Financial Ratio Analysis of MYR Holdings and Woolworth's Supermarkets

This document provides a financial ratio analysis of MYR Holdings and Woolworth's Supermarkets, including liquidity ratios, profitability ratios, solvency ratios, and market ratios. It also discusses lending and investment decisions based on the analysis.

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Contents
Company background:...............................................................................................................3
Financial ratio analysis:..............................................................................................................4
Lending decision:.......................................................................................................................7
Investment decision:...................................................................................................................9
References................................................................................................................................20

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Company background:
The first company undertaken for review is Woolworth’s supermarkets which is an Australian
company that has a number of different grocery stores. The company was founded in 1924 and
caters to the needs of about 80% of the Australian market consumers.
The company specialises in the sale of groceries like the vegetables, fruits, meat etc. the company
also sells magazines, DVD’s etc. it has about 1000 stores all over the country of Australia and also,
has 19 convenience stores all across the country (WOW, 2019).
The second company undertaken for review is MYR Holdings which is an upmarket in the country
of Australia. The company deals in a wide variety of products such as he clothing’s of children,
adults etc. the company also deals in the toys, video games etc. the company has been one of the
largest departmental stores by revenue and the count of the stores (MYR Holdings, 2019).
Both of the companies undertaken for review belong to the industry of retail.
The factors that affect this industry include the regional price discrimination which serves to be one
of the main challenges for the local retailers. In case, the retailers are not bale to purchase the goods
and sell their products at competitive prices, then the company would be prone to the business
exists and also would lead to a loss in the employment. The threat of these parallel imports would
go on to motivate the international suppliers so as to change the pricing policies of these regions.
The second threat that the company could be exposed to is the fact that these companies operate
under many government regulations and which includes the one that are able to locate the nature
and the stores that could be established. These are open for the business and for the arrangements in
the work place (Australian Government productivity commission, 2011).
One of the reasons due to which the sales of both of the companies must have decreased is the fact
that the collection costs of the GST are more than estimated due to the presence of a varying rates
of the customs duty as per the product category and the source country.
Further, today these companies are facing the challenges of market landscape and there is a need of
a much stronger environment which is able to respond to the changing customer preferences along
with many new international online competitors. There is a need of new ways that are able to
improve the productivity and the competitiveness (Salt, 2019).
Financial ratio analysis:
MYR Holdings:

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The liquidity ratios shows the cash position of the company. When this ratio is high, then it shows
that the company would be able to meet its short term debts or the short term liabilities. A rise when
compared between the years would mean a strong position of the company.
The calculated ratios shows the following:
 An increase in the current ratio
 An increase in the quick ratio
 Low average days in inventory
 No change in the inventory turnover
 An increase in the receivables turnover ratio
 Fall in the average receivables days
In nutshell, the liquidity position of the company is good and is improving.
The profitability ratios indicates the profitability of the company. When this ratio is high, then it
shows that the company would be able to meet its expenses and earn profits. These profits are used
for expansion in the future, for distribution amongst the shareholders etc.
The calculated ratios indicates the following:
 Decrease in return on shareholders’ equity
 Decrease in return on assets
 Decrease in the gross profit ratio
 Decrease in the profit margin
 Decrease in cash return on sales
 Decrease in assets turnover
In the nutshell, the company’s performance in terms of profitability is only deteriorating.
Solvency ratios indicates the solvency position of the company which means that the company
would be able to continue in the near future or not. When these ratios are high, it means that the
company would face no issues in the near future and would continue to operate.
The calculated ratios indicates the following:
 Fall in times interest earned
 Fall in debt to total assets
The market ratios shows the relationship between the earnings per share and the market price of
each share.

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The calculated ratios shows an increase in the earnings per share and fall in the price earnings per
share. This is not good for the company.
WOW:
To: B
From: A
Re: Lending decision
Date: July 12, 2019
Question presented: financial ratios of the two companies
The liquidity ratios shows the cash position of the company. When this ratio is high, then it shows
that the company would be able to meet its short term debts or the short term liabilities. A rise when
compared between the years would mean a strong position of the company.
The calculated ratios shows the following:
 A decrease in the current ratio
 A decrease in the quick ratio
 Low average days in inventory
 An increase in the inventory turnover
 An increase in the receivables turnover ratio
 An increase in the average receivables days
In nutshell, the liquidity position of the company is not good and needs improvement.
The profitability ratios indicates the profitability of the company. When this ratio is high, then it
shows that the company would be able to meet its expenses and earn profits. These profits are used
for expansion in the future, for distribution amongst the shareholders etc.
The calculated ratios indicates the following:
 No change in return on shareholders’ equity
 An increase in return on assets
 No change the gross profit ratio
 No change in the profit margin
 No change in cash return on sales
 No change in assets turnover
In the nutshell, the company’s performance in terms of profitability is only deteriorating.

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Solvency ratios indicates the solvency position of the company which means that the company
would be able to continue in the near future or not. When these ratios are high, it means that the
company would face no issues in the near future and would continue to operate.
The calculated ratios indicates the following:
 No change in the interest earned
 No change in the debt to total assets
The market ratios shows the relationship between the earnings per share and the market price of
each share.
The calculated ratios shows no change in the earnings per share and fall in the price earnings per
share. This is not good for the company.
Lending decision:
Part a:
From the point of view of a bank, it is recommended that the loan be given to MYR Holdings. This
is mainly due to the reason that the company’s calculated ratios shows an improvement and also
efficiency on the part of the management. It is likely that the company would be able to repay its
loan with interest to the bank.
Part b:
The company’s cash flow statement indicates the following:
Decrease in net flow from operating activities.
Negative flow from financing activities
Negative flow from investing activities
The above merely indicates that the company may have issues in the future when it comes to the
payment of the loan instalment and the interest to the bank but that is why it is seeking a loan and
from the calculated ratios, it could be stated that the company’s business operations are improving,
though it is facing some minor liquidity issues for now.
These reason behind these negatives is the fact of purchase of the assets, payments of dividend etc.
these do not occur each year, so these figures would be positive in the next year.
Part c:
The above calculated ratios suffer from many limitations such as the fact that these do not consider
inflation etc. in their calculations, these are based upon the past or the historical data and the

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company would only improve in the future. So, it won’t be wise to solely depend on the above
calculated ratios.
The company A has been experiencing some issues when it comes to the generation of the cash
flows which merely means that it might not be able to repay its loan or even repay interest to the
bank.
There are some further points that the bank should consider before deciding to grant loan to the
company:
 The purpose for which the company is seeing loan
 The importance of the fact that the company requires the loan but has it been good in the
previous arrangements and whether it was able to repay its previously borrowed loans
 Whether the company is in position to give collateral
 What is the need of the capital? If it has other sources of capital, they why is it seeking loan
from the bank
 The overall economic conditions that exists in the economy.
Investment decision:
Part a:
The company B is more risky in terms of profitability and solvency since the calculated ratios have
only shown a decrease which hinders the growth of such companies in the future. The profitability
of the company A has shown an improvement which is good and which makes it reliable for the
investors. This could be said due to the fact that the profitability ratios such as the profit margin,
cash return on sales have shown a decrease. Further, the company B’s debt to equity ratio has
reduced which reduces its riskiness of the business operations and the same goes with the times
interest earned. The profit ratios of the company B such as the profit margin ratio, gross profit
margin, and return on sales have shown an increase which signifies an improvement.
With regard to company A, the solvency ratios such as times interest earned shows a decrease
whereas the solvency ratio of debt total assets shows an increase which signifies riskiness for the
company. The profitability ratios of the company such as return on assets shows a decrease, the
profit margin and the cash return on sales shows an improvement which is good for the company.
Part b:
On the basis of the above calculated ratios, it is wise to invest in the MYR Holdings Inc.

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The earnings per share shows the profit earned on each share by the company. The calculated ratio
shows an increase which is good. The price earnings ratio shows the relationship between the
market price per share and the earnings per share. This ratio has deteriorated when compared over
the period of 3 years.
Part c:
From the point of view of an investor, he would be able to make an investment into the company if
he thinks that he would get something in return in the near future or as and when he sells that
security and he gets a capital gain on it. He would further want to earn some regular income over
his investment as a return on his investment. He would only invest in the company if all of these
points are proved to be positive. The EPS and the price earnings per share shows an improvement
which means that an investor would be able to get return on his investment. If these ratios are
decreasing, then that would mean an issue for the company since then, it is not likely that the
company would receive any return on his hard earned money invested into the business
(Molodovsky, 2019).

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Appendix:
References
Au.finance.yahoo.com. (2019). Historical prices of MYR Holdings. [online] Available at:
https://au.finance.yahoo.com/quote/MYR.AX/history?
period1=1462645800&period2=1557253800&interval=1d&filter=history&frequency=1d
[Accessed 8 May 2019].
Au.finance.yahoo.com. (2019). Historical prices of WOW. [online] Available at:
https://au.finance.yahoo.com/quote/WOW.AX/history?
period1=1462645800&period2=1557253800&interval=1d&filter=history&frequency=1d
[Accessed 8 May 2019].
Investor.MYR.com.au. (2019). MYR Investor Relations. [online] Available at:
http://investor.MYR.com.au/Reports/?page=Annual-Reports [Accessed 8 May 2019].
MYR.com.au. (2019). MYR. [online] Available at: https://www.MYR.com.au/content/about-us-
MYR/ [Accessed 8 May 2019].
Pc.gov.au. (2011). Economic Structure and Performance of the Australian Retail Industry. [online]
Available at: https://www.pc.gov.au/inquiries/completed/retail-industry/report/retail-industry.pdf
[Accessed 8 May 2019].
Trent Duvall, B. (2019). Future of retail in Australia. [online] KPMG. Available at:
https://home.kpmg/au/en/home/insights/2018/04/bernard-salt-next-5-years-retail-future-
australia.html [Accessed 8 May 2019].
WOWgroup.com.au. (2019). About Us - WOW Group. [online] Available at:
https://www.WOWgroup.com.au/page/about-us [Accessed 8 May 2019].
WOWgroup.com.au. (2019). Annual Reports - WOW Group. [online] Available at:
https://www.WOWgroup.com.au/page/investors/our-performance/reports/Reports/Annual_Reports
[Accessed 8 May 2019].
Molodovsky, N. (2019). Financial Analysts Journal : A Theory of Price–Earnings Ratios | CFA
Institute Publications. [online] Cfapubs.org. Available at:
https://www.cfapubs.org/doi/abs/10.2469/faj.v51.n1.1856 [Accessed 16 May 2019].

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