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Student name: Student ID:

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1,500 1,545
Marks Available Marks Awarded

Knowledge and understanding 10


Reasoning and analysis 50
Profitability analysis : two ratios (1.25 marks for
each ratio, 0.625 marks per year for correct
figures)
Liquidity: two ratios (1.25 marks for each ratio,
625 marks per year for correct figures)
Capital structure: two ratios (1.25 marks for each
ratio, 625 marks per year for correct figures)
Market performance: two ratios (1.25 marks for
each ratio, 625 marks per year for correct figures)

Writing skills and presentation 10


Cohesiveness 10
Referencing, use of references and background 10
reading

Submission requirement 10
Assignment total marks 100
Assignment Total out of 20 marks (20%) 20

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Executive summary
Annual reports of Woolworth and Wesfarmers for 2015 and 2014 are studied
deeply. From the profit and loss statements, balance sheets and statements of
cash flows, trend analysis is done in excel. In the second part of analysis we have
analysed the different statements data for ratio analysis where profitability
analysis, liquidity analysis, capital structure analysis and market performance
analysis are done. These data are compared and contrasted for finding an
appropriate company for investment among Woolworth and Wesfarmers.

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Contents
Executive summary..................................................................................................... 2
Introduction............................................................................................................... 4
Analysis................................................................................................................... 4
Trend analysis......................................................................................................... 4
Ratio analysis......................................................................................................... 6
Profitability Analysis Calculation..............................................................................6
Profitability Analysis Discussion............................................................................... 7
Liquidity Analysis Calculation................................................................................. 7
Liquidity Analysis Discussion..................................................................................8
Capital structure Analysis Calculation........................................................................9
Capital structure Analysis Discussion.......................................................................10
Market performance Analysis Calculation.................................................................11
Market performance Analysis Discussion..................................................................12
Conclusion.............................................................................................................. 13
Recommendation...................................................................................................... 13
References.............................................................................................................. 14
Appendix.............................................................................................................. 15
Appendix 1....................................................................................................... 15
Appendix 2....................................................................................................... 16

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Introduction
Woolworths is an Australian company founded in 1924 with a motto of serving every man,
woman and child with a convenient place where quality things are cheap. Woolworths has
more than 3,000 stores across Australia and New Zealand serving foo, liquor, petrol, general
merchandise, hotels and home improvements (Woolworths Limited n. d.). First listed on 23 rd
July, 1993 (Trading summary 2016) has generated $60.7b on group sales with 2453.3 million
net profit after tax in 2015 (Woolworth Limited, pp.15).

Wesfarmers is a diversified corporation and was founded in 1914 as a Western Australian


farmers cooperative (Wesfarmers Limited n. d.). First Listed in 15th Nov 1984 (Trading
summary 2016), now has approximately 500,000 shareholders and serving people with
diverse business including supermarkets, liquor, hotels, home improvements, office supplies,
chemical industries, energy and fertilisers. The prime objective of Wesfarmers is to provide
customers with goods and services on a competitive and professional basis and provide
shareholders with satisfactory return. As in 2015 Wesfarmers generated $2440 million net
profit after tax with 1.8 times the rate of total shareholder return growth achieved by the
market as represented by the all ordinaries index (Wesfarmers 2016).

Analysis
Trend analysis
Its the horizontal financial statement analysis which shown the changes in the amount for
two or more periods used in horizontal analysis.

Change= Amount of the item in comparison year- Amount of the item in base year

Percentage change = (Dollar change/ Amount of the item in base year) x 100

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Other trend analysis are included in the appendix section.

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Ratio analysis
Profitability Analysis Calculation

For Woolworth-2015 Wesfarmers-2015

Profit( Loss) Profit( Loss)


Return on assets = x
Avg . totalAssets 100 Return on assets = Avg . totalAssets

x 100

2137.40
= (25336.8+24136.5)/2

2440
=8.64 % = x
(40402+39727)/2

100

=6.09%

Profit Loss Profit ( Loss)


Net Profit Margin = x 100 Net Profit Margin =
sales revenue Sales Revenue

x 100

2137.40 2440
= 60868.4 x 100 = 62447 x

100

= 3.51% = 3.91 %

For Woolworth-2014 Wesfarmers-2014

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Profit( Loss)
Return on assets = x 100 Return on assets =
Avg . totalAssets

Profit( Loss)
x 100
Avg . totalAssets

2458.40
= x 100 =
(24136.5+22250.2)/2

2689
x 100
(39727+ 43155)/2

=10.60% =6.49%

Profit Loss
Net Profit Margin = x 100% Net Profit Margin =
Sales Revenue

Profit (Loss)
x 100%
Sales Revenue

2458.40 2689
= 60952.2 x 100% = 60181 x 100%

= 4.03 % = 4.47 %

Profitability Analysis Discussion


Return on assets is the measurement on how resourcefully any company can accomplish its
assets to produce profits during a period (Noor and Frank 2015). Return on assets for
Woolworth decreased from 10.60% in 2014 to 8.64% in 2015. Any investment done in 2015
will produce 8.64% more on the investment which is less compared to 2014. The reason for
this decline is decrease in profit (loss) part of numerator and increase of total assets in 2015
compared to 2013. For Wesfarmers case the return on assets in 2015 and 2014 are 6.09% and

A l o k K a r k i ( S 0 2 7 9 2 2 2 ) , 7 | 19
6.49% respectively which is less compared to Woolworths return in assets. It indicates that
Woolworth earn a return on its investment in assets effectively than Wesfarmers.

Net profit margin or gross profit margin show the percentage of sales left after all the
expenses are cleared. Wesfarmers has comparatively higher net profit margin compared to
Woolworths which are 3.91% and 4.47% in 2015 and 2014 respectively. The reason for
decrease in net profit margin in 2015 is caused by decrease in the profit made and increase in
the sales revenue compared to 2014. In case of Woolworth the net profit margin for 2015 and
2014 are 3.51% and 4.03% and the reason for decline is similar. Company with low net profit
margin can have high return on assets as we can imply this in comparison of Woolworth and
Wesfarmers.

Liquidity Analysis Calculation


For Woolworth-2015 Wesfarmers-2015

Current Assets
Current Ratio = Current Liabilities Current Ratio =

Current Assets
Current Liabilities

7660.9 9093
= 9168.6 = 9726

= 0.84 times = 0.934 times

Current AssetsInventory
Quick Ratio = Current Liabilities Quick Ratio =

Current AssetsInventory
Current Liabilities

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7660.94872.2
= 9168.6 =

90935497
9726

= 0.30 times = 0.37 times

For Woolworth-2014 Wesfarmers-2014

Current Assets
Current Ratio = Current Liabilities Current Ratio =

Current Assets
Current Liabilities

7106.1 9311
= 7489.5 = 8229

= 0.95 times = 1.13 times

Current AssetsInventory
Quick Ratio = Current Liabilities Quick Ratio =

Current AssetsInventory
Current Liabilities

7106.14693.2 93115336
= 7489.5 = 8229

= 0.32 times = 0.483 times

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Liquidity Analysis Discussion
Current ratio is the principal measures of companys liquidity showing the proportion of
assets in-relation to its liability for a given period. The current ratio for wool worth in 2015
and 2014 are 0.84 and 0.95 meaning that the current assets are sufficient to cover for 0.84 and
0.95 times the amount of companys short term liabilities for 2015 and 2014 respectively. The
cause of decrease in 2015 is because of increase in current liabilities and decrease in current
assets compared to 2014. In case of Wesfarmers the current ratio for 2015 and 2014 are
0.934 and 1.13. Wesfarmers current ratio in 2014 being 1.13 means that their value of present
assets pays off their short term obligations. Weaker current ratio makes weak or deteriorating
liquidity position of a business which is not good and is risky. Woolworths current ratio
compared to Wesfarmers is weak meaning Woolworth has deteriorating liquidity position
than Wesfarmers. Investors are safe in Wesfarmers compared to Woolworth. The reason for
change in current ratio is same as Woolworth.

Quick ratio is basically the ratio of cash and other liquid resources of any company in
comparison to its current liabilities. The quick ratio for wool worth in 2015 and 2014 are 0.30
and 0.32 meaning Woolworth can settle 30 and 32 percentage of its liabilities instantaneously.
For Wesfarmers the Quick ratio in 2015 and 2014 are 0.37 and 0.483 which is slightly higher
than Woolworth, which can reflect that Woolworth is investing more of their cash and taking
more risk than Wesfarmers for generation of profit through new investments. The changes
can be seen in values of quick ration in different year is because of increase in current assets,
increase in inventory and increase in current liabilities.

Capital structure Analysis Calculation


For Woolworth-2014 Wesfarmers-2014

Total liabilities
Debt to equity ratio = x 100 Debt to equity ratio =
Total equity

Total liabilities
x 100
Total equity

13611.1 13740
= x 100 = x 100
10525.40 25987

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= 129.32 % = 52.87 %

Total equity Total equity


Equity ratio = x 100 Equity ratio = x 100
Total assets Total assets

10525.40 25987
= x 100 = x 100
24136.5 39727

= 43.61% = 65.41 %

For Woolworth-2015 Wesfarmers-2015

Total liabilities
Debt to equity ratio = x 100 Debt to equity ratio =
Total equity

Total liabilities
x 100
Total equity

14204.8 15621
= x 100 = x 100
11132 24781

= 127.60 % = 63.04 %

Total equity Total equity


Equity ratio = x 100 Equity ratio = x 100
Total assets Total assets

11132 24781
= x 100 = x 100
25336.8 40402

= 43.94 % = 61.34 %

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Capital structure Analysis Discussion
Debt to equity ratio is the most significant of all the capital adequacy ratio which is used to
measure the riskiness of the firm. In case of Woolworth for period 2015 and 2014, the debt to
equity ratio has decreased from 129.32 % to 127.60 % which is a good sign for investors. The
debt to equity ratio has decreased in 2015 because of significant increase of total equity for
the given period and total liabilities has not increased in same proportion to the total equity.
The debt to equity ratio for 2015 and 2014 is still more than 1 meaning that majority of the
assets are financed through debt rather than its own equity (Bappy, 2012). High ratio of debt
to equity for Woolworth means, the investment is quite likely to be risky. Wesfarmers has
debt to equity ratio less than 1 and has increased from 52.87% in 2014 to 63.04% in 2015.
The ratio being less than one means it has strong financial backbone because they dont rely
on debt much for their investment and is less risky. Investor invest in Wesfarmers.

Equity ratio for Woolworth for 2015 and 2014 are 43.94% and 43.61% respectively meaning
only 43.94 % in 2015 and 43.61% in 2014 of total company assets are owned by the investors
and the rest of the assets are from debt. For Wesfarmers the value is more than Woolworth
which is 61.34% and 65.41 % in 2015 and 2014 respectively. Approximately 61% and 65%
of companys asset in 2015 and 2014 respectively are owned by the investors and rest of the
amount are from debt. From equity ratio we can say that more investors are interested to
invest in Wesfarmers than Woolworth and investment in Wesfarmers from this analysis shows
its safer than Woolworth. The equity ratio for Wesfarmers has decreased in 2015
significantly compared to decrease in equity ratio of Woolworth and the cause of it is the
proportion increase in total assets is more to the proportion of total equity increase for
Wesfarmers.

Market performance Analysis Calculation

For Woolworth-2015

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Profit available
Earnings per share = ordinary shareholders
Weighted no . of ordinary share on issue

2146
= 1256.6

= 1.71 cents/share

Dividend per share =

Dividend paidordinary shareholdersthe current reporting period


Weighted no . of ordinary share on issue

1753.4
= 1256.6

= 1.40cents/share

For Wesfarmers-2015

Profit available
Earnings per share = ordinary shareholders
Weighted no . of ordinary share on issue

2440
= 1040

= 2.35 cents/share

Dividend per share =

Dividend paidordinary shareholdersthe current reporting period


Weighted no . of ordinary share on issue

2085
= 1040

= 2.005cents/share

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For Woolworth-2014

Profit available
Earnings per share = ordinary shareholders
Weighted no . of ordinary share on issue

2451.7
= 1248

= 1.96 cents/share

Dividend per share =

Dividend paidordinary shareholdersthe current reporting period


Weighted no . of ordinary share on issue

1703.8
= 1248

= 1.37 cents/share

ForWesfarmers-2014

Profit available
Earnings per share = ordinary shareholders
Weighted no . of ordinary share on issue

2253
= 1040

= 2.17 cents/share

Dividend per share =

Dividend paidordinary shareholdersthe current reporting period


Weighted no . of ordinary share on issue

1979
= 1040

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= 1.90 cents/share

Market performance Analysis Discussion


Earnings per share is the measure which shows the companys profitability based on
shareholder basis (Taani and Marie 2011). Woolworths earning per share decreased to 1.71
cents/share in 2015 from 1.96 cents/share in 2014. Shareholders would earn about 1.71 cents
for each share they have invested for period 2015. For Wesfarmers case the earnings per share
has increased to 2.35 cents/share in 2015 from 2.17 cents per share in 2014. The shareholder
in Wesfarmers gets more return in their share than Woolworth shareholder. We can say from
this analysis that Wesfarmers are more profitable than Woolworth on the basis of their
shareholders. Because of increase in weighted no of ordinary share on issue has increased and
profit available to ordinary shareholders has decreased compared to 2014 so there is decline
in earnings per share for Woolworth is observed. But Wesfarmers has opposite trend.

Dividend per share is simply the amount of dividend paid to the shareholders which can be in
form of stock dividend or cash dividend. Dividend paid by Woolworth in 2015 was 1.4
cents/share which was more compared to dividend of 1.37 cents/share in 2014. Shareholders
are paid more dividend by Wesfarmers compared to Woolworth which was 2.005 cents/share
and 1.9 cents/share in 2015 and 2014 respectively. Generally low dividend can be caused by
high share price and may be the company is in trouble and is unable to pay the dividend.
High dividend can also be symptoms of a sick company with a depressed share price.

Conclusion
Trend analysis using three years data for Woolworth and Wesfarmers are
observed using excel where different changes in the items contained in the profit
and loss statements, balance sheets and statements of cash flows are observed.
Relevant ratios analysis using profitability, liquidity, and capital structure and
market performance are observed and from one analysis no conclusion can be
made on the performance and satisfaction of investors. In average the overall
ratio performance of Wesfarmers shows Wesfarmers financial performance is
better in comparison to Woolworth with less risk and satisfactory return in
investment of the shareholders.

Recommendation
Choosing the best company among two is not an easy task based on only these
ratio and trend analysis. On investor perspective analysing ratio of Earnings per
share, Debt to equity ratio, Dividend yield of Wesfarmers is better compared to
Woolworth. I would recommend investors to invest on Wesfarmers based on my
analysis.

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References
Bappy, k. 2012, Capital structure decisions and profitability, Institute of Business
administration, University of Rajasthan, Rajasthan, viewed 24 April 2016,
<http://www.slideshare.net/bappykazi/capital-structure-decisions-and-profitability>

Frank, S & Noor, M 2014, Stock returns and the fundamentals in the Australian market,
Asian journal of finance and accounting, vol. 6, no. 1, pp. 271-290, viewed 20 April 2016,

< file:///C:/Users/Anjana/Downloads/5486-20337-1-PB.pdf>

Taani, K and Marie, H 2011, The effect of financial ratio, firm size and cash flow from
operating activities on earning per share, International journal of social science and
humanities studies, vol. 3, no. 1, pp. 197-205, viewed 19 April 2016,

< http://www.sobiad.org/ejournals/journal_ijss/arhieves/2011_1/khalaf_taani.pdf>

Trading summary, 2016, Business Quotes, The Sydney morning Herald, 26 April, viewed 26
April 2016, <http://www.smh.com.au/business/markets/quotes/summary/WES/wesfarmers-
limited >

A l o k K a r k i ( S 0 2 7 9 2 2 2 ) , 16 | 19
Trading summary, 2016, Business Quotes, The Sydney morning Herald, 26 April, viewed 26
April 2016, <http://www.smh.com.au/business/markets/quotes/summary/WOW/woolworths-
limited>

Wesfarmers Limited n. d., accessed 23 April 2016

< https://www.wesfarmers.com.au/about-us/about-wesfarmers.html >

Wesfarmers 2016, Annual report 2015, pp.12 Annual report, Esplanade Perth 6000, viewed
23 April 2016, <https://www.google.com.au/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=wesfarmer+annual+report+2015>

Woolworth Limited n. d., accessed 25 April 2016,


<http://www.woolworthslimited.com.au/page/Who_We_Are/>

Woolworth Limited 2016, Annual report 2015, pp.15Annual report, Woolworths way, Bella
Vista, NSW, viewed 22 April 2016,

<http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf>

Appendix
Appendix 1
Wesfarmers income statement trend analysis

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Appendix 2
Wesfarmers Balance sheet

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A l o k K a r k i ( S 0 2 7 9 2 2 2 ) , 19 | 19

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