Ethics and Compliance Paper Ethics and compliance with laws demonstrates the integrity of corporations that strive to advocate these. Ethics serves as the backbone for a company to sustain a secure financial environment. To do so companies have to comply and make it a priority to incorporate these laws into every day practices. This paper will evaluate the role that ethics and compliance plays in Wal-Mart’s financial environment, explain Wal-Mart’s procedures to follow ethical behavior. It will also identify the processes that uphold SEC regulations as well as evaluate and calculate the company’s financial performance for the last two years discussing how that describes Wal-Mart’s financial health.
Wal-Mart’s Ethics and Compliance in its Financial Environment
Ethics and compliance plays an essential role in ensuring Wal-Mart’s continued success. Wal-Mart delineates expectations clearly and in an open manner on its company website. All employees adhere to the Wal-Mart’s statement of ethics. According to Wal-Mart Stores (2008), “All financial books, records, and accounts must accurately reflect financial transactions and events. They must conform to generally accepted accounting principles, and to Wal-Mart’s system of internal controls. No Wal-Mart document or record may be falsified for any reason” (Financial Integrity, para. 1).
By outlining responsibilities and going above what the law requires in terms of financial disclosures and records, Wal-Mart distinguishes itself from competitors. Companies, such as Wal-Mart, provide a sense of clearness and a high level of ethics by encouraging behavior that upholds the law.
Procedures in place to ensure ethical behavior
Wal-Mart incorporates several procedures to protect customers by enforcing a privacy policy that explains in details why, how, and when customers information is gathered or shared. “Wal-Mart recognizes the importance of information privacy. Wal-Mart believes that privacy is more than an issue of compliance – it is one of trust” (Wal-Mart Stores, 2008, p 10) The corporation created the statements of ethics that every employee signs when hired, which direct employees in making ethical decisions.
The statement of ethics consists of 10 principles that stress the importance of honesty, lawful acts, avoiding conflict of interests, and discrimination is not acceptable in the workplace. Employees are unauthorized to accept gifts of gratuity, competing unfairly, and Wal-Mart has an open door policy to report suspicious violations that may occur within a store, home office, or the factory floor. A clause in the ethical statement integrates penalties for violations that could include termination of employment. The statement of ethics is an essential procedure implemented by this corporation to ensure ethical behaviors.
Processes used to comply with SEC regulations
The Wal-Mart company’s comply fully with the Securities and Exchange Commission’s regulations. Wal-Mart has an audit committee consisting of four directors who are not a part of the Wal-Mart company. These four directors are independent based on the rules of the Securities and Exchange Commission and the NYSE. With the SEC, the management of Wal-Mart is over the financial reporting and internal functions of Wal-Mart’s consolidated financial statements. Within the audit procedures, the four person audit committee also appoints the independent auditor for Wal-Mart and the audit committee also watches over and monitors the auditing processes.
Wal-Mart also conducts regular meetings with the Audit Committee to ensure they are complying with the Security and Exchange Commission’s regulations. As per Item 401(h) of Regulation S-K broadcasted by the SEC, Wal-Mart appointed another independent person not affiliated with Wal-Mart as the Audit Committee Financial Expert. Also pursuant to the SEC laws, Wal-Mart has ensured that the independent auditor assigned by Wal-Mart is independent by having the Audit Committee reviews all applicable audit-related material, non audit material or services and also are responsible for pre approving the audits the independent auditor may do.
To further comply with the SEC, Wal-Mart has approved an executive compensation committee who may review and approve the executives, president and Chief Executive Officer, and others on the Wal-Mart board who may be subject to the laws of the SEC.
Measuring Financials
Liquidity
Liquidity is important because it is a test to see how well a company can convert current assets into cash to pay debt off (Keown, A. J., et al, 2005). The Current Ratio test is the easiest way to determine how liquid a company’s assets are. According to Wal-Mart’s financial records the liquidity for 2009 is: Whereas in 2010 the computation for current ratio is: Comparing the two values one can determine that Wal-Mart is becoming less liquid. It is also not a good sign that the liquidity ratio for the company is less than 1.0, as this means the company currently has more debt than assets. In the event of a crisis Wal-Mart would be unable to liquidate assets to pay its debtors.
Financing Assets
Companies obtain assets through two methods; through capital gains from the sale of stock; through debt accrued by borrowing money from lenders (Keown, A. J., et al, 2005). Company growth is important, but utilizing too much debt can be harmful to growth because at some point debt will have to be paid back to the lender. The quickest method to determine if the company’s assets have been acquired through borrowing or through equity investments is to run the debt test. In 2009 Wal-Mart’s debt ratio is determined as: The 2010 computation for debt ratio is: Comparing the two values we can determine that Wal-Mart is relying less on debt to expand. This is a good sign to see the debt ratio decrease. However, it would still be more beneficial to have the majority of assets accrued through equity rather than liability. When this happens the debt ratio will drop below.50.
Return on Equity
As an investor it is important to understand whether there will be a monetary gain received from stock purchased. From an investor’s standpoint the most important ratio is the Return on Equity. The Return on Equity ratio provides the investor the ability to see how much money can be gained through the purchase of stock (Keown, A. J., et al, 2005). In 2009 the Return on Equity for Wal-Mart was: The Return on Equity for 2010 is: It is clear that the return on investment is going up. However, the company is nearing a plateau for further growth, which is evident in the ROE being less than 1.0. This does mean that this is a safe stock to invest in. If an investor is looking for a long term safe stock this is definitely a good candidate, but the returns will be much lower than higher yielding companies.
Cash Flow Money comes in from customers, and money goes out to lenders. What would happen if customers took too long to pay their bills? The company would be left with a cash flow crisis that could lead to late payments and poor credit that could impact future business. A fast way to determine if customers are paying in enough time to maintain the critical cash flow is to run the Days Receivable ratio (Keown, A. J., et al, 2005). In 2009 Wal-Mart’s ratio is computed as: In 2010 the Days Receivable ratio was: In comparing the two ratios it is observed that Wal-Mart has become more capable of obtaining money from its customers. Typically companies strive for a ratio under 30 days. To see a ratio less than five is phenomenal, and means that Wal-Mart has a very steady flow of cash.
Overall Performance
Wal-Mart currently has more debt than assets, but is working to shore up its debt. However, because the cash flow is so immense, liquidity is not a large concern as there appears not reason to require asset liquidation in the near future. While the company expands it is relying less on debt, and more on equity to do so. There is growth for the company, but the opportunity to make mass amounts of money from investments is long gone if Wal-Mart maintains the current business course. The stock is relatively safe, and would be a good long term investment with low yielding interest for investors interested in protecting their money from higher risk pitfalls found within other stocks on the stock market. Conclusion
To ensure employees are conducting business ethically corporations are incorporating code of ethics and the Wal-Mart Corporation ideally structured the business with ethical standards and regulations by create a statement of ethics. The above illustration explains Wal-Mart’s role of ethics and compliance. More specifically, procedures and processes of the organization are identified and how those procedures comply with SEC regulations. One-step further; Wal-Mart’s financial performances were reviewed, the ratios for current assets, debt, return of equity, and days receivable calculated for 2009 and 2010, and the above correspondence provides the trend for each ratio. The trend indicates Wal-Mart is financially healthy.

References
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