- [Instructor] Now let's look at Walmart's expenses,
the stuff on the income statement
in between sales at the top and net income at the bottom.
Now and 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 the whole $100?
No, they have to pay the business expenses.
The first thing they have to do
is pay their supplier for the thing that you just bought.
That's called 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 $373 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.
Again, think of sales as the retail selling price
and cost of sales is the wholesale purchase cost
that Walmart had to pay to buy the item.
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 electricity.
They have to pay property taxes.
They have to pay for advertising.
These expenses are reported here under the heading
Operating, selling, general and administrative expenses
and they total over $106 billion.
So you 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, $20 billion in this case.
Total revenue is $500 billion
but after the suppliers are paid, that's the cost of sales,
and after all of the administrative expenses are paid
Walmart is left with just $20 billion.
But we're not done with Walmart's expenses.
They've borrowed some money
so they have to pay some interest.
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 billion.
Well we're now down to $15 billion
but Walmart still has to pay income taxes.
Total income taxes for Walmart
for this year is $4.6 billion.
Now most of this is paid to the U.S. Government
but Walmart also pays income taxes
in the many other countries around the world
in which it operates.
Some of Walmart's income, $661 million,
belongs to minority partners
in some of Walmart subsidiaries.
The final remainder, the amount of net income
that belongs to Walmart shareholders is $9.862 billion.
Now let's divide bottom line net income
by the $500 billion in total revenue.
The percentage is about 2%.
That might seem 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 at the end.
Walmart only gets to keep $0.02 of profit
for every dollar they sell.
Accordingly, they must sell lots of stuff.
Well we now know quite a bit about Walmart's business
just by looking through their income statement.