ACC 230 Week 3 DQ2 - 7388

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DQ 2 • Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily a good indicator of a firm’s financial success?” Look for indicators like liquidity or solvency to answer this discussion question.

Wal-Mart Corporation Financial Statements:

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=wmt&lstStatement=Income&stmtView=Ann

Based on the income statement posted above for Wal-Mart Corporation with stores it shows how the company claims to have posted a high gross profit gain but in reality the net income actually earned is significantly lower than what is reported. Although the company did show a profit and sure as stockholders and investors a return on their investment the actual return with would not be as high as readily predicted.

When comparing the net income figures to the gross profit figure there is a significant difference between the two. The gross profit figure shows over 95,000 and profit for the fiscal year whereas the net income figure is a little over 13,000 the same fiscal year it shows that Wal-Mart has increase its operating expenses and has incurred several higher operating or costly expenses as compared to previous years. Although the company does continue to show a profit and continues to be profitable the bottom-line figures appear to be only slightly higher each year after operating costs, including taxes, and required expenses are removed. I welcome your thoughts or opinions on this particular subject.


Solution Description

DQ 2 • Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily