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Woolworths Financial Analysis & Interpretation

Question

Task: Write a Financial Analysis Report using an essay structure to interpret a company’s most recent annual report.
Students will write a Financial Analysis Report for a stakeholder (external investor or internal manager) that interprets the annual report of an Australian company. The Report will clearly state recommendations about the company’s suitability for share investment or internal management. The company should be listed on the ASX.

Students will be assessed on the thoroughness of the financial analysis. Thoroughness requires a logical justification of why financial and non-financial performance indicators are included in the analysis. The analysis will be formally written to meet the expectations of a stakeholder. The report is limited to 1000 words, plus or minus 10%, excluding title page and bibliography.

Answer

Executive Summary
The following assignment is based on theWoolworths financial analysis and interpretationthat is listed on the Australian Stock Exchange. The company is in operation for 95 years and is one of the biggest retail companies in terms of revenue both in Australia and New Zealand. The company’s business includes restaurants, pubs, hotel chains in Australia, retail outlets and gaming poker machines(Yeates & Keoghan, 2019). In 2016 the company suffered severe losses due to write down of assets and failure of mergers like the Big W business as well. In this assignment we shall do the Woolworths financial analysisthat will help in taking financial decisions.

Analysis Woolworths financial analysis
The Woolworths financial analysis research has been based on the financial ratio calculation and interpretation of the results based on that. In this Woolworths financial analysis, the major ratios that have been calculated are given below. The ratios have been prepared based on the numbers taken from annual report of the company for last 4 years.

Ratios Analysis

 

Name of the ratio

2019

2018

2017

2016

Profitability Ratios

Return on Equity

25.86%

16.55%

16.13%

-26.74%

Return on Assets

11.74%

7.67%

6.91%

-9.99%

Profit Margin

4.60%

3.15%

2.89%

-4.03%

 

 

 

 

 

Efficiency Ratios

Inventory Turnover

9.94

9.51

9.30

9.36

Trade Payables Turnover

6.37

5.78

5.74

6.81

Trade Receivables Turnover

87.95

71.12

73.87

76.29

 

 

 

 

 

Liquidity Ratios

Current Ratio or Working Capital Ratio

0.73

0.78

0.80

0.83

Quick ratio or Acid test ratio

0.23

0.32

0.33

0.32

 

 

 

 

 

Capital Structure

Name of the ratio

2019

2018

2017

2016

Debt Equity Ratio

1.20

1.16

1.33

1.68

Interest Service coverage ratio

18.67

16.55

11.99

6.54

 

 

 

 

 


Ratios Analysis
The key results from the calculations obtained in the study of Woolworths financial analysis above are given below- • There has been decrease in the liquidity of the company, and the current ratio has reduced which means that the company will not be able to meet the current liabilities on time, due to shortage of assets. • The overall return to the shareholder has increased as there is an improvement in the return on equity and the profit margin has also improved. • The debt ratio has reduced, which means that there is an increase in the overall equity, and thus the overall risk has also reduced(Bosi, Esposito, & Kiviniemi, 2018). • There has been an increase in the efficiency ratio over the years which means improved internal control operations and supply chain management.

Interpretation
The overall financial position of the company has improved and that can be interpreted from the improved return on equity and the reduced debt equity ratio and interest coverage ratio. Both the ratios are in a good position indicating that the company is able to pay off their debts and interest on time. The only concern is with the liquidity position of the company as we see in comparison of the current assets to the current liabilities(Sherwood, 2019).

It is important and critical to use non-financial factors as well besides the financial factors to access if the company is a good prospect for investment. One major news relating to the company was the sale of the Petrol business that resulted in major profits of $1200 Mn during the year. The company is having strong internal controls in order to face any kind of risks and they have an overall plan related to strategy and competition as mentioned in the directors’ report. The company has good governance in place that looks into strategy and governance, providing adequate training to employees, social responsibility and risk management. The core values of the company have also included certain points like “listen and learn” to improve the overall customer experience. In terms of non-financial aspect, the company has also emerged as one of the pioneers by promoting workers’ rights and proving them training and making their jobs secure. The company also promotes pay parity and 34% of the total positions in the senior management group are held by the women. The company has also invested in various projects like solar power development, community contribution from EBIT, investment in education etc(Mclaney & Atrill, 2020).

From the perspective of the balance scorecard presented in this Woolworths financial analysis, the financial position is being secured by the finance team and they are trying to improve the overall profitability and sustainability along the top lines. From the perspective of the business processes the company has made reasonable investment in making the supply chain better and has improved learning and development component also as we see that there is considerable increase in the training programs that are held. The company is also trying the include new businesses and is also trying to be more customer eccentric by developing certain programs that promotes customer acquisition and growth.

In terms of strength, what sets the company apart from its peer is its diverse board that compromises of people from different background with excellent skill sets. These directors are making new changes and taking risks in various sectors that has helped the company to emerge as a global leader(Michaela, 2017). One of the major issues that are being faced in todays time is the Covid-19 pandemic and because of the which the industry is suffering but the company has been able to maintain the overall demand supply momentum by providing best services during these hard times. In comparison to its peers the company is paying more to its employees and is also promoting work from home opportunities for its employees. The various non-wage benefit includes Transformation Incentive Program (TIP), Short Term Incentives (STI), stock options, ESOPs, etc. If we go for the key managerial persons, it can be seen that there is a considerable increase in the overall remuneration from the prior year like we see in case of K a Tesija, Non-executive Director increased the most ($316554 to $357964). So overall the company is paying well and is also contributing to the sustainable growth and development of the resources overall both financial and non-financial(Mokyr, 2017).

Conclusion
From the overall Woolworths financial analysis it can be said that the company has done good, the overall financial position of the company has improved along with improvement in various non-financial projects. The company has learned from past experiences and that can be seen in its recent projects, in 2016 the company had faced major loss but has been able to recover considerably. In the last 5-6 months there have been a lot of fluctuations in the share price of the company due to the pandemic, but the company has recovered well and has been able to maintain a steady growth from past two three sessions. In comparison to its competitors, the company has made major contribution in various non-financial programs and that has also helped it in setting a different standard in the industry.Based on the above Woolworths financial analysis and interpretation, it can be said that the company is a good avenue to invest for the investors. However, it is important that every company should be vigilant of the society while they are trying the make an increase in the overall revenue that they are earning. This is how sustainability can be achieved and Woolworths has been able to do the same with a much planned approach generate centric results.

Bibliography
Bosi, F., Esposito, M., & Kiviniemi, A. (2018). Social Paradigms in Contemporary Airport Design. Advances in Informatics and Computing in Civil and Construction Engineering , 56(1), 471-477.

Mclaney, E., & Atrill, P. (2020). Accounting and Finance: An Introduction (10th ed.). Harlow: Pearson.

Michaela, R. (2017). Contemporary Issues in Accounting (second ed.). London: Wiley.

Mokyr, J. (2017). A Culture of Growth (Third ed.). Woolworths financial analysisNewYork: Princeton University Press.

Sherwood, R. (2019). Intellectual Property And Economic Development. Newyork: Routledge.

Yeates, C., & Keoghan, S. (2019, August 3). Big banks and accounting firms defend auditors' independence. Banking and Finance, pp. 2-8.

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