Current Market and Economic Conditions in Australia
This report emphasizes upon the various opportunities of investment in the Australian market. It focuses on the current market and economical condition of Australia and explains that how would the investment be run in the market and how much returns could be expected from the instatement in the Australian market. For identifying the investment opportunity in the company, various methods and techniques have been used of fundamental analysis such as bottom up analysis and top down analysis.
Fundamental analysis measures the worth of an organization and the market on the basis of the ratio analysis, trend analysis, economical analysis etc. In this report the worth of an organization and the instant into the Australian market has been measured on the basis of the final statements, company situation, industry situation, economical factors etc. Further, two methods of fundamental analysis has been studied in the report which are top down analysis and bottom up analysis to measure the performance and the position of the investment.
The report mainly focuses on two retailing company of Australia which are Myer limited and the Woolworths limited for the purpose of the investment and the investment position of the company.
Australian retail industry and the market have been evaluated and on the basis of the study, it has been recognized that the performance of the company has been better. The current report about the Australian retail industry explains that the retail industry position of Australia is among the top 20 largest industries at the international level. However, the top down analysis study on the industry explains that few issues have been occurred into the retail industry of Australia which has impacted on the overall market position and the performance (Analysis, 2018). In addition, Myer limited and Woolworths limited are among the arrest Australian retail companies and performing their business in Australian market as well as international level. Myer limited and Woolworths limited have registered their stock in the Australian stock exchange and performing better in the market.
The fundamental study on Australian retail market has been done with the help of the top down analysis method. In the analysis of top down method, a particular industry and all the changes and the movements of the industry are evaluated which has taken place into the industry. Top down analysis mainly works on an assumption that the performance and the position of an organization mainly bases upon the industry under which the company is working.
Fundamental Analysis Methods for Identifying Investment Opportunities
The process and the methods of top down analysis are contradictory to bottom up analysis. Top down analysis study could be performed in better way on the basis of the depth economical and industry evaluation (Jamshidi and Palsson, 2008). In the report, top down analysis study of retail industry has been done on the basis of the total GDP of the industry, fiscal policies of Australian market, forecasting on the Australian market, future outlook of the industry etc.
The tools of top down analysis explain about those factors which have been directly related to the performance of the firm which is operating under the particular industry. The top down analysis study of retail industry are as follows:
The total GDP of the Australia is approximately $ 1.205 trillion. It explains that the Australian GDP is lower than the GDP of other countries such as Canada and India in concern of the per capita GDP.
However, the reports are explaining about the rapid increment in the retail industry of the company. Additionally, exchange rate risk and the political sustainability of the country are quite convinced in comparison with the developed countries such as UK. Thus, it explains that the Australian market is one of the better choices of the investors to invest the amount for better returns from the market.
Further, the investigation on the retail industry of the Australia explains that the higher growing factors could be seen in the Australian retail industry. It is continuously enjoying the great growth in the Australian market. The growth rate of retail industry of Australia is around 8%. It leads to a conclusion that the investment into the company would offer great returns to the shareholders of the company.
In addition, the study has been done on the fiscal policy of Australian and the retail industry of Australia. On the basis of the study, it has been observed that Australian government has made various changes into the policy from last few years to mange and enhance the performance of the company. the changes into the fiscal policy has lead to the Australian retail industry towards the higher FDI increment, gross domestic product of the Australian retail industry is also among the few reasons behind the improved FDIs in the Australian country (Trading economy, 2018).
The forecasting study has been done on the Australian stock exchange and the security market of the Australian to indicate and evaluate the performance of the company. The stock exchange of the country explains about better index prices and a great return from the market. The gross domestic product of the company is also developing the changes into the industry and the stock exchange (Analysis, 2018).
Top Down Analysis of the Australian Retail Industry
It has been found that the DDP is growing in upper direction as well as the employment rate and the performance of the Australian market has also been improved which explains that the Australia could be a better option for the purpose of investment.
Retail industry of Australia explains about growing and positive changes into the industry in last few years. The retail industry is currently enjoying the great market share and the GDP of the industry has also been improved. Though the current position explains about few changes into the industry data and explains that the changes are positive and offers a great base to the investors to evaluate the market performance and investment into the industry for the better returns.
The forecasting of Australian market and retail industry has been done on the basis of the current trends in the market and the historical changes. On the basis of the study, it has been found that the performance of the industry would be better in near future and it would be quite attractive to attract enough investors towards the industry. Though, it has also been found that the subparts of the retail industry would help the company to enhance the performance of the company. The firms in the retail industry are also performing well and explain about the great performance of the company in the market.
On the basis of the top down analysis, it has been investigated that the performance of the industry is attracting now and it would more stunning on the basis of the foresting study. It explains about the better performance and the position of the industry.
The fundamental study on Australian retail market has been done with the help of the top down analysis as well as bottom up analysis method. In the analysis of bottom up method, a particular firm and all the changes and the movements of the firm are evaluated which has taken place into the firm. Bottom up analysis mainly works on an assumption that the performance and the position of an organization does not bases on anything. The financial and non financial performance and the factors are the only thing which affects the bottom up analysis (Ciani, Summers and Easter, 2008).
The process and the methods of bottom up analysis are contradictory to top down analysis. Bottom up analysis study could be performed in better way on the basis of the depth financial evaluation of the firm. In the report, bottom up analysis study of Myer limited and Woolworths limited has been done on the basis of the ratio analysis, financial data and the DuPont analysis.
Factors Affecting the Performance of the Australian Retail Industry
The tools of bottom up analysis explain about those factors which have been directly related to the performance of the firm. The bottom up analysis study of retail industry is as follows.
Ratio analysis is a fundamental analysis study which explains about the financial performance and position of the company on the basis of the various levels. This analysis is conducted by the professionals to measure the liquidity, solvency, profitability etc position of the company. In ratio analysis, financial statement of the company is evaluated to measure the performance of the company. In the report, ratio analysis study has been performed on Myer limited and Woolworths limited to measure the performance of the company.
Myer limited is an Australian retailing company which operates its business through various stores of the company. Company is operating from last few decades in the Australian market and now it has diversified its market and international level as well. The study of Myer limited explains that the performance of the company has been changed a lot in last few years (Reuters, 2018). The ratios of the company are as follows:
|
Ratio Calculations |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Myer Limited |
||||||
|
Profitability Ratios: |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Return on Capital employed |
||||||
|
Operating profit / |
-570 |
-1043 |
-679 |
-725 |
-694 |
|
|
Capital employed (total assets – current liabilities) |
1,417 |
1,402 |
1,406 |
1,347 |
1,392 |
|
|
Answer: |
% |
-40.23% |
-74.39% |
-48.29% |
-53.82% |
-49.86% |
|
Gross Profit Margin |
||||||
|
Gross profit / |
1,287 |
1,274 |
1,277 |
1,253 |
1,202 |
|
|
Sales Revenue (note used operating revenue) |
2,738 |
2,729 |
2,772 |
2,781 |
2,623 |
|
|
Answer: |
47.0% |
46.7% |
46.1% |
45.1% |
45.8% |
|
|
Operating profit margin |
||||||
|
Operating profit / |
-570 |
-1,043 |
-679 |
-725 |
-694 |
|
|
Sales Revenue |
% |
2,738 |
2,729 |
2,772 |
2,781 |
2,623 |
|
Answer: |
-20.82% |
-38.22% |
-24.49% |
-26.07% |
-26.46% |
|
|
Myer Limited |
||||||
|
Asset Efficiency Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Trade payable payment period ratio |
||||||
|
Accounts payable/ |
190 |
203 |
192 |
189 |
182 |
|
|
Cost of sales |
1,451 |
1,455 |
1,495 |
1,528 |
1,421 |
|
|
Answer: (note the above needs to be x 365) |
47.7946 |
50.9244 |
46.8763 |
45.1473 |
46.7488 |
|
|
Inventory Turnover (days) |
||||||
|
Average Inventory / |
364 |
377 |
382 |
396 |
372 |
|
|
Cost of Sales |
# days |
1,451 |
1,455 |
1,495 |
1,528 |
1,421 |
|
Answer: (note the above needs to be x 365) |
91.56 |
94.57 |
93.26 |
94.59 |
95.55 |
|
|
Receivables Turnover (days) |
||||||
|
Average trade debtors / |
14 |
17 |
14 |
29 |
17 |
|
|
Sales revenue (note used operating revenue) |
# days |
2,738 |
2,729 |
2,772 |
2,781 |
2,623 |
|
Answer: (note the above needs to be x 365) |
1.87 |
2.27 |
1.84 |
3.81 |
2.37 |
|
|
Myer Limited |
||||||
|
Liquidity Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Current Ratio |
||||||
|
Current Assets / |
479.00 |
480.00 |
481.00 |
480.00 |
431.00 |
|
|
Current liabilities |
523.00 |
531.00 |
481.00 |
521.00 |
487.00 |
|
|
Answer: |
0.92 |
0.90 |
1.00 |
0.92 |
0.89 |
|
|
Acid test ratio |
||||||
|
Current Assets – Inventory / |
115 |
103 |
99 |
84 |
59 |
|
|
Current Liabilities |
523 |
531 |
481 |
521 |
487 |
|
|
Answer: |
0.22 |
0.19 |
0.21 |
0.16 |
0.12 |
|
|
Myer Limited |
||||||
|
Capital Structure Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Gearing ratio |
||||||
|
Long term liabilities / |
511 |
508 |
542 |
240 |
319 |
|
|
Capital employed |
1,417 |
1,402 |
1,406 |
1,347 |
1,392 |
|
|
Answer: |
% |
0.361 |
0.362 |
0.385 |
0.178 |
0.229 |
|
Interest Coverage Ratio |
||||||
|
EBIT / |
-570.00 |
-1,043.00 |
-679.00 |
-725.00 |
-694.00 |
|
|
Net Finance Costs (used net interest expense) |
30 |
23 |
23 |
15 |
11 |
|
|
Answer: |
times p.a |
-19.000 |
-45.348 |
-29.522 |
-48.333 |
-63.091 |
|
Myer Limited |
||||||
|
Investor’s Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Earnings per share |
||||||
|
Net income |
127 |
98 |
30 |
61 |
12 |
|
|
Weighted average shares outstanding |
729 |
585 |
586 |
787 |
821 |
|
|
Answer: |
0.174 |
0.168 |
0.051 |
0.078 |
0.015 |
|
|
Dividend coverage ratio |
||||||
|
Net income / |
127 |
98 |
30 |
61 |
12 |
|
|
Dividend paid to shareholders |
113 |
99 |
73 |
16 |
49 |
|
|
Answer: |
1.124 |
0.990 |
0.411 |
3.813 |
0.245 |
(Morningstar, 2018)
The table explains that the financial performance of the company has changed a lot in last few years. The profitability level of the comapny explains about the negative changes (annual report, 2017). However, the other ratios of the company explain that the company’s position is quite better and if the investors would invest into the company than they would be able to get higher returns from the company.
Woolworths limited is an Australian retailing company which operates its business through various subsidiaries of the company. Company is operating from last few decades in the Australian market and now it has diversified its market and international level as well. The study of Myer limited explains that the performance of the company has been changed a lot in last few years. The ratios of the company are as follows:
|
Ratio Calculations |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Woolworths Limited |
||||||
|
Profitability Ratios: |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Return on Capital employed |
||||||
|
Operating profit / |
-6384 |
-6656 |
-7555 |
-9398 |
-8891 |
|
|
Capital employed (total assets – current liabilities) |
15,384 |
16,647 |
16,168 |
14,509 |
14,092 |
|
|
Answer: |
% |
-41.50% |
-39.98% |
-46.73% |
-64.77% |
-63.09% |
|
Gross Profit Margin |
||||||
|
Gross profit / |
15,762 |
16,478 |
16,524 |
15,599 |
15,929 |
|
|
Sales Revenue (note used operating revenue) |
58,674 |
60,952 |
60,868 |
58,276 |
55,669 |
|
|
Answer: |
26.9% |
27.0% |
27.1% |
26.8% |
28.6% |
|
|
Operating profit margin |
||||||
|
Operating profit / |
-6,384 |
-6,656 |
-7,555 |
-9,398 |
-8,891 |
|
|
Sales Revenue |
% |
58,674 |
60,952 |
60,868 |
58,276 |
55,669 |
|
Answer: |
-10.88% |
-10.92% |
-12.41% |
-16.13% |
-15.97% |
|
|
Woolworths Limited |
||||||
|
Asset Efficiency Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Trade payable payment period ratio |
||||||
|
Accounts payable/ |
4,080 |
4,657 |
5,040 |
4,809 |
5,068 |
|
|
Cost of sales |
42,913 |
44,475 |
44,345 |
42,677 |
39,740 |
|
|
Answer: (note the above needs to be x 365) |
34.70 |
38.22 |
41.48 |
41.13 |
46.55 |
|
|
Inventory Turnover (days) |
||||||
|
Average Inventory / |
4,205 |
4,693 |
4,872 |
4,558 |
4,080 |
|
|
Cost of Sales |
# days |
42,913 |
44,475 |
44,345 |
42,677 |
39,740 |
|
Answer: (note the above needs to be x 365) |
35.77 |
38.51 |
40.10 |
38.98 |
37.47 |
|
|
Receivables Turnover (days) |
||||||
|
Average trade debtors / |
698 |
617 |
584 |
434 |
410 |
|
|
Sales revenue (note used operating revenue) |
# days |
58,674 |
60,952 |
60,868 |
58,276 |
55,669 |
|
Answer: (note the above needs to be x 365) |
4.34 |
3.69 |
3.50 |
2.72 |
2.69 |
|
|
Woolworths Limited |
||||||
|
Liquidity Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Current Ratio |
||||||
|
Current Assets / |
6,226 |
7,175 |
7,661 |
7,427 |
6,994 |
|
|
Current liabilities |
6,866 |
7,558 |
9,169 |
8,993 |
8,824 |
|
|
Answer: |
0.91 |
0.95 |
0.84 |
0.83 |
0.79 |
|
|
Acid test ratio |
||||||
|
Current Assets – Inventory / |
2,021 |
2,482 |
2,789 |
2,869 |
2,914 |
|
|
Current Liabilities |
6,866 |
7,558 |
9,169 |
8,993 |
8,824 |
|
|
Answer: |
0.29 |
0.33 |
0.30 |
0.32 |
0.33 |
|
|
Woolworths Limited |
||||||
|
Capital Structure Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Gearing ratio |
||||||
|
Long term liabilities / |
6,084 |
6,122 |
5,036 |
5,728 |
4,216 |
|
|
Capital employed |
15,384 |
16,647 |
16,168 |
14,509 |
14,092 |
|
|
Answer: |
% |
0.395 |
0.368 |
0.311 |
0.395 |
0.299 |
|
Interest Coverage Ratio |
||||||
|
EBIT / |
-6,384 |
-6,656 |
-7,555 |
-9,398 |
-8,891 |
|
|
Net Finance Costs (used net interest expense) |
410 |
278 |
255 |
246 |
194 |
|
|
Answer: |
times p.a |
-15.571 |
-23.942 |
-29.627 |
-38.203 |
-45.830 |
|
Woolworths Limited |
||||||
|
Investor’s Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Earnings per share |
||||||
|
Net income |
2,259 |
2,452 |
2,146 |
-1,235 |
1,534 |
|
|
Weighted average shares outstanding |
1,237 |
1,248 |
1,257 |
1,264 |
1,284 |
|
|
Answer: |
1.826 |
1.965 |
1.707 |
-0.977 |
1.195 |
|
|
Dividend coverage ratio |
||||||
|
Net income / |
2,259 |
2,452 |
2,146 |
-1,235 |
1,534 |
|
|
Dividend paid to shareholders |
1,417 |
1,523 |
1,567 |
1,217 |
562 |
|
|
Answer: |
1.594 |
1.610 |
1.369 |
-1.015 |
2.730 |
(Morningstar, 2018)
The table explains that the financial performance of the company has changed a lot in last few years. The profitability level of the comapny explains about the negative changes (Investors, 2017). However, the other ratios of the company explain that the company’s position is quite better and if the investors would invest into the company than they would be able to get higher returns from the company.
On the basis of the above study, it has been evaluated that the top down analysis and the bottom up analysis both explains that the performance of the retail industry and both the firms of the retail industry are quite impressive and explains that the investment into the company would offer huge return to the company. The study explains that the GDP of the industry is continuously enhancing as well as the fiscal policies and the government regulations are also in the favour of the company. As well as, the financial study explains that the performance of Myer limited as well as Woolworths limited is
It explains that the investors should invest into the Australian market and the performance of the company and the retail industry are quite impressive. It explains that the investors would be able to get huge return from the market.
References:
Analysis. 2018. Total retail trade. [Online]. Available at: https://www.abs.gov.au/ausstats/[email protected]/Latestproducts/8501.0Main%20Features2Jun%202017?opendocument&tabname=Summary&prodno=8501.0&issue=Jun%202017&num=&view (Accessed 25/5/18).
Annual Report. 2017. Woolworths Limited. [Online]. Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf (Accessed 25/5/18).
Australain retail index. 2018. Home. [online]. Available at: https://www.australianretailindex.com.au/ (Accessed 25/5/18).
Ciani, K.D., Summers, J.J. and Easter, M.A., 2008. A “top-down” analysis of high school teacher motivation. Contemporary Educational Psychology, 33(4), pp.533-560.
Investors. 2017. Myer Limited. [Online]. Available at: https://investor.myer.com.au/Investor-Centre/ (Accessed 25/5/18).
Jamshidi, N. and Palsson, B.Ø., 2008. Top-down analysis of temporal hierarchy in biochemical reaction networks. PLoS computational biology, 4(9), p.e1000177.
Morningstar. 2017. Myer Limited. [Online]. Available at: https://financials.morningstar.com/cash-flow/cf.html?t=MYR®ion=aus&culture=en-US (Accessed 25/5/18).
Morningstar. 2018. Woolworths Limited. [Online]. Available at:://financials.morningstar.com/cash-flow/cf.html?t=WOW®ion=aus&culture=en-US&platform=sal. (Accessed 25/5/18).
Reuters. 2018. Myer Limited. [Online]. Available at: https://www.reuters.com/finance/stocks/company-profile/MYR.AX (Accessed 25/5/18).
Trading Economy. 2018. Australian Inflation rate. [online]. Available at: https://tradingeconomics.com/australia/inflation-cpi (Accessed 25/5/18).
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