewed in order to have a more clear picture 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 accounti ng systems such as budgeting/costing process, capital structure etc are available in thoseresources. Observation methodology is used to contemplate 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 pecuniary Management. ground forces Cengage Learning.Drury, C. (2006). Cost and Management score 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 smile Verlag.Leitner, A. (2007). Activity Based Costing. Germany GRIN Verlag.Needles, B. E., Powers, M. & Crosson, S. V. (2010). Financial and Managerial Accounting. USA Cengage Learning.Plunkett, W. R., Attner, R. F. & Allen, G. S. (2011). Management. USA Cengage Learning.Axson, D. J. (2010). Best Practices in Planning and Performance Management Radically Rethinking Management for a Volatile terra firma. USA John Wiley & Sons.Seidman, K. F. (2004). 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