From the course: Accounting Foundations

Balance sheet example: Walmart's liabilities and equity

From the course: Accounting Foundations

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Balance sheet example: Walmart's liabilities and equity

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- Where did Walmart get the $252 billion it needed to buy its assets? That information is contained in the other part of the balance sheet, liabilities and equity. Walmart borrowed some of the money, and some of the money was invested by the owners, the shareholders. So let's take a look at that first item there, short-term borrowings, $878 million. Short term borrowings. You know what that is? Sure, you know what that is. Walmart went to various banks and borrowed some money, and they said, we'll pay you back soon, short term. Now, accountants define short term as less than a year. So, these are loans that Walmart is going to have to pay back within a year. The second item there is accounts payable, which is almost $57 billion. What's accounts payable? When Walmart buys inventory from Procter & Gamble or Black+Decker or whomever else, they buy it, they have it shipped to their store, they put it on their shelves so that you and I can buy it, but Walmart doesn't have to pay cash up front. Walmart tells Proctor & Gamble, listen, thanks, ship it to our store, we'll pay you later, 30 days from now, 45 days from now. So this accounts payable represents amounts that Walmart owes to its suppliers for inventory that Walmart has already received but hasn't paid for yet. An interesting thing to do is do a little comparison of a couple of numbers in this balance sheet. Do you remember what Walmart's inventory is? It's about $55 billion. Accounts payable is about $57 billion. Meaning, if you go into a Walmart store, stand right in the middle of the store and just look around, you're going to see their inventory. Has Walmart already paid for most of that inventory? No. In fact, because the accounts payable amount is greater than the inventory amount, Walmart has already sold some inventory for which it has not yet paid. Most likely when you pick something off a shelf at Walmart, put it in your cart, and go up to the front to buy it, Walmart has not yet paid for that thing themselves. That's an interesting way to do business. It shows that Walmart is very credit worthy. Suppliers trust them. Now go ahead and buy stuff from us on credit, and you go ahead and sell it before you even pay us. We'll trust you for the money. Now, the balance sheet contains so much good information. We just learned something fun about Walmart just by looking at their balance sheet and comparing the amount of inventory to the amount of their accounts payable. Balance sheet's great. Now look down a little bit about halfway down the list. You see long-term debt, $36 billion. Now, what do you think that is? Short-term borrowing was loans Walmart has to pay back within one year. And what about long-term debt, long-term borrowing? Yeah, that's amounts that Walmart has to pay back more than a year from now, 5 years, 7 years, 12 years. So Walmart's long-term loan's total $36 billion. Okay, now keep going down the list to find the single largest line item. The amount is $89.814 billion. What is that? That's retained earnings. Let's remind ourselves what retained earnings is. That's the amount of profits that have been generated by Walmart that have been kept in the business and used to buy assets. And that goes from the beginning of Walmart until the current date. So from July 1962, when Walmart first started, until January 31st, 2024, when these numbers were prepared, Walmart shareholders have authorized a company to keep $89.814 billion of profit in the business to be used for expansion. We see retained earnings is the largest single source of financing that Walmart has. So where did Walmart get the $252 billion it needed to buy its assets? A lot of it came from retained earnings. Some of it came from long-term debt. A lot of it came from accounts payable. We see in the balance sheet a summary of Walmart's assets and where Walmart got the money to buy its assets.

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