A Comparison Study of the Differences between the Major Financial Statements within the Manufacturing Sector versus the Service Sector: The Case of Apple versus Walmart

Introduction

The manufacturing sector and the service sector the world’s economy employ business models that distinctly different. The manufacturing industry deals majorly in the production of raw materials into finished goods and deals in the sale of physical products while the service industry deals in the sale of intangible products, as a result, performed actions. The significant distinction in the operations and activities of the two sectors has led to a range of variances in the financial statements of the companies within the two industries. The most affected financial statements include the income statement, statement of financial position and the cash-flow statements including different financial metrics that are derived from the company financial metrics. In this study, the financial statements of Apple Inc Company, manufacturing industry, and Walmat Company, a service industry will be compared.

Apple Inc Company, which was incorporated in the year 1977, is tasked with designing, manufacturing, and marketing of media, mobile and computer devices. Apple Company maintains books of accounts and reports on its financial statement on a quarterly basis and issuing of financial reports to its stakeholders during the annual general meetings. The yearly reports always include the income statement, the financial statement and the cash flow statements including other financial information derived from the books of accounts. Walmat Company, on the other hand, is Retail Company that operates chains of grocery stores, hypermarkets and discounts departments.  Just like the Apple Company, the corporation prepares annual financial reports that include the income statement, the statement of financial position and the cash-flow statements. However, these financial statements vary in various aspects and the application of such financial statements. Moreover, the items included and the valuation of such items also differs distinctively. Therefore, a comparison of the different statements will be made.

Comparison of the Income Statement

Income statements report the losses incurred and the profits earned by a company over a period of time, mostly over a given financial year. In other words, it accounts for all the company revenues and also indicates the expenses incurred during the revenue production. Income of both the two companies is likely to be the same in the income statement of both the manufacturing and the service companies respectively. However, there exists a significant disparity in the expenses incurred by both Apple and Walmat Company. For instance, Apple Company includes the cost of goods sold as its main expense in the income statement, whereas Walmat might fail to include the cost of goods sold as part of its liability in its annual financial report. This is depicted by a comprehensive analysis of the 2018 annual financial reports of the two companies obtained from the respective company websites.

Also, the manufacturing companies such as Apple focuses mainly on the cost of sales as a way of boosting profitability unlike Walmat Company put emphasis on the consumable materials that were mostly used in the provision of the services. Walmat Company tries to minimize such expenses to increase the company’s annual net profits. Moreover, Apple Company earns higher revenues as compared to Walmat since most of their finished products have a ready market and are sold to other manufacturers, retailers and in some instances sold directly to the consumers. Besides, Apple Company also incurs high amounts of expenses as compared to Walmat from the service industry since Apple Company require more manufacturing pieces of equipment, number of employees and even large quantities of raw materials to increase production and thus generate revenue. Therefore, income statements for the Apple Company and other manufacturing company’s income statements are more robust than for the companies in the service industry such as Walmat Company.

Comparison of the Statement of Financial Position

The statement of financial position for manufacturing companies, i.e. Apple Company has inventories constituting a significant percentage of the company assets. Therefore, the Apple Company tends to have fewer amounts of cash at hand as compared to that of Walmart Company. This is because most assets of Apple Company are intangible assets. On the side, the assets of Walmart Company are proportioned concerning accounts receivables. This, therefore, makes the receivables of Walmart Company to take a more significant proportion of the company assets. Besides, the accounts payable of manufacturing industries accrue from the payable to the suppliers of raw materials for production purposes unlike the accounts payables of the service sector that mainly accrue due to payments made to providers who provide complementary services. However, owner’s equity recorded by both the two companies does not differ significantly as compared to other aspects of the financial statement such as assets and liabilities of the companies.

Comparison of the Cash-Flow Statement and Financial Metrics

A comparison of the financial statements of both Apple and Walmart indicates that cash flows from both investment and financing activities are relatively similar. The significant differences accrue from the payables in the cash outflow section where Apply Company records a large amount of accounts payables due to the acquisition of inventories as compared to that of Walmart Company. In addition, Apple Company has high-income taxes which constitute a significant amount of cash outflows. On the other hand, differences in financial statements have led to a difference in the calculation of financial ratios of the two companies. For instance, it’s difficult to calculate the inventory turnover ratios for Walmart due lack of a significant amount of inventories. Besides, their liquidity ratios might also be high compared to that of Apple Company since most of Walmart’s cash isn’t tied to stock. Therefore, manufacturing companies depends on ratios based on inventory to determine the company’s efficiency, unlike the service companies that rely on liquidity ratios.

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