Walmart 2014 Annual Report Download - page 25

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The calculation of ROI, along with a reconciliation to the calculation of
ROA, the most comparable GAAP nancial measure, is as follows:
Fiscal Years
Ended January 31,
(Amounts in millions) 2014 2013
CALCULATION OF RETURN ON INVESTMENT
Numerator
Operating income $ 26,872 $ 27,725
+ Interest income 119 186
+ Depreciation and amortization 8,870 8,478
+ Rent 2,828 2,581
= Adjusted operating income $ 38,689 $ 38,970
Denominator
Average total assets
of continuing operations
(1)
$203,680 $198,193
+ Average accumulated depreciation
and amortization
(1)
57,907 51,829
- Average accounts payable
(1)
37,748 37,344
- Average accrued liabilities
(1)
18,802 18,481
+ Rent x 8 22,624 20,648
= Average invested capital $227,661 $214,845
Return on investment (ROI) 17.0% 18.1%
CALCULATION OF RETURN ON ASSETS
Numerator
Income from continuing operations $ 16,551 $ 17,704
Denominator
Average total assets
of continuing operations
(1)
$203,680 $198,193
Return on assets (ROA) 8.1% 8.9%
As of January 31,
2014 2013 2012
Certain Balance Sheet Data
Total assets of
continuing operations
(2)
$204,291 $203,068 $193,317
Accumulated depreciation
and amortization 60,771 55,043 48,614
Accounts payable 37,415 38,080 36,608
Accrued liabilities 18,793 18,808 18,154
(1) The average is based on the addition of the account balance at the end of the current
period to the account balance at the end of the prior period and dividing by 2.
(2) Total assets of continuing operations as of January 31, 2014, 2013 and 2012 in the
table exclude assets of discontinued operations that are reflected in the Company’s
Consolidated Balance Sheets of $460 million, $37 million and $89 million, respectively.
Free Cash Flow
We dene free cash ow as net cash provided by operating activities
in a period minus payments for property and equipment made in that
period. We generated free cash ow of $10.1 billion, $12.7 billion and
$10.7 billion for scal 2014, 2013 and 2012, respectively. The decline in free
cash ow for scal 2014, when compared to the previous scal year, was
primarily due to the timing of income tax payments, as well as lower income
from continuing operations and slightly higher capital expenditures. The
scal 2013 increase in free cash ow was primarily due to higher income
from continuing operations positively impacting net cash generated
from operating activities and lower capital expenditures.
Free cash ow is considered a non-GAAP nancial measure. We consider
net cash provided by operating activities to be the GAAP nancial
measure most directly comparable to free cash ow. Management
believes that free cash ow, which measures our ability to generate
additional cash from our business operations, is an important nancial
measure for use in evaluating the Company’s nancial performance. Free
cash ow should be considered in addition to, rather than as a substitute
for, consolidated income from continuing operations as a measure of our
performance and net cash provided by operating activities as a measure
of our liquidity.
Additionally, our denition of free cash ow is limited, in that it does not
represent residual cash ows available for discretionary expenditures as
the measure does not deduct the payments required for debt service
and other contractual obligations or payments made for business acqui-
sitions. Therefore, we believe it is important to view free cash ow as a
measure that provides supplemental information to our Consolidated
Statements of Cash Flows.
Although other companies report their free cash ow, numerous
methods may exist for calculating a company’s free cash ow. As a result,
the method used by our management to calculate our free cash ow
may dier from the methods used by other companies to calculate their
free cash ow. We urge you to understand the methods used by other
companies to calculate their free cash ow before comparing our free
cash ow to that of such other companies.
The following table sets forth a reconciliation of free cash ow to net cash
provided by operating activities, as well as information regarding net
cash used in investing activities and net cash used in nancing activities.
Fiscal Years Ended January 31,
(Amounts in millions) 2014 2013 2012
Net cash provided by
operating activities $ 23,257 $ 25,591 $ 24,255
Payments for property
and equipment (13,115) (12,898) (13,510)
Free cash ow $ 10,142 $ 12,693 $ 10,745
Net cash used in
investing activities
(1)
$(12,298) $(12,611) $(16,609)
Net cash used in
nancing activities (11,017) (11,972) (8,458)
(1) “Net cash used in investing activities” includes payments for property and
equipment, which is also included in our computation of free cash flow.
Walmart 2014 Annual Report 23