Financial Analysis Of Woolworths Limited: Annual Report 2017

Company Overview

This report is presenting a financial analysis of company Woolworths Limited. This is a public company and listed on ASX with code WOW. This company is having the second highest position in revenue in all around the Australia. The company is having 205000 employees in 2016 (IBIS World , 2016). The company is having its headquarters at Bella Vista, New South Wales, Australia. Chief executive officer of the company is, Mr. Brad Banducci.

Moreover, the company is having so many retail stores in Australia and New Zealand. These retail stores earn revenue by selling food, liquor, petroleum, products for home improvements and other general products. The company is having various brands some of them are, Essentials, Woolworths, Dan Murphy’s and BWS. Company is having following segments,

• Australian food: engaged in food procurement for selling in Australia
• Australian Petrol:  engaged in petroleum procurement for selling in Australia
• New Zealand super markets: engaged in petroleum  and food procurement for selling in New Zealand
• Endeavors drinks group: engaged in liquor procurement for selling in Australia
• Hotels: It provides hospitality, food, alcohol, accommodation and entertainment services in Australia.
• BIG W: engaged in general merchant material’s  procurement for selling in Australia

Furthermore, the company is having a long history. The company was established 92 years ago on its foundation date September 22, 1924. The company faces various ups and downs of industry and business to reach this position. This report is presenting small analysis regarding the company on the basis of the annual report of the company for the year ending in 2017.

Financial analysis and profitability analysis is an essential and inseparable part of any business conducted for the making profit and maximizing the wealth of shareholders. Annual report of a company is a report of the annual performance of the company. Annual report of all profitable business focuses on the financial data and financial achievement of the company in the year for which annual report is prepared.

In the same way annual report of Woolworths Limited is focusing towards the financial data and financial achievements of the company in the financial year ending in 2017. Out of 132 pages in the annual report company, 53 pages of the report reserved for remuneration report and 69 pages of the report containing financial data of the company and rest pages contain general information regarding the company and its key shareholders (Woolworths Limited , 2017). Remuneration report of the company is also containing financial data regarding the amount of remuneration provided to key personals of the company. Analysis of segregation of pages reserved for specific data makes it clear that annual report of the Woolworths Limited company majorly focus on financial aspects and hence this aspect dominate the whole report.

In the compaany form of business, governance and ownership are not remain in same hands. Hence it is become an essential requirement to regulate the governance structure and compensation by key personals of governance. Woolworths Limited company follows the remuneration standards defined by the ASX. Directors of the company are,

• Gordon Cairns: Gordon Cairns appointed by the company on September 1, 2015. He is having a great experience of 30 years in food and retail industry. In past, he holds the posts of chairmen, senior director, and director in various companies. At present, he is holding the post of chairman of the board of directors of Woolworths Limited Company (Woolworths Limited , 2017).
• Brad Banducci: Brad Banducci appointed by the company on February 26, 2016. In past, he holds the post of managing director and chief executive officer in group companies. At present, he is holding the post of managing director and chief executive officer in Woolworths Limited Company (Woolworths Limited , 2017).
• Jillian Broadbent: Jillian Broadbent appointed by the company on January 28, 2011. She is having a great experience in corporate banking and financing. In past, she holds a position in reserve bank of Australia. At present, he is holding the post of independent non-executive director in Woolworths Limited Company (Woolworths Limited , 2017).
• Holly Kramer: Holly Kramer appointed by the company on February 8, 2016. She is having a great experience of 20 years in management, sales and marketing. At present, she is holding the post of independent non-executive director in Woolworths Limited Company (Woolworths Limited , 2017).
• Siobhan McKenna
• Scott Perkins
• Kathee Tesija
• Michael Ullmer

Deloitte Touche Tohmatsu is the independent auditor of the company Woolworths Limited. Audit report of the company signed by Andrew Griffiths, a partner at Deloitte on August 23, 2017. Auditor’s report of Woolworths Limited for the year 2017 is an unqualified report. In the opinion paragraph of the report, the auditor concludes that company’s financial statement are presenting the accurate financial position of position of the company and financial statements of the company prepared by following Australian accounting standards and other regulations which imposed on the company.

Annual Report Segregation and Focus

Moreover, in the audit report of the company auditor make it clear that audit report is prepared by following Australian auditing standards, and ethical requirements laid by corporation act 2001 and accounting professional and ethical standards board. Audit report presented various key other matters like the exit of home improvement, carrying a value of BIG W’s  property plant and equipment, provisioning for inventory, rebate’s accounting and IT system and defined scope of the audit regarding these matters. At the end of auditor’s report of the company, director’s and auditor’s responsibility is defined in the audit report so that no reader of audit report would mislead.

Revenue is the financial assertion which puts major impacts on the profitability of the company. This is most important assertion for cash inflow in the retail industry (Mani, Kesavan, & Swaminathan, 2015) in which Woolworths Limited performing. Following are the sales figures of company in the year 2017 and 2016,

Increase in the sales of the company is only 3.7% of last year’s sales (Letts & Janda, 2017). This fact shows there is not a big and considerable change in revenue of company from the last year. This is because of industry growth.

Cash inflow from operating activities refers to operating cash converted earnings of the organization. This can be taken as realized profits of the company. Operating cash inflow of company having lower chances of manipulations hence many analyses take it as real profits of the organization (Wild, Bernstein, Subramanyam, & Halsey, 2004). Following are the cash from operating activities figures of company in the year 2017 and 2016,

Retained earnings of company refer to the accumulated profits of the company. This is the part of earnings which not paid by the company to its shareholders as a dividend (Libby, Libby, Short, & Kanaan, 2004). Following are the retained earnings figures of company in the year 2017 and 2016,

Borrowings of the company refer to the amount borrowed by the company. Higher the borrowings of the company higher will be the external interference in the company’s operations. Following are the long term and short term borrowings figures of company in the year 2017 and 2016,

Ratio analysis is the easiest technique to make analysis regarding the financial position of the company. Under this analysis various ratios calculated on the basis of a number of various assertions of the statement of income, statement of financial position and statement of cash flow. Some ratios of the Woolworths Limited are,

Profitability ratios

Profitability ratios present profit related ratios of the organization. Gross profit ratio shows a gross profit of the organization in organization’s revenue’s percentage. Net profit ratio shows a net profit of the organization in organization’s revenue’s percentage. Return on equity ratio shows a net profit of the organization in equity investment’s percentage. Profitability ratios present company’s financial health.

If such ratios show growing trend then it is assumed that company is making growth with increased profitability and if such ratios show negative trend then it is assumed that company is not making growth because of having lower profitability (Bird & McHugh, 1977). In the present case, all profitability ratios of the company showing growing trend mean the company is on the path of growth from the prospective of profitability.

Liquidity ratios

The current ratio is a ratio a ratio between current assets and current liabilities. Liquidity ratio is a ratio between the liquid assets i.e. current assets subtracted by prepaid expenses and accounts receivable (Ertu?rul & Karaka?o?lu, 2009). These ratios show the ability of the organization to repay its short term obligation by using short term resources. This ratio should be kept by every organization at a moderate level, but resource part must be higher than obligation part so that organization could handle unexpected obligations. In the present case, both ratios are declining and less than one i.e. obligation part is higher than the resource part which is not good for the financial health of the company.

Asset turnover ratios

Asset turnover ratio of the company shows the sales made by a company by using the assets of the company. The result of this ratio shows dollar sale made by the company using per dollar asset of the company. In the present case asset turnover ratio of the company is showing a positive trend. This trend indicates that company is having good financial health.

Leverage ratios

Leverage ratios of the company show that how the company finances its assets. Debt ratio shows debt financing in the company equity ratio shows equity financing in the company and debt equity ratio shows debt financing in terms of equity. In the present case, the company reduced its debt financing and increased equity financing, which shows that company decreasing its dependence on external financing. This is an indicator of the good financial health of the company.

1. Bird, R. G., & McHugh, A. J. (1977). Financial ratios—an empirical study. Journal of Business Finance & Accounting, 4(1), 29-46.
2. Ertu?rul, ?., & Karaka?o?lu, N. (2009). Performance evaluation of Turkish cement firms with fuzzy analytic hierarchy process and TOPSIS methods. Expert Systems with Applications, 36(1), 702-715.
3. IBIS World. (2016, June 26). Woolworths Ltd – Premium Company Report Australia. Retrieved September 2017, 2017, from https://www.ibisworld.com.au: https://www.ibisworld.com.au/australian-company-research-reports/retail-trade/woolworths-ltd-company.html
4. Letts, S., & Janda, M. (2017, August 23). Woolworths bounces back with $1.5b profit. ABC News. Australia.
5. Libby, R., Libby, P., Short, D., & Kanaan, G. (2004). Financial accounting.McGraw-Hill.
6. Mani, V., Kesavan, S., & Swaminathan, J. M. (2015). Estimating the impact of understaffing on sales and profitability in retail stores. roduction and Operations Management, 24(2), 201-218.
7. Wild, J., Bernstein, L., Subramanyam, K., & Halsey, R. (2004). Financial statement analysis.McGraw-Hill.
8. Woolworths Limited. (2017). Annual report 2017.Retrieved September 9, 2017, from woolworths group: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf

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