Wesfarmers Investment Analysis

This assignment delves into a financial analysis of Wesfarmers, a prominent Australian conglomerate. It examines key financial ratios such as dividends, earnings per share, return on equity, and working capital ratio to assess the company's profitability and financial health. The analysis also identifies potential risks associated with Wesfarmers, including regulatory compliance and currency volatility. The document culminates in investment recommendations based on the findings of the analysis, offering insights for potential investors.

ACC SYSTEMS AND PROCESSES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Q1 Naming cells and spreadsheets..............................................................................................1
Q2 Negative numbers..................................................................................................................2
Q3 Separation of data entry and report areas...............................................................................2
Q4 IF Statement...........................................................................................................................4
Q5 Periodic systems....................................................................................................................4
Q6 Worksheet and financial reports............................................................................................6
Q7 LIFO AND FIFO.......................................................................................................................8
Q8 BRS..........................................................................................................................................10
Q 9.................................................................................................................................................10
Q10 Methods of estimating bad debts.......................................................................................11
Q11 Evaluaitng firm financial position.....................................................................................12
Q 12...............................................................................................................................................12
Q13................................................................................................................................................13
Business which are part of Wesfarmers.....................................................................................13
Summary to Vikram on investment decisions...........................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Accounting is one of field which is growing at fast rate across the globe. In the current
report advanced functions of excel are applied on data set and on that basis it is identified
whether trial balance is accurate or not. Apart from this, analysis of Wesfarmers is done in the
report and on that basis investment recommendation is given in the report.
Q1 Naming cells and spreadsheets
Naming cells and spreadsheets is the one of the most important and valuable feature in
excel. Usually, when any formula is inserted in to excel sheet names such as C3, C10 and D40
like are observed in formula (Ball, 2013). Those who developed a model in excel very well
familiar with variables but those who first time view that model can not understand it in single
view. In order to sort out this problem ceels are named so that anyone can easily understand
model.
It can be seen from above image that instead of cell names liability and owners equity are in the
formula. This is the example of naming cells and spreadsheet.
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Q2 Negative numbers
Negative numbers can be displayed in brackets or parenthesis in excel. In excel version
2013 simply one can go to data format dialog box in home tab and can select brackets in
accounting option. By doing so negative numbers can be shown in brackets in excel. Brackets
are usually used in excel to reflect negative numbers because in report when any data is printed it
is not possible to pay clear attention on all negative values. Thus, in order to solve this problem
bracket is shown in excel.
Q3 Separation of data entry and report areas
In modelling that is done in excel simply data entry and report areas are prepared
separately. This is because in data entry part all modeling inputs are mentioned and if required
interrelationship is establsihed among them (Banerjee, 2010). Inputs that are in the data entry
areas are used in modeling process and same are considered for computing values in report area.
It can be said that there is significence of separation of data entry and report area because both
give different sort of information to the users of finanaicial model.
Input sheet
inventory cost % 10%
Sales revenue
10000
0
inventory cost 10000
expenses % 60%
Profit 50000
Output area
change in % of inventory cost
change
in % of
expense
s 50000.00 50% 60% 70% 80%
10% 60000 50000 40000 30000
20% 70000 60000 50000 40000
30% 80000 70000 60000 50000
40% 90000 80000 70000 60000
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From above table it can be observed that in input sheet there is a model which is prepared and
under this profit amount is computed. In the report at different level of inventory percentage and
expenses percentage profit amount is computed (Bodie, 2013). In output area using data table
prediction reporting of profit at different percentage of inventory and expenses is computed.
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Q4 IF Statement
Illustration 1: Formula view of IF statement
IF statement is applied in above case and it can be observed that total of both debit and credit
sides are equal to each other. This is verified by using IF statement where condition was placed
and it was instructed to Excel that if condition prove correct then answer must be 1 otherwise it
must be 2. Outcome was 1 which reflect that both sides of trial balance tally.
Q5 Periodic systems
Periodic inventory system refers to accountig method under which amount of inventory
that will be at end of acounting year in specific time period is determined. Under periodic
inventory system physical count of each item of inventory is determined (Jones, 2011). It can be
said that periodic system help firm in managing its inventory in better manner. Example of
periodic inventory system is given below.
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Inventory balance in February 2017: $500,000
Purchases on March 2017: $2,400,00
Inventory balance on January 31 2017: $300,000
Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory
= $500,000 + $2,400,000 – $300,000
= $4,40,000
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Q6 Worksheet and financial reports
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Q7 LIFO AND FIFO
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Q8 BRS
Q 9
Journal
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Q10 Methods of estimating bad debts
There are two methods of estimating bad debt in the business namely bad debt as
percentage of sales and bad debt as percentage of receivable method. Both methods are
explained below.
Percentage of sales method: Under this method common formula is followed under which
percentage of estimated bad debt of sales is computed. In this method specific percentage is
taken and same is used to identify value of bad debt in the business (Needles, Powers and
Crosson, 2013). Suppose estimated percentage of bad debt is 10% and sales value is 1,00,000.
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This percentage is used to compute bad debt amount. Bad debt amount is 10000 on the basis of
this approach.
Percentage of receivable method: In this method bad debt amount is estimated and its provision
is calcualted. In this regard balance that remain at end of year in repsect to acount receivables is
multiplied percentage estimate of bad debts. Further, exisiting credit balance is added to existing
balance in provision of doubtful debts. In order to reflect this in proper manner following
formula is used.
Bad Debt Expense = (Accounts receivable ending balance x percentage estimated as bad debts) –
Existing credit balance in provision for doubtful debts or + existing debit balance in provision for
doubtful debts.
Q11 Evaluaitng firm financial position
Table Ratio analysis
Current assets 9667
Current liability 10417
Current ratio 0.928002
Debt 4066
Equity 23941
Debt equity ratio 0.169834
Interpretation
Current ratio is one that reflect liquidity position of the busines firm. It can be observed
from the table that value of current ratio is 0.92 which means that for every single unit of current
liability there is 0.92 unit of current assets. In case of debt and equity ratio value is 0.16 which is
indicating that there is low portion of debt in capital structure which means that capital structure
is balanced.
Q 12
Andrew sold goods to Bathem on credit on 1/5/2017. Thereafter Andrew prepare a bill
on Bathem equivalent to sales amount. Bathem honoured bill and state that after three month
time period it will make payment. However, on time Bathem does not make payment
Journal
Date Particulars Amount Amount
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(Dr.) (Cr.)
01/05/17 Account receivables -- B Dr. 20000
To Sales Account 20000
(Being goods sold to B on credit)
02/05/17 Note receivable Account Dr. 20000
To Account receivables -- B 20000
(Being note receivable created against the payment from B)
05/08/17 Account Receivables -- B Dr. 20010
To Note receivable Account 20000
To Notification charges Account 10
Q13
Business which are part of Wesfarmers
Wesfarmers is company that is located in Austrlai and it currently is operating various
business like supermarket and liquor business. Apart from this it is also operating many other
sort of business. Firm is optimistic about its future growth rate and will growt at fast rate in its
business.
Income statement
On analysis of income statement it can be observed that firm sales revenue is increasing
at fast rate and expenses are also increasing (Ngwakwe, 2012. It can be said that with increase
sales expenses are increaisng. It can be observed that firm profit declined and this happened
because it have less control on its expenses.
Balance sheet
It is clearly revealed by the balance sheet that firm financial condition is not good. Assets
in the business declined and liabilities increased to some extent and it can be said that it need to
take steps in order to improve its condition.
Risk and Mitigation
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 Increased competition: Wesfarmers is in multiple business and with passage of time period
competition is increasing consistently. Hence, it is big risk to maintain command on
market. Consistent expansion of product line with is mitigation strategy that firm will
follow.
 Regulatory: In case of failure to comply with law strict action can be taken against firm. In
order to mitigate this risk there is a team that look after compliance and implementation of
all rules and regulations (Vasarhelyi, Kogan and Tuttle, 2015).
 Currency volatility: Currency volatility exist in market consistently and in order to
mitigate this risk firm is making investment in derivatives.
Ratio analysis of Wesfarmers
 Dividends: In past years higher amount of dividend is given by firms to shareholders but
now it is reducing consistently. This is matter of concern for sharholders.
 Earnings per share: Like dividend earning per share of the business firm also declined at
fast rate (Zef, 2016). Earlier EPS was 1.40 which increased to 2.38 but thereafter it
declined to 0.36 which does not make firm as preferable investment avenue.
 Return on equity: Return on equity increased from 7% to 12.25% which reflect that firm
give good return to investors on equity invested by them. Perhaps less number of shares
are issued by firm and due to this reason there is higher ROE.
 Working capital ratio: Firm working capital condition is good and it is able to pay its
entire liability by using current assets on time. Hence, it can be said that firm is in better
condition.
Summary to Vikram on investment decisions
On analysis of facts it is stated that firm is not better investment choice because its
profitability is declined and financial position is not good. However, it is able to pay its current
liability on time by using current assets. By considering current condition it can be said that
Vikram must not make invstment in firm.
CONCLUSION
On the basis of above discussion it is concluded that Wesfarmers is not perfect from
investment point of view. It can be observed that is is facing loss in its business and due to this
reason investment must not be made on firm. It is also concluded that in excel there are advanced
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feartures like reference cells and IF function by using which any one can easily understand and
cross verify models in excel.
REFERENCES
Books and Journals
Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable
beliefs. Accounting Horizons. 27(4). pp.847-853.
Banerjee, B., 2010. Financial policy and management accounting. PHI Learning Pvt. Ltd..
Bodie, Z., 2013. Investments. McGraw-Hill.
Jones, M.J., 2011. Creative accounting, fraud and international accounting scandals. John Wiley
& Sons.
Needles, B. E., Powers, M. and Crosson, S. V., 2013. Principles of accounting. Cengage
Learning.
Ngwakwe, C.C., 2012. Rethinking the accounting stance on sustainable development.
Sustainable Development. 20(1). pp.28-41.
Vasarhelyi, M. A., Kogan, A. and Tuttle, B. M., 2015. Big data in accounting: An overview.
Accounting Horizons. 29(2). pp.381-396.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
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