- A balance sheet is a listing
of a company's valuable resources, its assets,
paired with a list of the sources of financing
to buy those assets.
Those sources of financing are liabilities, borrowed money,
and equity items, which represent money invested by owners.
If we look at the actual balance sheet for Walmart,
you'll see that you already
have a good intuitive understanding
of the items in the balance sheet.
Here is a listing of Walmart's assets
as of January 31, 2019, in the left column
and 2018 in the right column.
Company's typically provide two years
of balance sheet numbers side by side
so that the balance sheet reader
can detect any significant changes.
Cash is the first asset listed.
Cash is $7,722 million or $7.722 billion.
Look at the third item in the list, inventories.
Inventory is the stuff for sale on all of the shelves
in all the Walmart and Sam's Club locations
around the world.
We're not surprised that Walmart has a bunch of inventory
with a total purchase cost of over $44 billion.
Now look down in the middle of the list.
We see land and buildings and transportation equipment,
trucks, and store shelves, fixtures.
The net cost of all of these things is $104 billion.
Goodwill is $31 billion.
This goodwill represents the extra amount Walmart paid
for the reputation, customer relationships,
and employee relationships of companies it has purchased
over the years.
For example, in 2018,
Walmart purchased Flipkart,
an India-based eCommerce site.
As part of this purchase,
Walmart paid an additional $13 billion
beyond the value of Flipkart's regular assets
to pay Flipkart's prior owners for the market presence
and customer relationships developed by Flipkart
over the years.
Down at the bottom of the list,
we see that total assets are $219 billion.
This is the total amount that Walmart had to spend
to buy all of its assets as of January 31, 2019.
Now remember that this is just an introduction
to the balance sheet,
so don't worry if you don't understand every line item here.
You should feel comfortable in realizing
that you already understand the most important items.
Now where did Walmart get the $219 billion it needed
to buy its assets?
That information is contained in the other part
of the balance sheet,
the list of liabilities and equity items.
Walmart borrowed some of the money
and some of the money was invested
by the owners, the shareholders.
The first liability item listed is short-term borrowings.
$5.225 billion.
This number represents the amount of money Walmart borrowed
that it's going to have to pay back within one year.
Why did Walmart borrow the money?
To buy assets.
The second item is accounts payable,
which is a little bit over $47 billion.
When Walmart buys inventory from Proctor and Gamble
or whomever else,
they buy it on credit
and agree to pay in 30 to 60 days.
This accounts payable amount is what Walmart owes
to its suppliers for inventory
that they have already received, but have not yet paid for.
Now take a look down the list about half way.
You see long-term debt in the amount of almost $44 billion.
This represents the amount of money Walmart borrowed
in order to buy assets
using loans that Walmart
can wait more than one year to repay.
The largest single line item in the list
is $80.785 billion and is labeled retained earnings.
Retained earnings is the cumulative amount of profits
that have been generated by Walmart
that have been kept in the business and used to buy assets.
So from July 1962,
when Walmart first started,
until January 31, 2019,
when these numbers were prepared,
Walmart's shareholders have authorized the company
to keep $80.785 billion of profit in the business
to be used for expansion.
Now where did Walmart get the $219 billion it needed
to buy its assets?
A lot of it came from retained earnings.
Some of it came from long-term debt,
and 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.