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PACC6000 Financial Accounting Assignment - The University of Newcastle, Australia

PURPOSE - Financial Statement Analysis - To calculate and analyse financial ratios using actual reported data.

REQUIRED - Given the financial statements and the additional information, analyse and discuss the financial performance and position of Woolworths Group Limited (ASX Code: WOW). You should refer to the notes to the financial statements and the Director's Report for further details and clarifications of changes in the financial statements. Calculate and analyse financial ratios (percentage and ratio analysis).

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Answer - Topic: Woolworths Group Limited

Executive Summary

This paper covers three main element which being the introduction which explains as to how the company has maintained its annual report and represents its financial statements. Paper is divided into three main section introduction, analysis and interpretation and conclusion. Here, analysis and interpretation are divided into three segments which being the horizontal analysis, vertical analysis and the financial ratio analysis.

Introduction

To interpret the accounts of financials from the annual reports the company selected is Woolworths Group Limited. The company is known for its retail industry which is known for the Austrlia and New Zealand, the company is known for its liquor retailing business. The company was established in the year 1924 and the organisation being around 94 years old. On the more, the company has handled by Gordon Cairns as the Chairman of the company and the Brad Bianucci which being the chief executive officer. As a matter of fact, the company is considered as the second largest organisation in Australia as well as New Zealand as a matter of fact the company runs with a massive employee strength which being as high as 2,05,000 for the year closing 2018.

Analysis and Interpretation

This deals with explaining the perspective of the financial statements on three bases as per comparing elements in the same financial year item wise and the other being the year wise comparisons and the other being the financial ratio analysis and its interpretation.

Horizontal Analysis

In terms with analyzing the horizontal analysis of three years it is evident that the three company shows the following changes in connection with income statement

Item

2016 AND 2017

2018 AND 2017

Total Revenue Excluding Interest

3.73%

2.33%

Operating Expenses

3.12%

1.30%

EBITDA

5.31%

4.90%

EBIT

55.60%

9.54%

Interest Expense

26.86%

527.04%

Profit before tax

70.69%

12.27%

Tax Expense

33.72%

10.39%

Net Profit

24.19%

9.29%

(WoolsWorthsGroup, 2017 WoolsWorthsGroup, 2018)

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The analysis on account of the horizontal analysis it is evident that the financial year 2016 to 2017 have been dis satisfying that the company results has decreased in terms with the revenue and eventually leads to dissatisfying the net profit. The reason being that the company annual reports shows that the company has worked a lot on account of its business operations and its profit earned the company expanded its business operations actually the company lead to an improvement of the Australian food and endeavor drinks as well as the company deals with New Zealand Food and the material improvement. It led to improvement of global operations and departments in terms with product advantages and also the company reduced its debt cost which lead to the net financing costs.

In terms with the balance sheet analysis

Balance Sheet

2016 and 2017

2018 and 2017

CA - Cash

-4.1%

40.0%

Total Current Assets

-5.8%

2.7%

Total Assets

-2.5%

2.8%

CL - Account Payable

6.7%

4.1%

Total Current. Liabilities

-1.9%

4.2%

Total Liabilities

-11.4%

-2.5%

Total Equity

12.5%

9.9%

(WoolsWorthsGroup, 2017 WoolsWorthsGroup, 2018)

The analysis explains that the assets seems to be quite improving as in connection with the assets as well as the liabilities it is very evident that the company primary led to better results in terms with revenue and profit margins as well as it led to a much progressive results in terms with the fact that the liabilities increased as the activities improved the investing prospects and the fixed assets also made a much higher margin with the company during the three years has seen a growth of $ 623 million. On the more considering the equity analysis, the company made a jump as the equity led to increase due to profit margins. On the more, the tax balances lead to a provision margins where the tax was reduced. Further, the $2,393 million decreased $88 million driven by cash utilization of FY16 significant items provisions. Net tax balances also reduced by the $ 31 million benefits and arising accruals as well as provisions.

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Vertical Analysis

This deals with segment analysis which ensures that that how the three analysis which being on account with the revenue and the gross profit is computed it explains as to how the Woolworth has managed its gross profit margin as well as net profit margin. Considering the statistics, the company maintains the level of the net profit of around a margin of 2 percent to the 4 percent. On the more, the company leads to a situation where the company believed in terms with back computation and analysis. The company has accustomed to the fact that the major margin which will turnout to be in terms with the cost of good sold so mainly because that the company maintained the margin analysis which was about the Seventy percent to Seventy Five percent which being a major burden on account with the direct expenditure and the cost of good sold. On the more, the company lead to a condition where the indirect expense was led to a margin which was lower margin and led to not more than 10 -15 percent. The annual report also clearly mentioned the fact that the company believes in providing an effective manner of introducing that the quality was well maintained and managed. Woolworth being a diversified organisation having various variety of the products being sold and processed has a massive investment. Moreover, the company ensured that it must have substantial level of working capital and will lead to a possibility where the company balanced it fixed expenses and variable costs in a balanced proportion to provide a stable level equation. Thus, providing a smooth and balanced working format of providing a balance level of proportion under cost of production as well as cost of sales.

Financial Ratio Analysis

This segment helps in identifying as well as defining the factor which helps in providing an analysis and evaluating the segments which proves to be comparative approach and ensures that company is to provide a description on account with inter company analysis and intra company analysis as well as proves to be helpful in industry comparisons.

Profitability

This sector defines how to measure the organisation profitability on the basis of three years and checking the parameters on four ratio basis which helps in explaining how the company has evolved in terms below mentioned analysis.

Item

06/16

06/17

06/18

Rate of return on net sales

4.67

2.55

2.83

Rate of return on ordinary shareholders' equity

32.10

14.93

15.31

Rate of return on total assets Asset turnover

12.46

6.90

7.39

Earning Price Share

-97.73

119.10

132.30

(WoolsWorthsGroup, 2017 WoolsWorthsGroup, 2018)

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Rate of return on net sales

This ratio as stated above clearly status that the company has gradually increased its interest expense which have led to increase the profit margin. The same has happened mainly because of one reason mainly which being that the revenue have increased in a span of time of three years leading to increase on account with the receiving of the net profits. Sales have shot up because of the fact that the liquor and allied retails have increased gradually in past three years.

Rate of return on total assets Asset turnover

The efficiency on account with the assets total turnover have decreased mainly because of the fact which being because of the reason that the assets utilization has decreased irrespective of the fact that the company has managed to attain profits. The only valid reason being that the supply chain and IT infrastructure offset by depreciation and asset disposals and retirements in the ordinary course of business the other major is the reason which being the exits from the Home Improvement

Rate of return on ordinary shareholders' equity

One Of the major reasons as to how the company led to a position where the return on equity decreased is mainly because the cash liquidity decreased, on the more the assets efficiency also led to a major setback leading to an un desirable position of reducing the equity value and the return value as well.

Earnings per share

This ratio as stated above clearly status that the company has gradually increased its interest expense which have led to increase the earning per share. The same has happened mainly because of one reason mainly which being that the profits have increased in a span of time of three years leading to increase on account with the paying of the dividend on a much stable manner and on a higher return.

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Liquidity

This sector defines how to measure the organisation liquidity status and the cash and cash equivalents status on the basis of three years. The element of cash perspective is understood and reflected checking the parameters on seven ratio analysis. These ratio in clearly and specific terms helps in providing the basis which helps in explaining how the company has evolved in terms below mentioned analysis.

Item

06/16

06/17

06/18

Current Ratio

0.83

0.79

0.78

Quick Ratio

0.32

0.33

0.32

Inventory Turnover

12.78

13.64

13.40

Working Cap Turnover

-28.81

-22.39

-21.13

Days Inventory

28.55

26.75

27.24

Days Receivables

0.78

0.70

0.83

Receivable Turnover

263.57

434.40

453.99

(WoolsWorthsGroup, 2017 WoolsWorthsGroup, 2018)

Working capital

The company has gradually reduced it working capital level by planning the level of the level of the Big W Turnaround Plan. On the more, the organisation ensured that the various STI plan and the LTI plan where measured to improve such returns.

Current ratio and Acid-test ratio

The three years analysis shows a similar level that on an average basis the current assets and the current liabilities have been shifted in terms of numbers in a much lesser manner there by maintaining the balance between paying in and paying off as well.

Inventory turnover and Days in inventory Gross profit percentage

The turnover increase showing that the inventory was holding in was for a longer time and the major reason for the same is not sales dipping off, but the organisation having a major grouped about keeping stocks the organisation has re worked its material planning strategies. Thereby, leading to increase in the stock balances and the similar effect was made on the days in terms of inventory.

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Accounts receivable turnover and Days' sales in receivables

This segment is directly related to the sales and the reason as to why the cash sales has been substituted with the credit sales as well as the online sales. On the more, the organisation led to rebuilding sales strategy which actually led to benefit the accounts receivable as well as the days analysis in terms with receivable analysis.

Gearing Debt ratio

This sector defines how to measure the organisation leverage status and the balance between the equity and debt ratio. It defines the status on the basis of understanding the core factor which being the debt and equity. It is defining the aspect of three years basis. The element of owner fund and the borrowed fund perspective is understood and reflected checking the parameters on two ratio analysis. These ratio in clearly and specific terms helps in providing the basis which helps in explaining how the company has evolved in terms below mentioned analysis.

Item

06/16

06/17

06/18

Gross Gearing (D/E) (%)

49.67

30.69

25.84

Net Gearing (%)

38.87

21.48

14.10

Net Interest Cover

10.44

12.01

16.55

(WoolsWorthsGroup, 2017 WoolsWorthsGroup, 2018)

Debt to equity ratio

This ratio as stated above clearly status that the company has gradually reduced its gearing ratio which being the debt and equity. The same has happened mainly because of two reasons one being profits which have increased in a span of time of three years leading to increase in equity and the other being that the cash availability has led to pay off debts which has led to gradually decreased the debt balances.

Times interest earned ratio

This ratio as stated above clearly status that the company has gradually increased its interest expense which being the paying of the interest expense. The same has happened mainly because of one reason mainly which being that the profits have increased in a span of time of three years leading to increase on account with the paying of the interest more swiftly.

Conclusion

Thus, the paper is a great insight about the organisation Wools Worth interpretation of its annual report and financial evaluation. The company has made sure that the three-year analysis which being financial year 2018, 2017 and 2016 are properly and analytically compared on the basis of the historical analysis, vertical analysis as well as the ratio which are explained on the ambit of three perspective which being the gearing ratio, liquidity ratio as well as the liquidity ratio.

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