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Question 1176778: In 2014 (when the CPI was 236.7) Walmart's annual revenue was $486 billion. By 2015, Walmart's annual report boasted that revenue had grown to $500 billion (and CPI rose to 245.1). The base year of the CPI is 2012.
Answer the following questions based on the above information. Show work for partial credit.
a. What was Walmart's revenue in 2014 adjusted for inflation?
b. What was Walmart's revenue in 2015 adjusted for inflation?
c. Did Walmart's nominal revenue increase or decrease from 2014 to 2015?
d. Did Walmart's real revenue increase or decrease from 2014 to 2015?
e. If you worked for Walmart, would you rewrite the annual report? why or why not
Answer by CPhill(1959)   (Show Source):
You can put this solution on YOUR website! Let's break down this problem step-by-step.
**Given Information:**
* **2014:**
* CPI: 236.7
* Nominal Revenue: $486 billion
* **2015:**
* CPI: 245.1
* Nominal Revenue: $500 billion
* Base Year: 2012
**a. What was Walmart's revenue in 2014 adjusted for inflation?**
To find the real revenue (adjusted for inflation), we use the following formula:
* Real Revenue = (Nominal Revenue / CPI) * 100
* Real Revenue (2014) = ($486 billion / 236.7) * 100
* Real Revenue (2014) ≈ $205.32 billion
**b. What was Walmart's revenue in 2015 adjusted for inflation?**
* Real Revenue (2015) = ($500 billion / 245.1) * 100
* Real Revenue (2015) ≈ $204.00 billion
**c. Did Walmart's nominal revenue increase or decrease from 2014 to 2015?**
* Nominal Revenue (2014): $486 billion
* Nominal Revenue (2015): $500 billion
* The nominal revenue increased from $486 billion to $500 billion.
**d. Did Walmart's real revenue increase or decrease from 2014 to 2015?**
* Real Revenue (2014): $205.32 billion
* Real Revenue (2015): $204.00 billion
* The real revenue decreased from $205.32 billion to $204.00 billion.
**e. If you worked for Walmart, would you rewrite the annual report? why or why not?**
Yes, I would rewrite the annual report to provide a more accurate and nuanced picture of Walmart's performance. Here's why:
* **Misleading Headline:** Simply stating that revenue "grew" is misleading. While nominal revenue increased, real revenue (which reflects actual purchasing power) decreased. This could give investors a false impression of growth.
* **Transparency:** A responsible annual report should present both nominal and real revenue figures. This allows stakeholders to understand the impact of inflation on the company's performance.
* **Context:** Explaining the difference between nominal and real values is crucial. The report should clarify that the nominal increase was partially offset by inflation.
* **Improved Wording:** Instead of just saying "revenue had grown," the report could say something like: "Nominal revenue increased to $500 billion. However, after adjusting for inflation, real revenue was $204.00 billion, slightly lower than the previous year." or "While nominal revenue increased, real revenue decreased slightly."
By providing a more comprehensive and transparent analysis, Walmart can build trust with its stakeholders and provide a more accurate representation of its financial performance.
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