Financial Analysis Report for Woolworths

This financial analysis report provides a comprehensive analysis of Woolworths, including ratio analysis, trend analysis, and non-financial factors affecting the company's financial position. It concludes that while the company has increased its market share, its financial performance has decreased in 2020. The report recommends that management focus on internal operations to improve profitability.

Analysis report for management
team
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Executive summary
Woolworths is an Australian supermarket chain, founded in 1924. they mainly deals in
groceries but also mark their existence in magazines, DVD's, health and beauty products,
household products, pet and baby supplies and stationery. Woolworths has also started their
business by expanding in online market under name as Home shop. Their main tag line of online
business is “click and collect”. Company is almost enjoying a duopoly in Australian market
along with Coles. As they both together almost covers 80% of market.
Mentioning about their place of operations, company mark their existence mainly in
Australia and New Zealand. They are also operating in online sector. Commonly known as wow,
company is being listed and traded in Australian securities exchange (ASX). Divisions of
company are listed, Supermarket, Woolworths Online, Liquor,General merchandise, Finance and
Hotels and Gambling
This report is being prepared from the viewpoint of management, one of the important
stakeholder of company. Their main aim is to formulate strategies and plans for company in
order to improve ultimate profitability.
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Table of Contents
Introduction......................................................................................................................................4
Main body........................................................................................................................................4
Analysis.......................................................................................................................................4
Interpretation...............................................................................................................................5
Conclusion.......................................................................................................................................7
References........................................................................................................................................8
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Introduction
This is a financial analysis report that is being prepared for providing assistance to
management of Woolworths. This report will focus on both financial indicators and non financial
indicators of selected company. This statement will provide ratio analysis that will be useful for
management and also interpret other non financial factors that affect financial position of
company (Choi and et.al., 1983). This report is prepared by considering latest annual reports of
company (on the basis on period from 2017 to 2020).
Main body
Analysis
This part of report is focusing upon analysing financial information of company with help
of Ratio analysis and Trend analysis. First of all a financial statement summary has been
provided, follow with ratio analysis and trend analysis. A brief description of non financial
factors affecting company has also been provided.
Table 1 - Financial Statement Summary
(A$'m) FY17 FY18 FY19 FY20
Income Statement
Sales 55475 56726 59,984 63,675
Gross Profit 15,928.9 16,709 17,442 18,570
Net Profit 1,593.4 1,795 2,759 1,209
Balance Sheet
Assets 22,915.8 23,558 23,491 38,472
Liabilities 13,039.7 12,709 12,822 29,440
Equity 9,876.1 10,849 10,669 9,032
Cash flow
Operating CF 3,122.0 2,930 2,948 4,561
Investing CF (1,431.4) (1,510) (246) (1,945)
Financing CF (1,729.3) (1,060) (2,917) (1,612)
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Net CF (38.7) 360 (215) 1,004
For purpose of analysis. In this report, technique of ratio analysis and trend analysis has
been used, for which results are given in following tables. Calculation for same have been added
in appendices.
Table 2 - Ratio Analysis
Ratio Name FY17 FY18 FY19 FY20
Profitability & Return
Gross profit ratio 28.71% 29.46% 29.08% 29.16%
Net profit ratio 2.87% 3.16% 4.6% 1.90%
Return on asset 0.07 0.08 0.12 0.03
Asset management & efficiency
Total Asset turnover ratio 2.42 2.41 2.55 1.66
Inventory turnover ratio 13.6 13.4 14.01 14.36
Working capital turnover ratio -30.31 -28.15 -25.83 -12.57
Liquidity & Stability of Balance
Sheet
Current ratio 0.79 0.78 0.73 0.62
Liquid ratio 0.1 0.14 0.12 0.16
ROI (also referred to as return on
asset) 0.07 0.08 0.12 0.03
Share market ratios
Earning per share 1.19 1.32 2.04 0.92
Dividend yield ratio 3.08 3.16 2.82 2.49
Non-Financial Performance
Indicators
Market share 37.20% 34.00% 32.90% 57.40%
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Number of employees 215000 215000 215000 215000
Interpretation
In accordance with above table of analysis, following conclusions can be drawn:
 In the very first place, profitability ratios has be calculated, which represents not so good
growth over the years. Gross profit margin is either decreasing or being constant over last
4 years. This can be due to decrease in sales volume. In regarding of net profit margin, it
can be stated that it is increasing from 2017 to 2019. but with sudden effect, it has
diminished in 2020. Reason behind increase can be cut off in indirect expenses as there is
negligible increase in sales. In 2020, net profit is at very low rate, after analysing
financial statements, reason that is concluded is increased liabilities and hence, increased
cost (Gibson and Frishkoff, 1989).
Next interpretation of return on asset, after seeing the figures, it can be elucidated that,
company is having an optimised utilization of assets between 2017 to 2019. In 2020, ROA has
been reduced to a great extent which shows that company is not utilizing their assets properly,
though amount of assets has increased in 2020. Assets have increased and profits have decreased
that may mean that company is having holding of obsolete assets in business.
Total asset turnover ratio has been on a right track from 2017 to 2019, but in 2020, the
growth suddenly converted into decline rate. Inventory turnover rate represents the rate by which
a block of inventory is sold out completely and a new one is brought up for sale. This rate is
quite in a stable position in company over four years considered for analysis. Working capital
turnover ratio measures the efficiency by which invested working capital is being utilised in
company. The results for this ratio is negative in given company, thus, it can be concluded that
financial managers need to seriously look into this matter.
Liquidity ratios are not at all in a good situation as they did not match up the ideal ratio of
2:1 and 1:1 in current ratio and liquid ratio respectively. Performance of company in this regard
is not at all good. Considering share market ratios, performance in this part i9s not really good as
EPS and dividend yield ratio is continuously decreasing over the years. Specially in 2020,
performance in every above aspect discussed, performance has decreased. Therefore,
management need to look into this matter.
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 Non financial factors discussed in this report are market share and number of employees.
These both put a great affect on company's performance. Market share means that how
company will increase their revenues, and on the other hand, number of employees
affects company's productivity level. Market share has been almost constant between
2017 to 2019, but in 2020, it has increased drastically. Yet, after this increase,the
company's performance in financial terms is not so satisfactory, therefore, management
should look into this matter and formulate strategies accordingly.
 Company is presently dealing in Supermarket, Woolworths Online, Liquor,General
merchandise, Finance and Hotels and Gambling. They all are generating good revenues
for group. Specifically, supermarket chain is performing really well.
 Company is facing serious issue from climate changes in fresh food production, this may
also effect their sustainability of business.
 One of the biggest strength of company is their ruling market share, this can result in
greater profits, if exploited properly. It is recommended to management that they should
look into cost cutting and also into asset management (Smith, 1990).
Table 3 - Trend Analysis
FY17 FY18 FY19 FY20
Assets
- Change -586.4 642.2 -67 14981
- % Change -2.50% 2.80% -0.29% 38.94%
Sales
- Change 2001.1 1251 3258 3691
- % Change 3.74% 2.21% 5.74% 6.15%
Conclusion
In this report, my key finding is that there is increase in market share in 2020 but the
company in financial performance has decreased in 2020. Therefore, it can be concluded that
company internal operations during 2020 are not in a good situation.
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It is recommended to management of company that they need to focus more on internal
operations of company rather than external marketing strategies. As company is already
performing well in market as shown from non financial indicator of market share.
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References
Books and Journals
Choi, F.D. and et.al., 1983. Analyzing foreign financial statements: The use and misuse of
international ratio analysis. Journal of International Business Studies. 14(1). pp.113-
131.
Gibson, C.H. and Frishkoff, P.A., 1989. Financial statement analysis: using financial accounting
information.
Smith, P., 1990. Data envelopment analysis applied to financial statements. Omega. 18(2).
pp.131-138.
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