From the course: Accounting Foundations

Income statement example: Walmart's expenses

From the course: Accounting Foundations

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Income statement example: Walmart's expenses

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- Now let's look at Walmart's expenses, the stuff in the income statement in between Sales at the top and Net Income at the bottom. Now, in your mind, go into a Walmart store. Let's say that we go in and buy stuff with a total selling price of $100. Do the owners of Walmart, the shareholders, get to keep that whole $100? No, they have to pay business expenses. The first thing they have to do is pay their supplier for the thing that you just bought. That's called the cost of sales here. So the cost of sales is the wholesale cost of the stuff that Walmart sells to you and me. In this income statement, the cost of sales is $490 billion. That is the amount that Walmart must pay to its suppliers for the items that you and I purchase from Walmart during the year. Think of sales as the retail selling price, and cost of sales is the wholesale purchase costs that Walmart had to pay to buy the items. Now, what else does Walmart have to pay for out of the $100 that they get from us? Well, they have to pay the cashier. They have to pay the store manager. They have to pay for the electricity. They have to pay for property taxes. They have to pay for advertising. These expenses are reported here under the heading Operating, selling, general and administrative expenses, totaling almost $131 billion. So you can see that when you pay $100 to Walmart, they don't get to keep the whole $100. Now, Walmart is left with what's called their operating income, $27 billion, in this case. Total revenue is 648 billion. But after the suppliers are paid, cost of sales, and after all the other administrative expenses are paid, Walmart is left with just $27 billion. But we're not done with Walmart's expenses. They've borrowed some money, so they have to pay some interest. Now, they offset that a little bit with some interest that they've earned on some of their savings accounts, but they still have to pay interest. The net amount of interest is a little bit over $2.1 billion. Walmart also has other losses from things like selling old trucks and old store locations, and such of just over $3 billion. Well, we're down to $21.8 billion. But now Walmart has to pay its income taxes. Total income taxes for Walmart for this year is almost $5.6 billion. Most of this is paid to the US government, but Walmart also pays income taxes in the many other countries around the world in which it operates. Some of Walmart's income, $759 million belongs to minority partners in some of Walmart's subsidiaries. The final remainder, the amount of net income that belongs to Walmart's shareholders is $15.5 billion. Now, let's do some simple comparisons. If I pay Walmart $100 for something, how much did that thing cost Walmart? Well, we can find that out by dividing cost of sales by net sales, the answer's about 76%. In other words, if Walmart sells you and me something for $100, Walmart has to pay its suppliers $76 to buy that thing. Now, let's divide bottom line net income by the $648 billion in total revenue. The percentage is about 2.4%. Now, that might seem a little discouraging to you. Why does Walmart go to all this trouble? They sell something for $100 and the owners of Walmart are left with just $2.40 at the end. How does Walmart stay in business? Well, go on a Saturday afternoon to a Walmart location. Is it a quiet place or a busy place? It's an incredibly busy place. Why? It has to be a busy place because Walmart only gets to keep 2.40 of profit for every dollar they sell. Accordingly, they've got to sell a lot of stuff. Now, we know quite a bit about Walmart's business just by looking through their income statement.

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