Accounting Statement Analysis Assignment
Added on 2021-06-15
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Accounting Statement Analysis
IntroductionThe present report is developed for undertaking a financial analysis of a publicly listedcompany in Australia. This has been carried out by the help of ratio analysis that provides anassessment of the key financial performance of the selected company. The ratio analysis mainlyexamines the liquidity and profitability position of the company through calculation of key ratiosin each category. Also, it provides a discussion in relation to the type of non-financialinformation that may be useful for deciding about investment in the shares of the company. Also,it presents an evaluation of the business scenario relating to lengthening the lives of assets forreduction of depreciation expenses in order to increase the profitability. The report discusses theethical issues in relation to this business scenario.Part 1: Financial Analysis of Wesfarmers GroupBrief Overview of WesfarmersWesfarmers Limited, an ASX listed Australian company is recognized to be supermarketretail giant within the country. The company is actively involved in carrying out diverseoperations including supermarkets, liquor, hotels, convenience stores, home improvement andoffice supplies. It is recognized to be one of the largest financial companies within Australia interms of revenue and sales. Ratio AnalysisThe analysis of the key financial ratios of the company has been undertaken as follows:Liquidity RatioWesfarmers Financial Data for year 2016 and 2017Financial Items20162017Amount in AUD $ mCurrent Assets $ 9,684.00 $ 9,667.00 Current Liabilities $ 10,424.00 $ 10,417.00 Inventories $ 6,260.00 $ 6,530.00 Quick Assets $ 3,424.00 $ 3,137.00 Liquidity Ratios20162017Current ratio0.930.93
Quick ratio0.330.30Current Ratio: The current ratio provides a measure of the current assets of the company incomparison to the current liabilities (Bromwich and Bhimani, 2005). The formula used forcalculation of the current ratio can be depicted as follows:Current Ratio=Current Assets/Current LiabilitiesThe current ratio calculated for the year 2016 and 2017 is 0.93 as depicted in the abovetable. Thus, it can be said that the company maintained a stagnant growth rate in its liquidityposition for meeting its current obligations with its current asset base as reflected from the belowgraph:201620170.930.930.930.930.930.930.930.930.930.93Current ratioCurrent ratioQuick Ratio: The ratio provides an overall assessment of the ability of a company to meeteffectively its short-term obligations with maintaining an adequate base of most liquid assets(Damodaran, 2011). The formula used for calculation of quick ratio is as follows:Quick Ratio= (Cash + Marketable Securities + Accounts Receivable)/Current liabilities
The quick ratio of the company calculated for the year 2017 is 0.30 and for the year 2016is 0.33 and thus it can be said that the ratio has declined slightly but Wesfarmers have maintainedsteady growth rate in its quick ratio. 201620170.290.290.300.300.310.310.320.320.330.330.34Quick ratioQuick ratioAs such, it can be said on the basis of overall discussion of the liquidity position of theWesfarmers that its ability to meet its short and long-term obligations is remaining steady and itis not able to increase its efficiency for meeting its obligations with the sue of liquid assets. It isnot good for the future growth of the company as it need to improve its liquid position tominimize the risk of default on its credit obligations as they become due (Lumby and Jones,2007).Solvency RatioWesfarmers Financial Data for year 2016 and 2017Financial Items20162017Amount in AUD $ mLong Term Debt $ 5,671.00 $ 4,066.00 Shareholders' Equity $ 22,949.00 $ 23,941.00 Total Assets $ 40,783.00 $ 40,115.00 Interest Paid $ 308.00 $ 264.00 EBIT $ 1,346.00 $ 4,402.00 Solvency Ratios20162017Debt Ratio0.140.10Debt to Equity Ratio0.250.17
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