Access Woolworths annual reports for 2013, 2015 and 2017 to conduct a horizontal analysis of their income statement from 2013-2017.
Preparing Horizontal analysis of the Income Statement for Five years:
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Horizontal Analysis of the Income Statement |
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(New Year – Previous Year) / Previous Year |
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(Year 2013- Year 2012)/ Year 2012 |
(Year 2014- Year 2013)/ Year 2013 |
(Year 2015- Year 2014)/ Year 2014 |
(Year 2016- Year 2015)/ Year 2015 |
(Year 2017- Year 2016)/ Year 2016 |
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Particulars |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Operating Revenue |
5.83% |
9.94% |
9.79% |
5.11% |
0.41% |
|
Other Revenue |
336.35% |
327.65% |
379.52% |
373.55% |
316.72% |
|
Total Revenue Excluding Interest |
6.18% |
10.28% |
10.18% |
5.50% |
0.74% |
|
Operating Expenses |
6.97% |
11.30% |
10.97% |
8.42% |
3.70% |
|
EBITDA |
-2.17% |
-0.50% |
1.82% |
-25.34% |
-30.46% |
|
Depreciation |
6.72% |
8.56% |
47.44% |
31.80% |
31.23% |
|
Amortization |
24.74% |
38.23% |
-81.53% |
-82.49% |
-85.54% |
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Depreciation and Amortization |
9.26% |
12.74% |
29.27% |
15.70% |
14.78% |
|
EBIT |
-4.74% |
-3.48% |
-4.37% |
-34.59% |
-40.66% |
|
Interest Revenue |
-17.16% |
-63.43% |
-100.00% |
-100.00% |
-100.00% |
|
Interest Expense |
28.84% |
-12.72% |
-19.95% |
-22.84% |
-39.18% |
|
Net Interest Expense |
33.07% |
-8.06% |
-12.59% |
-15.75% |
-33.58% |
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Pretax Profit |
-7.78% |
-3.11% |
-3.71% |
-36.10% |
-41.23% |
|
Tax Expense |
12.38% |
19.40% |
18.43% |
-19.48% |
-26.51% |
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Net Profit after Tax Before Abnormal |
-14.29% |
-10.38% |
-10.85% |
-41.47% |
-45.97% |
|
Net Income |
24.62% |
35.29% |
17.62% |
-229.20% |
-12.32% |
The above table mainly represents the overall horizontal analysis of Woolworths Income statement from 2013 to 2017. In addition, base year for the evaluation of horizontal analysis is taken as 2012, which helps in understanding the progress made by Woolworths over the period of five years. From the evaluation it is understood that total revenue of the company has declined, which has forced the company to reduce its net income. Moreover, the continuous decline in expenses is witnessed for the organisation, which only indicates the measure is taken by the company in curbing the declining revenues.
Hence, from the evaluation it is seen that the progress of Woolworths has declined immensely from the level of 24.62% in net income during 2013 to -12.32% in 2017. This mainly portrays the low financial capability of the company is maintaining the level of income and generating high rate of profits from operations. In this context, Saleh (2016) stated that investors with the help of horizontal analysis is able to identify the level of income, which a company could obtain over the period of time by conducting relevant actions. On the other hand, Berg and Bjarnegard (2016) criticises that due to the unethical actions of the organisation in manipulating their annual report, the projections made by the investors become invalid.
The management of Woolworths need to comply with the changing trend and amendment their operations to increase revenue and generate adequate income to support its expenses. The continuation of losses incurred during 2016 needs to be stopped by the management of Woolworths for smoothly conducing their operations.
D. Calculating financial ratios of Woolworths from 2013 to 2017:
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Financial Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Return on total assets |
10.33% |
10.58% |
8.63% |
-9.61% |
6.87% |
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Rate of return on ordinary equity |
25.52% |
24.80% |
19.74% |
-23.58% |
17.08% |
|
Operating profit margin |
3.84% |
4.02% |
3.50% |
-4.01% |
2.85% |
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Gross profit Margin |
26.75% |
26.92% |
27.02% |
25.83% |
28.49% |
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Inventories turnover period |
11 |
10 |
9 |
9 |
9 |
|
Settlement period for debtors |
4 |
4 |
3 |
3 |
3 |
|
Current ratio |
0.91 |
0.95 |
0.84 |
0.83 |
0.79 |
|
Quick ratio |
0.29 |
0.33 |
0.30 |
0.32 |
0.33 |
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Debt to assets ratio |
58.20% |
56.52% |
56.06% |
62.63% |
56.90% |
|
Interest cover ratio |
9.1 |
13.6 |
14.7 |
10.4 |
12.0 |
|
Assets turnover |
2.69 |
2.63 |
2.47 |
2.40 |
2.41 |
|
Earnings per share (cents) |
180.72 |
194.61 |
169.43 |
-96.56 |
118.92 |
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Price-earnings ratio |
1815.48% |
1832.38% |
1616.62% |
-2129.19% |
2132.49% |
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Dividend yield |
4.05% |
3.84% |
5.07% |
3.75% |
3.31% |
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Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Return on total assets = Income / Average Assets |
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Return on total assets |
2,264,600,000 / ((21,581,100,000 + 22,250,200,000) / 2) |
2,458,400,000 / ((24,205,200,000 + 22,250,200,000) / 2) |
2,137,400,000 / ((24,205,200,000 + 25,336,800,000) / 2) |
-2,347,900,000 / ((23,502,200,000 + 25,336,800,000) / 2) |
1,593,400,000 / ((23,502,200,000 + 22,915,800,000) / 2) |
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Return on total assets |
10.33% |
10.58% |
8.63% |
-9.61% |
6.87% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Rate of return on ordinary equity = Income / Average Equity |
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Rate of return on ordinary equity |
2,264,600,000 / ((8,446,300,000 + 9,300,500,000) / 2) |
2,458,400,000 / ((10,525,400,000 + 9,300,500,000) / 2) |
2,137,400,000 / ((10,525,400,000 + 11,132,000,000) / 2) |
-2,347,900,000 / ((11,132,000,000 + 8,781,900,000) / 2) |
1,593,400,000 / ((8,781,900,000 + 9,876,100,000) / 2) |
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Rate of return on ordinary equity |
25.52% |
24.80% |
19.74% |
-23.58% |
17.08% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Operating profit margin = Income / Revenue |
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Operating profit margin |
2,264,600,000 / 58,929,800,000 |
2,458,400,000 / 61,202,800,000 |
2,137,400,000 / 61,149,400,000 |
-2,347,900,000 / 58,553,000,000 |
1,593,400,000 / 55,912,800,000 |
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Operating profit margin |
3.84% |
4.02% |
3.50% |
-4.01% |
2.85% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Gross profit Margin = Gross profit / Revenue |
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Gross profit Margin |
15,761,500,000 / 58,929,800,000 |
16,477,600,000 / 61,202,800,000 |
16,523,600,000 / 61,149,400,000 |
15,125,100,000 / 58,553,000,000 |
15,928,900,000 / 55,912,800,000 |
|
Gross profit Margin |
26.75% |
26.92% |
27.02% |
25.83% |
28.49% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Inventories turnover period = Cost of goods sold / Average Inventories |
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Inventories turnover period |
43,168,300,000 / ((3,698,300,000 + 4,205,400,000) / 2) |
44,725,200,000 / ((4,693,200,000 + 4,205,400,000) / 2) |
44,625,800,000 / ((4,693,200,000 + 4,872,200,000) / 2) |
43,427,900,000 / ((4,558,500,000 + 4,872,200,000) / 2) |
39,983,900,000 / ((4,558,500,000 + 4,080,400,000) / 2) |
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Inventories turnover period |
11 |
10 |
9 |
9 |
9 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Settlement period for debtors = Trade Creditors * 365 / Credit Sales |
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Settlement period for debtors |
698,500,000 *365 / 58,929,800,000 |
616,700,000 *365 / 61,202,800,000 |
584,000,000 *365 / 61,149,400,000 |
433,500,000 *365 / 58,553,000,000 |
410,500,000 *365 / 55,912,800,000 |
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Settlement period for debtors |
4 |
4 |
3 |
3 |
3 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Current ratio = Current assets / Current Liabilities |
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|
Current ratio |
6,226,100,000 / 6,866,000,000 |
7,174,800,000 / 7,558,200,000 |
7,660,900,000 / 9,168,600,000 |
7,427,000,000 / 8,992,700,000 |
6,994,200,000 / 8,824,200,000 |
|
Current ratio |
0.91 |
0.95 |
0.84 |
0.83 |
0.79 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Quick ratio = (Current assets – Inventory) / Current Liabilities |
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Quick ratio |
(6,226,100,000 – 4,205,400,000) / 6,866,000,000 |
(7,174,800,000 – 4,693,200,000) / 7,558,200,000 |
(7,660,900,000 – 4,872,200,000) / 9,168,600,000 |
(7,427,000,000 – 4,558,500,000) / 8,992,700,000 |
(6,994,200,000 – 4,080,400,000) / 8,824,200,000 |
|
Quick ratio |
0.29 |
0.33 |
0.30 |
0.32 |
0.33 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
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Debt to assets ratio = Total Liabilities / Total Assets |
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Debt to assets ratio |
12,949,700,000 / 22,250,200,000 |
13,679,800,000 / 24,205,200,000 |
14,204,800,000 / 25,336,800,000 |
14,720,300,000 / 23,502,200,000 |
13,039,700,000 / 22,915,800,000 |
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Debt to assets ratio |
58.20% |
56.52% |
56.06% |
62.63% |
56.90% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Interest cover ratio = EBIT / Interest Expense |
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Interest cover ratio |
3,733,700,000 / 410,100,000 |
3,783,100,000 / 277,800,000 |
3,748,400,000 / 254,800,000 |
2,563,800,000 / 245,600,000 |
2,326,000,000 / 193,600,000 |
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Interest cover ratio |
9.1 |
13.6 |
14.7 |
10.4 |
12.0 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Assets turnover = Sales / Average Total Assets |
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Assets turnover |
58,929,800,000 / ((22,250,200,000 + 21,581,100,000)/2) |
61,202,800,000 / ((24,205,200,000 + (22,250,200,000)/2) |
61,149,400,000 / ((25,336,800,000 + 24,205,200,000)/2) |
58,553,000,000 / ((23,502,200,000 +25,336,800,000)/2) |
55,912,800,000 /((22,915,800,000 + 23,502,200,000)/2) |
|
Assets turnover |
2.69 |
2.63 |
2.47 |
2.40 |
2.41 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Earnings Per share = (Net income / Shares outstanding) |
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|
Earnings Per share |
(2,264,600,000.00 -5,200,000.00) / 1,250,200,000.00 |
(2,458,400,000.00 -6,700,000.00) / 1,259,800,000.00 |
(2,137,400,000.00 + 8,600,000.00) / 1,266,615,199.00 |
(-2,347,900,000.00 + 1,113,100,000.00) / 1,278,758,725.00 |
(1,593,400,000.00 -59,900,000.00) / 1,289,500,000.00 |
|
Earnings Per share |
1.81 |
1.95 |
1.69 |
-0.97 |
1.19 |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Price Earnings ratio = market Value per share / EPS |
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|
Price Earnings ratio |
1.81 / 32.81 |
1.95/ 35.66 |
1.69 / 27.39 |
-0.97 / 20.56 |
1.19 / 25.36 |
|
Price Earnings ratio |
1815.48% |
1832.38% |
1616.62% |
-2129.19% |
2132.49% |
|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Dividend yield = Dividend / Market Value per share |
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|
Dividend yield |
1.33 / 32.81 |
1.37 / 35.66 |
1.39 / 27.39 |
0.77 / 20.56 |
0.84 / 25.36 |
|
Dividend yield |
4.05% |
3.84% |
5.07% |
3.75% |
3.31% |
E. Commenting on the profitability, efficiency, liquidity, financial gearing and investment ratios of Woolworths from 2013 to 2017:
Profitability Ratio:
The above figure mainly helps in depicting the profitability ratio for Woolworths, which has relevantly declined over the period of five years. in addition, the decline is due to the reduction in profits that has been achieved by the company over the period of time. Leaving the gross profit margin other ratios has relevantly declined, which indicates the high usage of administrative expenses, which has been conducted by the company. Therefore, the profitability section of the organisation is not adequate, where the operating profit margin is declining, while the gross profit margin of the company is increasing. This relevantly indicates that the company is controlling its expenses in cost of sales, while increasing its spending in administrative expenses (Soares and Pina 2017).
Efficiency Ratio:
The above graph represents the overall inventory period, which has mainly declined indicating the high time taken by the company in selling their inventory. In addition, the settlement period for the debtors has increased, which indicates that the debtors are providing with additional time to conduct payments for their credit purchases. This mainly indicates that Woolworths efficiency ratio is declining, as it is not able to maintain the level of liquidity in its operations. Atoom, Malkawi and Al Share (2017) stated that with the help of efficiency ratios investors are mainly able to understand the level of progress, which is made by the management in improving their cash position in the market.
Evaluate financial ratios including Return on Total Assets, Rate of Return on Ordinary Equity, Gross Profit Margin, Current Ratio, Quick Ratio, and more.
Liquidity Ratio:
The above figure helps in understanding the level of liquidity ratio of Woolworths from 2013 to 2017. In addition, the liquidity ratios such as current and quick ratio mainly indicates the current financial ability of Woolworths in conducting its operations after paying for all its short-term obligations. from the evaluation it is detected that both current and quick ratio of the organisation is not at desired levels, where the company is not accumulating adequate current assets to compliments its current liability during adverse time (Rey and Santelli 2017). The current ratios of the company have declined from 0.91 to 0.79 in five years, where it needs to be at the level of 2. Furthermore, the quick ratio of the company has improved over the period of five years, where the values has increased from 0.29 to 0.33, while the values is lower than the standard 1, which needs to be maintained by the organisation.
Financial Gearing:
The financial gearing ratio of Woolworths has mainly improved over time, where debt to asset ratio and interest coverage ratio has increased, while the asset turnover ratio has declined. In addition, the decline in debt to assets ratio indicates the low accumulation of debt, which is conducted by the company while conducting its operations in 5-year time. However, the overall interest cover ratio has mainly increased, which depicts that Woolworths has higher capability of obtaining debt to support its future operations. In addition, the assets turnover ratio has declined, which directly indicates the low income that is generated by the company over the period of time. Hence, financial gearing ratio of Woolworths is relevantly high, which depicts the financial progress made by the company in stabilizing its financial health and debt accumulation (Lakshan and Wijekoon 2017).
Investment Ratio:
From the evaluation of above figure, investment ratio for Woolworth is been evaluated for the period of 5 years. In addition, from the evaluation it is seen that the EPS of the company has mainly declined over the period of 5 fiscal years, which relevantly indicates the low profits obtained by the company. Moreover, the negative EPS is witnessed during 2016, which occurred due to the loss incurred by the company during the fiscal year. The price-earnings ratio calculation is also conducted from Woolworths .
which relevantly increased from the level of 1815.48% in 2013 to 2132.49% in 2017. This indicates that investors are keen on buying shares of Woolworths, which is increases PE ratio of the company. Lastly, the overall dividend yield of the company has mainly declined from the level of 4.05% to 3.31%, which directly indicates the low level of dividends, which the company is paying to its shareholders. Hence, the investment ratio directly indicates the low opportunity for investors who can invest in Woolworths, as its dividend yield and Earnings per share has been declining (Wong and Joshi 2015).
Reference and Bibliography:
Atoom, R., Malkawi, E. and Al Share, B., 2017. Utilizing Australian Shareholders’ Association (ASA): Fifteen Top Financial Ratios to Evaluate Jordanian Banks’ Performance. Journal of Applied Finance and Banking, 7(1), p.119.
Berg, A. and Bjarnegård, E., 2016. Dissecting gender imbalance: A horizontal perspective on when risk matters for the assignment of women to UN peacekeeping missions. Res Militaris, (2).
Giordani, P., Jacobson, T., Von Schedvin, E. and Villani, M., 2014. Taking the twists into account: Predicting firm bankruptcy risk with splines of financial ratios. Journal of Financial and Quantitative Analysis, 49(4), pp.1071-1099.
Lakshan, A.I. and Wijekoon, W.M.H.N., 2017. The use of financial ratios in predicting corporate failure in Sri Lanka. GSTF Journal on Business Review (GBR), 2(4).
Le, H.H. and Viviani, J.L., 2018. Predicting bank failure: An improvement by implementing a machine-learning approach to classical financial ratios. Research in International Business and Finance, 44, pp.16-25.
Rey, A. and Santelli, F., 2017. The Relationship between Financial Ratios and Sporting Performance in Italy’s Serie A. International Journal of Business and Management, 12(12), p.53.
Saleh, S., 2016, July. Vertical and Horizontal Analysis of Crustal Structure of Southeastern Mediterranean and the Egyptian Coastal Zone, from Bouguer and Satellite Mission Data. In 41st COSPAR Scientific Assembly (Vol. 41).
Shaverdi, M., Ramezani, I., Tahmasebi, R. and Rostamy, A.A.A., 2016. Combining fuzzy AHP and fuzzy TOPSIS with financial ratios to design a novel performance evaluation model. International Journal of Fuzzy Systems, 18(2), pp.248-262.
Soares, J.O. and Pina, J.P., 2017. Macro-Regions, Countries and Financial Ratios: A Comparative Study in the Euro Area (2000-2009). Revista Portuguesa de Estudos Regionais, (45), pp.84-92.
Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia. Australasian Accounting, Business and Finance Journal, 9(3), pp.27-4
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