Wesfarmers Financial Analysis Report

This assignment requires a detailed financial analysis of Wesfarmers. Students must evaluate the company's profitability using key metrics, analyze its investment plans for future growth, and interpret financial statements such as the trial balance, income statement, and balance sheet. The report should consider both positive and negative aspects of Wesfarmers' financial performance and provide recommendations based on the findings.

ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
Q 1....................................................................................................................................................1
Q 2....................................................................................................................................................2
Q 3 ...................................................................................................................................................2
Q 4 ...................................................................................................................................................4
Q 5 ...................................................................................................................................................7
Q 6....................................................................................................................................................8
Q 7..................................................................................................................................................12
Q 8..................................................................................................................................................15
Q 9 .................................................................................................................................................16
Q 10................................................................................................................................................16
Q 11 Evaluate firm financial position............................................................................................18
Q 12................................................................................................................................................18
Q 13................................................................................................................................................19
Business which are part of Wesfarmers...............................................................................19
Summary to Vikram on investment decisions......................................................................23
CONCLUSION .............................................................................................................................23
REFERENCES .............................................................................................................................24

Illustration Index
Illustration 1: Q 1.............................................................................................................................1
Illustration 2: Data entry area..........................................................................................................2
Illustration 3: Report area................................................................................................................3
Illustration 4: Formula view.............................................................................................................3
Illustration 5: Formula view of IF statement...................................................................................5
Illustration 6: Trial balance, income statement and balance sheet...................................................7
Illustration 7: Trial balance, income statement and balance sheet..................................................8
Illustration 8: FIFO and LIFO method...........................................................................................10
Illustration 9: Average cost............................................................................................................11
Illustration 10: bank Reconsilation ...............................................................................................12

INTRODUCTION
Financial accounting helps the company to understand its position in the market. The
report covers that the idea of separation and data and report and also the use of IF function in the
spreadsheet. Also, the report mentions the periodic system and the use if worksheet in financial
reports. A bank reconciliation statement will be prepared. Journal entries of bad debts and
account receivables. The annual report of Wesfarmers is studied to and examined to summarise
the investment decision in the company.
Q 1
By using names instead of cell references makes it easier to interpret, understand and
maintain. Names can be given to cell range, table, function and table. This also makes the
formula presentable and rather easy to understand by the reader. Giving relevant names
facilitates the identification of the calculation which has been done in the worksheet.
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Illustration 1: Q 1

Q 2
Negative number in accounting are displayed in parentheses as in the books of a company
a minus sign is not that easy to read so to present the negative number clearly parentheses is
used. Also, the negative numbers are displayed in red in excel sheet but considering that all the
companies do not use colour printers it may become hard to identify the negative balances in the
accounting books (Banerjee, 2010). The minus sign is very small to be omitted while reading the
report, so to avoid any error brackets are used to display negative figures.
Q 3
In a spread sheet the data entry and report area is displayed separately for better
presentation and understanding of the data and report. Th report looks easy to read when is
separate and also if and error has been made, the separate segmentation makes it easier to find
out the error as the data becomes easier to read.
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Illustration 2: Data entry area

3
Illustration 3: Report area

Q 4
The if statement function is a logical function of excel software. The function works on
the simple reasoning of if else algorithm. The function considers a condition which is checked to
be be true or false. If the answers is true the if code is printed, and if the condition results to be
false the else code prints (Vasarhelyi, Kogan and Tuttle, 2015). This statement function is can be
used in worksheet. The function can be added in the cell as part of a formula and it acts on the
values in the cells of the worksheet.
Account Trial Balance
Debit Credit
Cash 12450
4
Illustration 4: Formula view

Accounts Receivable 17650
Inventory 56980
Supplies 7560
Buildings 145000
Accumulated Dep., Building 17600
Furniture 23780
Accumulated Dep., Furniture 5760
Accounts Payable 17400
Salary payable
Interests payable
Unearned Sales Revenue 7650
Note, payable, Long term 34000
Capital 142675
Drawings 4590
Sales Revenue 166000
Sales Discount 3450
Sales return and Allowances 3430
Purchases 89700
Purchases Discount 4015
Purchases Returns and Allowances 7690
Selling Expense 23700
Supplies Expense
Depreciation on building
Depreciation on Furniture
Salaries Expense
General Expense 14500
Supplies Expense
Depreciation on building
Depreciation on Furniture
Interests Expenses
Total 402790 402790
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Q 5
Periodic inventory system is one under which amount of inventory is determined at end
of each accounting period or in specific period. Counting of inventory is done in period
inventory system and same are recorded in the financial statements. It is one of the important
system that is observed in most of business firms. Inventory is considered as an asset and due to
this reason it is necessary to transfer it in to company books of accounts. It can be said that
periodic inventory system have great significance for firms.
Inventory balance on January 1, 2016: $600,000
Purchases made during the year 2016: $1,200,000
Inventory balance on December 31, 2016: $500,000
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Illustration 5: Formula view of IF statement

Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory
= $600,000 + $1,200,000 – $500,000
= $1,300,000
Q 6
Advancements of spreadsheet: spreadsheet are is the software of office is used in the accounting
process. The main advantage of the spreadsheet software are:
 Editing: The spreadsheet, the data can be entered in work sheet. You can enter data and
perform formula on the entered data. Any update in the value of the cell updates the
values in the result of the formula. This helps the company to compile data and make
reports of it, if any errors in the making of the file the company scan rectify the error in
the city.
 Formulas: Spreadsheet has the prime function of formula inside the software this enables
the company to enhance formula (Ngwakwe, 2012). The mathematical formula allows
the user to calculate with the values in the cell and common processes include looking up
values within a specified range, testing whether values meet certain conditions, carrying
out arithmetic operations, counting and transforming data items.
 Present functions: Formula are the most useful entity of the the spreadsheet but another
function of the spread sheet that is really useful is that the function of the software. All
the formulas used in the spreadsheet are integrated in the spreadsheet, all the common
formulas are present in the Excel which allows the fast working.
 Graphical displays of Data: The spreadsheet also allows the user to customize the data
into a graphical charts and diagrams which can be used to make the presentation better in
the excel sheets. By the use of pie charts and tables which makes the data easier to
understand and conclude the result from it.
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8
Illustration 6: Trial balance, income statement and balance sheet

9
Illustration 7: Trial balance, income statement and balance sheet

Q 7
10

11
Illustration 8: FIFO and LIFO method

12
Illustration 9: Average cost

Q 8
13
Illustration 10: bank Reconsilation

Q 9
journal
Date Particulars Amount
(Dr.)
Amount
(Cr.)
01/05/17 Account receivable Account Dr. 10000
To sales Account 10000
(Being goods sold on credit)
10/05/17 Cash account Dr. 4500
To account receivable account 4500
(Being amount received partly on sales)
01/07/17 Allowance for doubtful Accounts Dr. 5500
To account receivable account 5500
(Being accounts receivable transferred to allowance for
doubtful accounts)
05/09/17 Account receivable Account Dr. 5500
To Allowance for doubtful accounts 5500
(Being accounts receivable reinstated)
05/09/17 Cash account Dr. 5500
To accounts receivable 5500
(Being full cash received on accounts receivables)
Q 10
There are two ways of estimating bad debts, these include percentage of sales methods
and percentage of receivables methods.
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 Percentage of sales methods : this method of estimating bad debts focuses on the
statement of income and the relation of account receivable to sales. Under this method if
estimating bad debts, the bad debts of a given time is calculated on the basis of the credit
sale of the period. The method is take the percentage of bad debts of previous years to
credit sales of previous years as the base for the calculations (Zeff, 2016). Total sales of
the company is taken as base for calculations when the cash sale is very less or makes a
constant amount in the total sales of the organization. Also, the total sales is used
commonly by the companies instead of credit sales. The formula for the calculation of
estimated bad debts is :
Bad debt expense = Net sales x percentage of estimated bad debt
For Example : The estimated bad debts is at 2% of the total sales. Also, the total net sales for B's
company in the year was $AUD 180000, and the account receivables at the end were $AUD
15000. The balance in the provision for doubtful debts was identified to be 0. Now B's company
will make following process to find estimated bad debt.
Bad debt expense = 180000 x 2/ 100 = $AUD 3600.
Journal
Date Particulars Amount
(Dr.)
Amount
(Cr.)
01/08/17 Bad debts expense account Dr. 3600
To provision for bad debts account 3600
(Being estimated bad debts recoded)
 Percentage of receivable method : This method of estimating the bad debts calculates the
mentioned estimating the size of the provision for bad debts. B's company will calculate
size by multiplying the year end balance in the accounts receivable by rate based on its
bad debts of previous years. On the choice of the company, rates may differ for each the
account receivables, based on their age. To the estimated bad debts from the percentage
of receivable method, the formula which is used is.
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.
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For example : B's company's net sales for the year is $AUD 180000, and the account receivable
at the end of the year were estimated to be $AUD 30000. The provision for bad debts has nil
balance. B's company has estimated the bad debts for the year to be 5% of the account
receivables. Now B's company will calculate the bad debts expense with the above formula.
Bad debts expense = 30000 x 5/ 100 = 1500.
Date Particulars Amount
(Dr.)
Amount
(Cr.)
01/08/17 Bad debts expense account Dr. 1500
To provision for bad debts account 1500
(Being estimated bad debts recoded)
Q 11 Evaluate 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 of firm is 0.92 which means that firm liquidity condition is excellent and
debt equity ratio value is 0.16 which reflect that debt have low proportion the equity which
means that firm capital structure is balanced. Financial position of firm is good.
Q 12
A sold goods to B on credit on 1st may 2017. Later on 5th may 2017 A drew as bill against
the amount of sales to B to recover the money. B duly accepted the bill which was to be paid in 3
months and sent it back to A. After 3 months A sent his man to recover the amount of bill, B
declined to honour the bill hence it was marked as dishonoured by A. A paid $AUD 10 to notify
the bill.
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Journal
Date Particulars Amount
(Dr.)
Amount
(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
Q 13
Business which are part of Wesfarmers
Wesfarmers is one of largest company in Australia and since its inception it open its
many branches. Currently, firm is operating in many areas like supermarket, liquor, hotels and
convenience stores etc. It can be seen that firm expand its business at fast rate. Firm have large
business plans and is planning to expand its business at fast rate. It can be said that there is huge
growth potential in the business firm. Firm is following aggressive business plans and under this
it is increasing its business at fast rate.
Income statement
Income statement is also known by name statement of income and is the one of important
financial statement that is prepared by the business firms. This is because income statement
reflect the extent to which cost is incurred in the business. Through use of financial modeling
method extent to which expenses cover sales revenue is determined. In case expenses coverage
portion increased it can be said that firm performance is not excellent. In the income statement of
firm it can be observed that revenue is increasing at fast pace from 62447 to 65981. At same time
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expenses also elevate in the business. It can be seen from the table that raw material and
inventory value was 43045 in 2015 and same become 45525 in 2016. Thus, it is clear that
condition is appropriate and with increase in revenue in the business expenses also increase at
fast pace. Employee cost increase heavily from 8193 to 8847 which means that employee cost as
portion of sales increased significantly. This reveal that firm is planning to expand its business
and due to this reason employee cost increase in business. Total expenses were 59100 in 2015
and same increased to 64984. Finance cost decreased significantly in comparison to past years.
From 315 to 308. Sharp decline in amount of profit before income tax is reflecting that rate of
growth of expenses is much higher than revenue amount and due to this reason profit before taxis
very low in FY 2016 relative to previous financial year. Due to decline in income, tax amount
also reduced to great extent from 1004 to 631. EPS also declined significantly from 216 to 36
which reflect that firm give poor performance to its investors.
Balance sheet
Firm performance can be accessed by using income statement along with balance sheet.
It can be seen from balance sheet that size of property declined from 2475 to 2396. Goodwill
also declined from 14708 to 1448. Investment in derivatives increased from 494 to 565 and this
means that in order to hedge risky position firm make fresh investment in derivatives so that loss
on open position can be minimized. Assets declined to large extent in business and at same time
liability declined sharply. It can be seen that trade and other payable increased from 5761 to
6491. Interest bearing loans and borrowings declined from 1913 to 1832. This signals that firm
focused on reducing burden of debt in its business. It can be said that it is wise business decision
that is taken by the firm. It can be assumed that whatever decisions taken by the firm have
impact on its business performance. Due to decline in profit assets decline and liability increased
which is not good for the firm. It needs to improve its performance.
Risk and Mitigation
In continuous growing sector, firms achieve the growth throw by facing the many
challenges and taking risks. In order to achieve the growth in retail industry firms have
developed various mitigation strategies that are beneficial in reducing the adverse effects. In this
scenario, Business environment of Wesfarmers has determined various risk factors which they
have faced in regulation of business in retail sector (Needles, Powers and Crosson, 2013).
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Following points will describe the risk that functional units of wesfarmers have faced in order to
achieve the desired position of business.
Strategic:
 Increased competition: With a rapid increase in growth opportunities in retail industry,
competition among the business firm is increased continuously. In present scenario,
Wesfarmers has faced a wide risk of existing competitors in industry which has made
them conscious towards development of strategies that benefits reducing the threats. For
achieving a sustainable growth in market, they are providing there products at
competitive prices after the pricing strategy adopted by rivals like wools worth, Metcash
and Caltex Australia ltd.
 Ineffective execution of strategies: It is also considered as risk that affects the firm's
growth rate in market. In order to remove this risk of wrong execution of strategies,
responsibilities must be assigned to effective and qualified personnel. Before the
execution, they will analyse the impact of strategies over business market position and
profitability.
 Loss of key management personnel: Through application of appropriate retention
techniques, firms will reduce this risk of loss of key personnel of management. In order
to retain key performers. Firm will provide will various methods like monetary and non-
monetary benefits, training, etc (Bodie, 2013).
 Damage or dilution of brands: Although price cutting polices increases the market
volume but it has also reduces the brand identity which has similarly damaged the
growth. With an appropriate use of marketing strategies firms will increase its sales and
avoid the risk of dilution.
 Digital disruption to industry structure: For reducing the impact of new technologies and
business models on value proposition of existing products and services. Wesfarmers have
to manage their IT infrastructures and apply various digital technologies to remove the
damages.
 Operational:
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 Loss of data security and integrity: Appropriate security software must be applied to
secure the confidential data and reports from the external users. Accessibility is
transferred to IT department and all the loop holes must be identified and appropriate
cyber system must be created.
 Industrial disputes: Through collective bargaining, Wesfarmers will identify the reasons
behind the disputes resolve the problem (Ball, 2013). They will resolve the problems
through mutual discussion at it reduces the time and cost.
 Regulatory
 Noncompliance with laws: It is considered as a huge risk for firms as it have to face
various problems and actions. In order to reduce the risk firms will develop a legal
department which handles all the problems.
 Amendments in laws: Changes in legislation will provide a great impact on business
operations as it increases the burden of tax. Appropriate tax reduction policies must be
applied by firm to resolve the risk.
 Financial
 Currency volatility: With appropriate investments and financial resources firms will
manage its operations. Through appropriate financial strategies firm will influence the
investors and increase its financial resources.
 Governance: Study of governance has determined that it is system of legislation,
practices and processes by which a company is regulated and controlled. It is a significant
process that involves activities to protect the interest of stakeholders such as customers,
shareholders, suppliers, financiers and government (Banerjee, 2010). From the analysis, it
has been recognized that through appropriate governance Wesfarmers has achieved its
desired objectives of increasing the market share and expansion of business regulations.
There appropriate structures of management which clearly defines the authority and
responsibilities of employees. Appropriate strategic planning has provided a great support
to the firms and increased its competencies to achieve sustainable growth and
development. Shareholders of firms are satisfied with the polices and market position of
firms.
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Ratio analysis of Wesfarmers
Dividends: On analysis of dividend amount it can be observed that its amount increase at fast
pace in couple of years. It can be seen that dividend in year 2009 was 2.61 and same increased to
3.30 in 2015. However, after this dividend amount declined to 2.83. It can be said that due to
decline in firm profitability dividend amount that is given to investors also declined significantly.
Earnings per share: Earnings per share reflect the portion of earning that is on each unit of
shares. It can be seen that earning per share of the firm was 1.40 in 2010 and same increase to
2.38 in 2014 but same declined further to 0.36 in FY 2016. It can be said that in past couple of
years firm performance declined and due to this reason it can be said that investors must not
make investment in the firm.
Return on equity: Return on equity reflects the return that can be earned on equity. In case return
on equity is high then in that case it is assumed that firm performance is high. It can be observed
that return on equity was 7% in 2009 and same increased to 12.25%. This reflects that in past
few years firm give good business performance. This may happen because firm issue less
number of shares in the market and due to this reason return on equity percentage is high which
reflect that to some extent shareholders can get good return on invested amount.
Working capital ratio: Working capital ratio reflect the proportion of current assets to current
liabilities. It can be observed that current ratio value is 0.92 which is very high and this reflects
that firm working capital condition is high. In case value of current ratio is 0.92 then it means
that firm have sufficient amount of current assets to pay current liability. It can be said that firm
is able to pay all its current liabilities by using current assets in its business.
Table 1Working capital ratio
Current assets 9667
Current
liability 10417
Current ratio 0.928002
Summary to Vikram on investment decisions
In respect to investment it is advised to Vikram that he must not make investment in
relevant business firm. This is because firm profitability is not good and it decline in past few
years. Earning per share declined sharply which reflect that firm failed to perform well in its
business. However, return on equity is increasing consistently in the business. This may happen
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because firm issue less number of shares in its business and due to this reason return on equity is
very high and increasing consistently. From these point of views it can be said that Wesfarmers
is not best option for making investment. There are many other factors on which focus can be
made like firm investment plans for future time period. If firm is aggressive on investment then it
be considered good investment avenue. From current time period due to decline in performance
it is highly recommended not to make investment in equity of Wesfarmers.
CONCLUSION
The report concludes that the negative numbers are included in parentheses to improve
the presentation of the books of the organization. The improvement in the books are also bought
by separation of data and report. The condition of Wesfarmer is moderate and company needs to
enhance its profitability. And also investing in wesfarmer is not a profitable action
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