Running Head: ETHICS AND COMPLIANCE PAPER

Ethics and Compliance Paper Team Members FIN370 Date Instructor Name

Running Head: ETHICS AND COMPLIANCE PAPER

Ethics and Compliance Paper Todays businesses descend on two things we all can recount for and that is a mission and vision. If you had a few minutes to browse any business website you would most likely find it on the first pages of the site. This mission and vision statement gives an outlook on what the anticipated product or service the company will provide its customers and stakeholders. Yes, all businesses promise to have the best product of its kind or the best service of its aptitude, but when you dig a little deeper into the companys financial health, things become more realistic. There are many things disclosed about a company by just taking a look at yahoo.com or other websites who tell the truth about the mission and vision statement of the company. Assess the role of ethics and compliance in your organizations financial environment According to Wal-Mart.com, Wal-Mart requires honest and accurate recording and reporting of financial information in order to make responsible business decisions. All financial books, records, and accounts must accurately reflect financial transactions and events. They must conform to generally accepted accounting principles, and to Wal-Marts system of internal controls. No Walmart document or record may be falsified for any reason. No undisclosed or unrecorded accounts of Wal-Marts funds or assets may be established for any purpose (para. 1). Describe procedures your organization has in place to ensure ethical behavior. The Wal-Mart Code of Ethics centers around three principles and they are; Respect for the Individual, Service to the Customer and Striving for Excellence. Nevertheless,.

Running Head: ETHICS AND COMPLIANCE PAPER

The main goal is to promote integrity within the company and provide education amongst employees. This includes developing and upholding Wal-Marts policies for ethical behavior. Through ethics education Wal-Mart raises awareness, this education is integrated within their training program. Walmart has implemented this program in the U.S. and continues to expand its electronic and instructor led program around the world to reach those stakeholders employed overseas. These expectations are not only for the employees but, Wal-Mart suppliers must also be compliance with the standards set forth by the Wal-Mart Global Ethics Office. This help suppliers understand the importance and equip them with the tools needed to follow these expectations. Each supplier is presented with the Standards for Suppliers Manual. Explain how financial markets within the United States The financial market of the United States is commonly known as a capital market. A capital market is contains trading for long-term tradable assets (Titman, Keown, & Martin, 2011). In a capital market investors place portions of wealth into long-term investments, which are in the form of stocks and bonds. The capital market is split into a primary market and secondary market (Titman et al., 2011). The primary market is the place new securities are sold for companies to finance business (Titman et al., 2011). In the primary market a company sells the initial stock or bond to finance the companys business. These funds go directly to the company but carry a weighted cost of capital. It is similar to paying interest on a loan. Shareholders require some sort of return on this investment. Without the possibility of growth the market is null. The securities from the primary market trade in the secondary market between other entities (Titman et al., 2011). Therefore, the companies do not receive the money from these trades. The secondary market trades ownership of securities between different entities.

Running Head: ETHICS AND COMPLIANCE PAPER

Identify processes the organization uses to comply with SEC regulations. The Securities and Exchange Commission (SEC) is a federal agency that helps monitor and supervise the exchange of securities to protect all the investors against malpractice, for example insider trading. The Securities and Exchange Commission not only supervises the exchange of securities; it regulates the issues and transactions in securities while prosecuting all illegal stock manipulations. The SEC is responsible for implementing a series of regulatory initiatives required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (U.S. SEC, 2013). Wal-Mart being the well-established and successful corporation that has hundreds of stores operating worldwide has a rough task of meeting SEC regulations. Wal-Mart employs over 2.1 million associates worldwide, including approximately 1.4 million associates in the United States (U.S. SEC, 2013). Due to the high volume of associates working for Wal-Mart, SEC compliance is handled with strict processes to ensure the organization remains within SEC regulations. The company is also at stake and responsible for its business operations and its employees. Wal-Mart has to have the ability to ensure that the entire corporation is run properly. Upon our teams review of Wal-Marts financial records, we found that the company keeps proxy statements, definitive additional proxy soliciting materials (which allows Wal-Mart to post and show their proxy materials over the Internet), and annual reports for security holders. Quarterly reports also provide a continuing view of the companys financial position were also filed as well as a notice of exempt solicitation, reports of unscheduled material events or

Running Head: ETHICS AND COMPLIANCE PAPER

corporate events, and statements of changes in beneficial ownership of securities. These are all documents needed to maintain the company within SEC guidelines. In addition to these documents, the holder of records of shares, for Wal-Mart stores, must attend the Annual Shareholders meeting. In this meeting, the Board requires everyone to cast their votes for or against the shareholders proposals. Wal-Mart must continually take steps and follow guidelines to stay in compliance with SEC regulations. The regulations helps Wal-Mart minimize conflict of interest that often arises in complex global corporations Evaluate your organizations financial performance during the past 2 years, using financial ratios. Calculate the ratios for each year: Current, Debt, Return on equity, Days receivable Current Ratio According to Titman, Keown, and Martin, we can, assess a firms overall liquidity by comparing its current (liquid) assets to its current (short-term) liabilities. 2011, p. 80). The Current Ratio= Current Assets/Current Liabilities. As of the period ending January 31, 2012, Wal-Marts total current assets equal $59,975,000 and their total current liabilities equal $62,300,000 (Walmart Balance Sheet, 2013). Hence, their Current Ratio is 0.882424. As of the period ending January 31, 2013, Wal-Marts total current assets equal $59,940,000 and their total current liabilities equal $71,818,000 (Walmart Balance Sheet, 2013). Hence, their Current Ratio is 0.83461.

Running Head: ETHICS AND COMPLIANCE PAPER

Debt Ratio We calculate the firms debt ratio as total liabilities divided by total assets. (Titman, Keown, and Martin, 2011, p. 85). The Debt Ratio= Total Liabilities/Total Assets. As of the period ending January 31, 2012, Wal-Marts total liabilities equal $121,687,000 and their total assets equal $193,406,000 (Walmart Balance Sheet, 2013). Hence, their Debt Ratio is 0.629179. As of the period ending January 31, 2013, Wal-Marts total liabilities equal $126,243,000 and their total assets equal $203,105,000 (Walmart Balance Sheet, 2013). Hence, their Debt Ratio is 0.621565. Return on Equity According to Titman, Keown, and Martin, a firms net income consists of the earnings it has left over after its interest expense has been paid. These are the earnings available for distribution to the firms shareholders. When net income is divided by the dollar amount of equity, we get the accounting return on the common stockholders investment, or the return on equity (frequently shortened to ROE) (Titman, Keown, and Martin, 2011, p. 93). Return on Equity= Net Income/Common Equity. As of the period ending January 31, 2012, Wal-Marts net income equals $15,699,000 and their common equity equals $71,315,000 (Walmart Income Statement, 2013). Hence, their Return on Equity= is 22.01%. As of the period ending January 31, 2013, Wal-Marts net income equals $16,999,000 and their common equity equals $76,343,000 (Walmart Income Statement, 2013). Hence, their Return on Equity= is 22.26%.

Running Head: ETHICS AND COMPLIANCE PAPER

Days Receivable A firms receivables can be analyzed using two key ratio metrics. Titman, Keown, and Martin state, we can measure how many days it takes the firm to collect its receivables by computing its average collection period (Titman, Keown, and Martin, 2011, p. 81). Average Collection Period= Accounts Receivables/Daily Credit Sales. Titman, Keown, and Martin elaborate, we can reach the same conclusion by measuring how many times accounts receivable are rolled over during a year, using the accounts receivable turnover ratio, (Titman, Keown, and Martin, 2011, p. 81). Accounts Receivable Turnover= Annual Credit Sales/Accounts Receivables. For the quarterly period ending July 31, 2012, Wal-Marts Average Collection Period was 4 and their Accounts Receivable Turnover ratio was 85.19 (Walmart Accounts Receivable Turnover Ratios, 2013). For the quarterly period ending July 31, 2013, Wal-Marts Average Collection Period was 5 and their Accounts Receivable Turnover ratio was 77.15 (Walmart Accounts Receivable Turnover Ratios, 2013). Discuss the trend for each ratio and what it tells you about the organizations financial health As we know, the debt ratio shows what percentage of the companys assets was financed. In order to find this percentage, divide total liabilities (short and long term) by total assets. This results in the percentage of financed debt; the smaller the percentage is the better it looks for the company. This means they won most of their assets. Once the percentage is calculated, it can be compared only to previous years results. It also can be compared to other companies to see how their debt relates to the debt of other companies. This is a good ratio for

Running Head: ETHICS AND COMPLIANCE PAPER

potential investors because it gives them an idea of how the company may fair in a financial downturn. Return on equity shows how much return an investor will make from the net income of the company. To get this percentage net income is divided by common equity. Common equity is calculated by subtracting preferred equity form stakeholders equity. A higher percentage means a higher return for investors. Is ratio is important for companies and investors; it shows the performance of the company. When a company has a higher return on equity, they are more likely to attract investors. Days receivable refers to how many days revenue sits in accounts receivables. Here are two things to know before performing calculation: revenue at a particular point and revenue generated over a length of time. To calculate the ratio, first divide the revenue by the number of days in the period to get the average daily revenues. Next, divide accounts receivable by that number, this gives the amount of time the balance remains in accounts receivable before the company receives cash for it. The faster the company is paid, the faster it can use the funds to purchase other materials or pay back some of its debt. This is important ratio for companies because it helps them look into new ways to expedite receipt of payment.

Running Head: ETHICS AND COMPLIANCE PAPER

Reference

Hutchinson, J. (2013). Days in Account Receivable Ratio. Retrieved form http://suite101.com/article/days-in-accounts-receivable-ratio-a88602. (n.d). Retrieved from http://corporate.walmart.com/our-story/ethics-integrity. (2013). Retrieved from www.sec.gov. (n.d). Retrieved from https://walmartethics.com. Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.