Recent Year Prior Year Revenue $421,849 $408,085 Operating expenses 396,307 384,083 Operating income $ 25,542 $ 24,002
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:
$13,764 million increase ($421,849 – $408,085)
3.4% increase ($13,764 ÷ $408,085)
2. Operating expenses:
$12,224 million increase ($396,307 – $384,083)
3.2% increase ($12,224 ÷ $384,083)
3. Operating expenses:
$1,540 million increase ($25,542 – $24,002)
6.4% increase ($1,540 ÷ $24,002)
b. During the recent year, revenue increased by 3.4%, while operating expenses increased by 3.2%. As a result, operating income increased by 6.4%, a favorable trend from the prior year.
c. Because of the size differences between Target and Walmart (Walmart has over 6 times the revenue), it is best to compare the two companies on the basis of percent changes. Target and Walmart increased their revenue from the prior year by approximately the same percent (3.1% for Target and 3.4% for Walmart). However, Target's operating expenses increased by only 2.4% compared to Walmart's 3.2% increase. As a result, Target's operating income increased by 12.4% compared to Walmart's 6.4% increase. Based upon this analysis, it appears that Target was better able to control its operating expenses as its revenue increased than was Walmart.