MIlestone Three - Modeling Techniques FIN 691
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Milestone 3 – Modeling Techniques
1
Modeling Techniques
FIN 691
Professor Edward Strafaci
Southern New Hampshire University
Nicole Johnson
October 15, 2023
Milestone 3 – Modeling Techniques
2
To be able to successfully build a financial model for Walmart to see if expanding more into global markets is the correct course of action, or if it would benefit best to input more into the current markets they already have and build upon their already successful model, I plan to showcase a pro forma income state. Pro formas, although under some ridicule for being assumption-based, will still be able to showcase all the points that investors and shareholders will want to see when looking at changing up the business plan. Throughout a pro forma the projections for the future cash flows, revenues, cost of goods sold, and more can be showcased, then can also be shifted, or changed to showcase a different model if desired (N.A. 2023). Pro formas can be edited to reject real-life numbers as changes happen even after they are initially created with projections based on the previous year's earnings
and reports. A pro forma is a presentation of data, typically financial statements to reflect an “as if” basis from real-world data and projections calculated from them (Thomas, 2016). To strengthen the pro forma, pair it with a GAAP report to show that the proper accounting rules and standards are being followed. The GAAP statement adds an additional layer to present to the shareholders to make your case stronger on whatever issue you are trying to present, in the case of Walmart, we will be visiting the benefits of either growing more internationally or staying the course and growing the current market they are focused on. Typically, a pro forma is a hypothetical statement with amounts or estimates built in to show a picture of a company’s profits in certain non-reoccurring scenarios. Pro forma is just a statement tool to take small snips of hypothetical numbers and information to help build the case for a business to make a move in one direction or the other. This allows them to have some
Milestone 3 – Modeling Techniques
3
evidence to present to shareholders to gain confidence and support to help them move in the direction they want to go to achieve financial gains in the upcoming years. In the case of Walmart, they are already international, so the case of if they need to stay and focus more on the market they already obtain, or if the expansion into other markets would make sense to gain more financial gains. Walmart is already quite business savvy making a name
for themselves globally and making waves with internet sales as well. They have also revolutionized grocery delivery, and the ability to order online and pickup. The issue with presenting these options through a pro forma is the exclusion of things, it is easier to lead with the main topics and hit the high spots, but this sometimes leads to pertinent information being left out that could show a clearer picture, but the business wants to show positive earnings and this can lead to the expectation that people are supposed to forget that other
expenses and items are real and need to be included (Estevez, 2020). For Walmart, the items included in the pro forma will need to be straightforward, and not overly complicated. They have
a lot of finances to review, and trying to lead with the most pertinent information is going to be important to show if the growth expansion will be beneficial, or just continuing to grow in the current market. Walmart currently is ranked 5
th
among competitors in a handful of category ratings, with Costco leading the way in all categories. Costco operates domestically with 591 stores and internationally with 268 stores, with a split of 69% domestic to 31% international (Lu, 2023). Walmart operates 10,500 stores and clubs in 19 countries and eCommerce websites (Walmart, 2023). These numbers show that Walmart has more of a reach than Costco, however, it seems like Costco might have more to offer from products to customer service that edges them above Walmart.
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Milestone 3 – Modeling Techniques
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In conclusion, the pro forma statement will need to showcase how additional expansion can better the numbers against competitors. Walmart may need to revisit its structure in the market it already currently has and attempt to gain grounds from where it currently stands rather than attempt to gain more grounds. It appears through my research thus far, that Walmart has already had unsuccessful expansions in Germany and other countries due to their inability to adapt to the cultures and needs (Lutz, 2013). It will be interesting to see how the numbers play out and see where Walmart can gain ground and grow.
Milestone 3 – Modeling Techniques
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References:
Comparably. 2023. Walmart Competitors. Retrieved on October 15, 2023, from https://www.comparably.com/companies/walmart/competitors
Crail, Chauncey. September 9, 2022. Generally Accepted Accounting Principles (GAAP) Guide. Retrieved on October 15, 2023, from https://www.forbes.com/advisor/business/generally-
accepted-accounting-principles-gaap-guide/
Estevez, Eric. December 30, 2020. Understanding Pro-Forma Earnings. Retrieved on October 15, 2023, from https://www.investopedia.com/articles/01/103101.asp
Lu, Marcus. September 8, 2023. Visualizing the Number of Costco Stores, by Country. Retrieved on October 15, 2023, from https://www.visualcapitalist.com/number-of-costco-stores-by-
country/#:~:text=As%20of%20August%202023%2C%20the,presence%20with%20a
%20treemap%20diagram
.
Lutz, Ashley. October 11, 2013. 4 Countries That Wal-Mart Has Failed to Impress. Retrieved on
October 15, 2023, from https://www.businessinsider.com/countries-that-wal-mart-hasnt-
dominated-2013-10
N.A. October 2, 2023. A Guide to the Most Effective Financial Modeling Techniques. Retrieved on October 15, 2023, from https://iimskills.com/financial-modeling-techniques/#:~:text=The%20most%20common
%20techniques%20are,comparative%20analysis%2C%20and%20company%20valuation
.
Milestone 3 – Modeling Techniques
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Thomas, William C. 2016. The Pros and Cons of Pro Forma Financial Reporting. Retrieved on October 15, 2023, from https://www.tx.cpa/docs/default-source/communications/today's-
cpa/financial-reporting-today-39-s-cpa-sept-oct-2016.pdf?sfvrsn=2
Walmart. 2023. About.
Retrieved on October 15, 2023, from https://corporate.walmart.com/about#:~:text=Walmart%20operates%20approximately
%2010%2C500%20stores,million%20in%20the%20U.S.%20alone
.
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