A. Describe your idea for an IT investment project, referencing one of the strategic goals for your chosen company. The project must align with this strategic goal and include a software component or a SaaS solution.
The IT Investment Project
My IT investment idea for Walmart is incorporating IT software that improves analytics to ensure the company’s inventory matches with consumers’ demands. The current system is ineffective in which the company ends up stocking large unnecessary inventory that’s not predictive of consumer demands.
Therefore, as the chief information officer (CIO), I think having advanced operational software utilizing new technology, would be the best solution for the company. In my research, I think Solvoyo’s supply chain planning & analytics software would be most viable in solving Walmart’s mismatched inventory purchases. Solvoyo software utilizes Artificial Intelligence (AI) technology to ensure that it benefits a business in several ways. First, it segments products and customers based on the most and the least profitable, order reliability, supply variability, and incremental profits (Sugun, 2019; TTO). A company can choose on the customer segments and the kind of product it should cease production or produce more to the market. Secondly, it ensures that it re-adjusts safety stocks across the supply chain based on forecast errors and supply variability. Additionally, the software maintains full visibility of a company’s inventory. It keeps track of all the inventories from the ones in transit and in-premise (excess and dead inventory). Lastly, the software provides analytics that helps in the decision making regarding the kind of inventory to purchase and when to purchase and not to purchase. The company utilizes descriptive, diagnostic, predictive, and prescriptive capabilities in all producing the expected outcomes. IT project investment seems viable with such expected outcomes.
B. Describe the current financial position of your chosen company. The description must align with the company’s 10-Q financial statements and include the following components, along with a justification for each of the ratios used:
Current Financial Position of Walmart Inc.
The financial position usually signifies how well a company performs financially during its operations, whether measured quarterly or annually. A good financial performance’s specific determinant is usually a positive increment in the cash flow statement, increasing profits in the profit and loss statement, and the desired balance of assets, liabilities, and owner’s equity in the balance sheet. Walmart Inc. registered a 39.97% increment of cash in the cash flow statement, reducing its income by approximately $5,706,000,000 (Walmart Inc., 2020). The company has the right balance of both the assets, liabilities, and shareholder equity values in the balance sheet. Such information reveals that the company’s financial position is fair and needs to improve in the future. The financial position can largely be attributed to the current inventory and supply chain management system that does not match consumers’ demand with the available inventory, resulting in losses from expired merchandise and or overstocking low sale products that provide little or no revenue to the company. Also, it is imperative to conduct a financial ratio analysis of the company regarding the financial position. This exercise’s main metrics would be net profit, retained earnings, liquidity ratios, solvency ratios, and profitability ratios.
Financial Ratios
Net profit = $5,135,000,000
Retained earnings = $92,279,000,000
Liquidity ratios. In this ratio, the most viable ratios to use would be the current ratio and quick ratio. The proposal employs a current ratio due to its ability to measure a company’s financial health in paying or catering for its short term financial obligation. Also, quick ratio uses a similar concept except that the short term obligations of a company are analyzed based on assets that can easily be liquidated within 12 months period. As shown below, one can easily conclude that Walmart’s financial position regarding liquidity ratios is fairly undesirable, given the low liquidity ratios.
Current ratio =
=
= 0.84
Quick ratio =
=
= 0.23
Solvency ratios. This ratio measures the company’s ability to meet its long-term obligation. The two essential solvency ratio, in this case, is the debt ratio and debt-to-equity ratio. The debt ratio measures how much a company is financed by debt versus its assets. It shows that if a company can pay off its financial obligation using the available resources, a ratio of more than 1 indicates that the company leverages more on debt than its available assets. Similar to the debt ratio, the debt-to-equity ratio takes another analysis regarding assessing a company’s debt leverage versus the equity shares. The higher the ratio, the higher the company leverages through debt in that the equity cannot cover the financial expenses if it goes bankrupt.
Debt ratio =
=
= 0.65
The ratio of liabilities to stockholders’ equity =
=
= 1.87
Profitability ratios. This financial ratio, profit margin ratio, and operating profit margin ratio are the most suitable profitability measures. The profit margin ratio measures the general health of the business while also revealing challenges. According to Business News Daily Editor (2020), the ratio reveals the return on investment in that a lower margin signifies a lower ROI. The proposal chose Operating profit margin as its measure of profitability is an essential indicator to investors on the specific areas a company realizes most of its profits, whether the core activities or other means.
Profit margin ratio =
=
= 0.04
Operating profit margin =
=
= 0.04
C. Compile the budgeted income statement using the attached “Financial Fact Sheet” for your company.
Walmart Inc. Budgeted Income Statement
Walmart Inc.
Budgeted Income Statement
For the Year ended 31 December 2021
Sales (56,000*11,000,000)
$616,000,000,000
Beginning Inventory (44,435*11) 488,785
Less: Ending Inventory (34,000*11) 374,000
Costs of Goods Sold
$114,785,000,000
Gross Profits
$501,215,000,000
Operating Expenses
Total cost of all overhead 2,737,000,000
selling and administrative budget 4,750,000,000
7,487,000,000
Operating Income 493,728,000,000
Less: Interest Expense
725,000,000
Less: Provision for Income Tax (493,728,000,000*25%)
138,243,840,000
Net Income $354,759,160,000
D. Describe your IT procurement plan based on your company’s “Financial Fact Sheet,” budgeted income statement, and IT investment project idea. Include a description of the decisions you made regarding the following points: