Accounting for Management Decisions - Assignment

Running head: ACCOUNTING FOR MANAGEMENT DECISIONS
Accounting for Management Decisions
Name of Student:
Name of University:
Author’s Note:

ACCOUNTING FOR MANAGEMENT DECISIONS1
Executive Summary
The discussions of the report have stated about quantitative analysis of financial statement of
Wesfarmers Ltd and Woolworths Ltd. The first section has outlined the method used in depicting
the statement of cash flows for each company. The second section has considered the examining
the information in relation to cash flow from “operating activities, cash flow from investing
activities and cash flow from financing activities retrieved from the Wesfarmers Ltd and
Woolworths Ltd financial reports”. The third section of the study has showed a ratio analysis.
This analysis has computed the liquidity ratio, solvency ratio, profitability ratio and efficiency
ratio. The recommendations are specified with the company having expected better short-term
credit risk, rationale whether both the companies are having adequate cash resources, assessment
of ability to survive in the long term and identifying the company having a better ability of
generating cash from the sales revenue. The overall findings of the discourse have been able to
state that both the company uses direct method of cash flow presentation. However, Wesfarmers
Ltd is clearly in a better positioning in terms of generating “net cash from operating activities,
net cash used in investing activities and for the cash and cash equivalents” in compared to
Woolworths Ltd. In addition to this, Wesfarmers Ltd outperforms Woolworths Ltd. in terms of
“profitability, efficiency, short-term liquidity and solvency ratios”.

ACCOUNTING FOR MANAGEMENT DECISIONS2
Table of Contents
Introduction......................................................................................................................................3
Method used in presenting the statement of cash flows for Wesfarmers Ltd..................................3
Method used in presenting the statement of cash flows for Woolworths Ltd.................................6
Examining the information in relation to cash flow for Wesfarmers Ltd........................................8
Examining the information in relation to cash flow for Woolworths Ltd.......................................8
Ratio analysis of Wesfarmers Ltd and Woolworths Ltd.................................................................9
Conclusions and recommendation.................................................................................................16
References......................................................................................................................................17

ACCOUNTING FOR MANAGEMENT DECISIONS3
Introduction
The report aims to perform quantitative analysis to interpret the financial statement of
Wesfarmers Ltd and Woolworths Ltd. The first section of the report will outline the method used
in depicting the cash flow statement for each corporation. The second section will consider the
examining the evidence in relation to cash flow from “operating activities, cash flow from
investing activities and cash flow from financing activities retrieved from the Wesfarmers Ltd
and Woolworths Ltd financial reports”. The third section of the study will conduct a ratio
analysis. This analysis would include computation for measuring the “liquidity ratio, solvency
ratio, profitability ratio and efficiency ratio”. The recommendations will be stated with the
company having expected better short-term credit risk, rationale whether both the companies are
having adequate cash resources, assessment of ability to survive in the long term and identifying
the company having a better ability of generating cash from the sales revenue (Adedeji, 2014).
Method used in presenting the statement of cash flows for Wesfarmers Ltd
In general, the presentation of financial statement is based on segregating the statements into
parts- “balance sheet, income statement, and cash flow statement”. In addition to this, the “cash
flow statement” comprises of three sections including “cash flow from operating (CFO or OCF),
financing, and investing activities”. The use of indirect method involves computation of cash
flows from “accrual accounting information” and starts with “net income value”. The net income
is then adjusted for the various types of changes in assets and liabilities by adding or deducting
from net “income to derive the operating cash flow”. In the direct method the cash flow
statement list is prepared as per cash receipts and payments made during a period of business
operations. The cash flows are subtracted from the “cash inflows” for calculating the “net cash
flow” from “operating activities” (Fitri, Hosen, & Muhari, 2016).
Based on the depictions made from the financial statement of Wesfarmers Ltd it has been
seen that the company uses direct method of cash flows. This is evident with listing the cash
flows from operating activities, investing activities and financing activities during the year and
calculating the “net cash flow from operating activities” before the cash from “investing and
financing activities” are computed.