Management Accounting is the process of evaluating, analyzing and recording of a financial data so that the management of the company can use the same for internal management purpose. The process will help them in evaluating the business conditions and making decisions for the company. The two companies evaluated for the purpose of the management accounting is the Walmart Company and Loblaw Company. The evaluation for the two company was done in order to analyze the profitability of the company and operational efficiency of the company.
The Walmart Company is the multinational American retail company which operates a large chain of hypermarkets and grocery stores. The company primarily operates in the retail sector and generates in revenue from the sales of its retail outlets. The company has a global operation via its retail chain and hypermarkets and has its primary market in U.S and is one of the largest company in the terms of revenue. The company financial analysis shows the profitability for the company has been falling and the same has been due to rising operational cost for the company and the rising cost of sales for the company which is making the operating margin and the net margin for the company decreasing. The Profitability ratio analyzed such as the return on total assets and equity for the company in the five year trend period has consistently shown a negative trend.
The Loblaw Company operating as a food retailer company having its prime operation in the Canadian Market. The Loblaw Company is the largest food retailer and retail operating company in Canada. The company generates its revenue from items like groceries, apparels, pharmaceutical products and others. The financial analysis for the company shows that the financial position for the company has shown considerable amount of improvement in the five trend period analyzed. The profitability ratios for the company including the return on assets and return on equity for the company has been consistently rising for the company. The rise in operating income of the company was greater than the rise in the operating expenses for the company which helped them maintain the sustainability in the net profit margin.
The macro economic conditions such as the Global GDD growth rate, inflation level and the employment rate in the economy plays a significant role. The business factors such as the operating costs, net profitability and the level of demand and supply of goods and services are some of the common factors which may affect both the companies. The key factors analyzed for the companies needs to be forecasted and the same needs to evaluate so that the same can help the management in making sound decision policies and strategies accordingly.
The two key management accounting concepts which can be used for the improvement of the efficiency in the company and the profitability of the company is the planning and budgeting step and the performance measurement evaluation done by the company. The steps can help the company analyze various situations and develop an efficiency model for the better prospect of the company. The above companies analyzed operates in a cyclical business where the business factor may significantly influence the operations of the company. The planning and budgeting will help the companies make various budget plans and the revenue guideline strategy for the company which will help the company in guiding the amount of units to be sold at what price so that the margin of the company remains sustainable. The companies can apply the concept of the capital budgeting for evaluating the cost involved and the cash flows that will flow to the company. The performance measurement is the other management accounting concept that can be applied by the company for evaluating the performance trend. The same can be done by analyzing the growth of profitability for the company and the efficiency ratio of the company. The efficiency ratio for both the companies was calculated in order to determine how efficiently the companies are using the assets and the capital deployed in creating the wealth generation for the stakeholders of the company. The performance measurement will also let the company know about the deviations faced by them from the original planned budgeting and strategy for the company. In the above case the Walmart Company was observed to be more cyclical and the profitability ratio for the company was weaker than the Loblaw Company. The operations of the Walmart Company is primarily dependent on the global presence of its retail outlet while the operation of Loblaw’s company is primarily dependent on the Canadian market. There are different macro-economic factors for both the companies but the business factors and the management accounting concepts like the budgeting and planning step and the performance evaluation of the company can be well applied by both the companies. The application of the management accounting in the current business scenario will help them emphasize more on the future growth and sustainability of the company.
The management accounting concepts are of much importance for the growing companies in order to review the various aspect of its business operational area. The analysis for the above two company’s shows that the application of management accounting is not limited to financial accounting and can be used to review the various conditions of the companies. The analysis also reviewed the identification of the problem and studying the cause and effect relationship for the same. Thus, the companies needs to emphasize on the future prospect of the company by increasing the efficiency of the company and profitability for the company.
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