Corporate Accounting: Financial Statements Analysis of ASX Listed Organisations

The report would concentrate on assessing the various financial statements of three ASX listed organisations functioning in the identical sector. For meeting this purpose, the organisations include Woolworths Group Limited, Wesfarmers Limited and JB Hi-Fi Limited that are operating in the Australian retail sector. The analysis of the annual reports of the last three years of these organisations is evaluated, in which the main aspects covered include cash flow statement, equity and liability, accounting for corporate income tax and other comprehensive income statement.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE ACCOUNTING
Executive Summary:
The report would concentrate on assessing the various financial statements of three ASX listed
organisations functioning in the identical sector. For meeting this purpose, the organisations
include Woolworths Group Limited, Wesfarmers Limited and JB Hi-Fi Limited that are
operating in the Australian retail sector. It has been analysed that these organisations have
invested largely in PPE; however, the positive cash flows generated from operations are adequate
to cover these outflows. Along with this, they do not consider the other comprehensive income
items to be included in their income statements owing to their extraordinary nature. Finally, from
the taxation part, it has been assessed that the companies take into account certain items like
income tax expense, deferred tax assets, deferred tax liabilities and finance cost for appropriate
calculation of their cash tax rates.

2CORPORATE ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................4
Equity and liability:.........................................................................................................................5
Part (i):.........................................................................................................................................5
Part (ii):........................................................................................................................................6
Part (iii):.......................................................................................................................................7
Cash flow statement:........................................................................................................................8
Part (iv):.......................................................................................................................................8
Part (v):........................................................................................................................................9
Part (vi):.....................................................................................................................................12
Other comprehensive income statement:.......................................................................................13
Part (vii):....................................................................................................................................13
Part (viii):...................................................................................................................................13
Part (ix):.....................................................................................................................................13
Part (x):......................................................................................................................................14
Accounting for corporate income tax:...........................................................................................14
Part (xi):.....................................................................................................................................14
Part (xii):....................................................................................................................................15
Part (xiii):...................................................................................................................................15

3CORPORATE ACCOUNTING
Part (xiv):...................................................................................................................................15
Part (xv):....................................................................................................................................16
Part (xvi):...................................................................................................................................16
Part (xvii):..................................................................................................................................16
Conclusion:....................................................................................................................................17
References:....................................................................................................................................18

4CORPORATE ACCOUNTING
Introduction:
The report would concentrate on assessing the various financial statements of three ASX
listed organisations functioning in the identical sector. For meeting this purpose, the
organisations include Woolworths Group Limited, Wesfarmers Limited and JB Hi-Fi Limited
that are operating in the Australian retail sector. The analysis of the annual reports of the last
three years of these organisations is evaluated, in which the main aspects covered include cash
flow statement, equity and liability, accounting for corporate income tax and other
comprehensive income statement.
Woolworths Group Limited has been established in 1924 in Australia and it is involved in
operating retail stores via Australian Food, Endeavour Drinks, New Zealand Food, Big W Hotels
and other drinks. Moreover, it has liquor stores and hotels as well with an employee base of
around 201,522 (Woolworthsgroup.com.au 2019).
Wesfarmers Limited is the leading Australian retail organisation and its operations
mainly include retail, distribution of industrial and safety products, coal mining and production,
chemical and fertiliser production and investment businesses in Australia, UK, New Zealand and
others. The company has been established in 1914 and at present, it has staff base of 217,000
(Wesfarmers.com.au 2019).
JB Hi-Fi Limited is mainly involved in retailing home consumer products operating
through JB Hi-Fi Australia, The Good Guys and JB H-Fi New Zealand. The main products of the
organisation include audio equipment, cameras, computers, DVD products, musical instruments
and others. The company has been founded in 1974 with a staff base of around 12,229 in 2018
(Jbhifi.com.au 2019).

5CORPORATE ACCOUNTING
Equity and liability:
Part (i):
From the annual reports of Woolworths Group Limited, the equity section contains
contributed equity, reserves and retained earnings. It has been identified that contributed equity
would increase from $5,252.2 million in 2016 to $6,055 million in 2018, as additional equity
shares are issued in the market. However, reserves have increased from $93.9 million in 2016 to
$353 million in 2018, as there is presence of foreign currency translation reserve, hedge reserve
and others (Van Mourik 2014). Finally, there has been increase in retained earnings as well from
$3,124.5 million in 2016 to $4,073 million in 2018 (Woolworthsgroup.com.au 2019).
In case of Wesfarmers Limited, all items are same as Woolworths; the only addition is
reserved shares. The issued capital has increased from $21,937 million in 2016 to $22,277
million in 2018 owing to the increase in the issuance of equity shares in the market. However,
retained earnings have fallen significantly in 2018 due to the decline in overall net income
earned by the organisation. In addition, reserves have increased from $166 million in 2016 to
$344 million in 2018, as hedge reserve and foreign currency translation reserve have increased
over time. Finally, no significant change could be observed in reserved shares of the organisation
from 2016 to 2018 (Wesfarmers.com.au 2019).
For JB Hi-Fi Limited, the equity items are contributed equity, retained earnings and
reserves. Significant increase in contributed equity could be observed from 2016 to 2018, as the
firm has raised its issuance of equity shares in the market for meeting capital needs (Bauman and
Shaw 2016). After this, retained earnings are observed to increase during this period as well
owing to significant rise in profit margin. Finally, reserves are seen to be increased over the years
(Investors.jbhifi.com.au 2019).

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Part (ii):
From the annual reports of Woolworths Limited, the main current liabilities disclosed are
trade payables, borrowings, current tax payable, provisions and other financial liabilities, which
are observed to increase from 2016 to 2018. The non-current liabilities are borrowings,
provisions, other financial liabilities and other non-current liabilities, which have fallen over the
three-year period (Woolworthsgroup.com.au 2019).
As per the annual reports of Wesfarmers Limited, the line items in current liabilities
comprise of trade and other payables, interest-bearing loans and borrowings, income tax payable,
derivatives, provisions and others, which have fallen slightly from $10,424 million in 2016 to
$10,025 million in 2018. The non-current liabilities after registering increase in 2017 has
declined in 2018 that constitute of interest-bearing loans and borrowings, derivatives, provisions
and others (Wesfarmers.com.au 2019).
The annual reports of JB Hi-Fi Limited contain certain line items in its current liabilities,
which include trade and other payables, provisions, deferred revenue, current tax liabilities and
others. The amount is witnessed to increase significantly from 2016 to 2018. On the contrary, the
non-current liabilities include borrowings, deferred tax liabilities, deferred revenue, provisions
and others, which after experiencing significant increase in 2017 has fallen in 2018
(Investors.jbhifi.com.au 2019).

7CORPORATE ACCOUNTING
Part (iii):
2016 2017 2018
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1.68
1.33
1.17
0.78 0.68 0.62
1.45
1.88
1.63
Debt to Equity Ratio
Woolworths Group Limited Wesfarmers Limited JB Hi-Fi Limited
In accordance with the above figure, it could be stated that Woolworths and JB Hi-Fi use
more portion of debt capital than equity capital for funding their business assets. The only
exception could be observed in case of Wesfarmers, as it has relied on raising funds from the
equity shareholders so that its financial risk could be minimised (Kulikova, Garyntsev and
Gafieva 2015). Thus, the financial leverage is high for JB H-Fi Limited followed by Woolworths
and Wesfarmers.

8CORPORATE ACCOUNTING
Cash flow statement:
Part (iv):
From the cash flow statements of Woolworths Group Limited, the cash flows from
operations include receipts from customers, payments to employees and suppliers, payment of
net financing costs and income tax payment. This area after experiencing considerable rise in
2017 has declined in 2018. The cash flows from investing activities include proceeds from sales
of PPE, payments for PPE and intangible assets, payments for business purchase, Home
Consortium Trust and dividends obtained. These cash flows are observed to increase steadily
over the years. Finally, the cash flows from financing activities comprise of proceeds from share
issuance and borrowings, repayment of borrowings and payment of dividends. These cash flows
are observed to increase considerably in 2017; however, decline could be observed in 2018.
However, the increased operating cash flows have resulted in increased cash balance of the
organisation in 2018 (Woolworthsgroup.com.au 2019).
As per the cash flow statements of Wesfarmers Limited, increase and fall in operating
cash flows are witnessed from 2016 to 2017 and from 2017 to 2018 respectively. The significant
items under this head include all the items mentioned for Woolworths with the additions as
interest received and borrowing costs. The investing cash flows have declined massively in 2017
compared to the last year after which increase could be observed in 2018. The items falling
under this head comprise of payments for PPE and intangibles, proceeds from sale of PPE,
proceeds from business sale, investments in joint ventures, subsidiary acquisition and net
redemption of loan notes. On the other hand, the financing cash flows comprise of proceeds from
and repayment of borrowings, payment of equity dividends and demerger transaction costs. This
head after witnessing considerable increase in 2017 has fallen slightly in 2018. However, the

9CORPORATE ACCOUNTING
ending cash balance has fallen in 2018 compared to 2017 for Wesfarmers (Wesfarmers.com.au
2019).
For JB Hi-Fi Limited, the main operating cash flow items include receipts from
customers, payments to staffs and suppliers, payment of income tax, interest and finance costs
and receipts of interest. This head has experienced considerably from $185.1 million in 2016 to
$292.1 million in 2018. After this, the main investing cash flows comprise of payments for
business combinations and PPE and proceeds from sale of PPE. This head after experiencing
remarkable increase in 2017 has fallen significantly in 2018. Finally, the financing cash flows
comprise of proceeds from share issue, proceeds or repayment of borrowings, share issue costs,
payments for share issue costs and dividend payments. The trend is similar to that of the
investing cash flows owing to which ending cash balance has remained almost identical in 2018
compared to 2017 (Investors.jbhifi.com.au 2019).
Part (v):
Woolworths Group Limited:

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2016 ($m) 2017 ($m) 2018 ($m)
-2,000.00
-1,000.00
-
1,000.00
2,000.00
3,000.00
4,000.00
2,357.50
3,122.00 2,930.00
-1,266.70 -1,431.00 -1,510.00-1,474.90 -1,729.00
-1,060.00
Woolworths Group Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
It is evident from the above table that the net operating cash flows of Woolworths after
increasing in 2017 have declined in 2018, which signifies the fluctuating income of the
organisation from operating activities (Frank and James 2014). After this, the organisation has
invested heavily in purchasing PPE and investing in business and it has made considerable to the
shareholders in the form of dividend (Woolworthsgroup.com.au 2019).
Wesfarmers Limited:

11CORPORATE ACCOUNTING
2016 ($m) 2017 ($m) 2018 ($m)
-5,000.00
-4,000.00
-3,000.00
-2,000.00
-1,000.00
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
3,365.00
4,226.00 4,080.00
-2,132.00
-53.00 -658.00
-1,333.00
-3,771.00 -3,752.00
Wesfarmers Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
In accordance with the above table, it could be observed that although the net operating
cash flows of the organisation after experiencing massive rise in 2017 have experienced a slight
decline in 2018 owing to increased payment of income tax. Besides, it has made considerable
investment in purchasing PPE in 2018. Finally, the payment of equity dividend has resulted in
increasing cash outflows from financing activities (Wesfarmers.com.au 2019).
JB Hi-Fi Limited:

12CORPORATE ACCOUNTING
2016 ($m) 2017 ($m) 2018 ($m)
-1,000.00
-800.00
-600.00
-400.00
-200.00
-
200.00
400.00
600.00
800.00
1,000.00
185.10 190.60 292.10
-52.00
-885.50
-54.00
-130.50
715.90
-239.10
JB Hi-Fi Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
From the above figure, it is evident that the operating cash flows have risen over the
years because of increased receipts from the customers. However, there has been decline in
financing cash flows owing to the reduction in payments for business combination
(Investors.jbhifi.com.au 2019).
Part (vi):
After the conduction of comparative analysis of the three selected organisations, it could
be stated that the cash flows from operations are highest for Wesfarmers Limited followed by
Woolworths Group Limited and JB Hi-Fi Limited. This is because of increased customer receipts
and dividends obtained (Mohanram 2014). Along with this, it could be witnessed that all these
organisations have focused on investing their PPE base and other intangible assets leading to
increase in their overall investments. Finally, the increased dividend payments, finance costs and
interests have resulted in rise in cash outflow of these organisations (Lee 2014).

13CORPORATE ACCOUNTING
Other comprehensive income statement:
Part (vii):
In case of Woolworths Limited, the items disclosed in its other comprehensive income
statement include hedge reserve, cash flow hedge, foreign currency translation reserve and equity
instrument reserve (Woolworthsgroup.com.au 2019).
From the annual reports of Wesfarmers Limited, the disclosed items include cash flow
hedge reserve, foreign currency translation reserve and a portion of retained earnings that could
not be included in the other financial statements (Wesfarmers.com.au 2019).
JB Hi-Fi Limited has disclosed a number of items in comprehensive income statement,
which include cash flow hedges and translation of foreign operations (Investors.jbhifi.com.au
2019).
Part (viii):
The three organisations have not reported the aforementioned items in their profit and
statements owing to the fact that they have extraordinary nature and they are not used to run day-
to-day operations. Moreover, the organisations use these items for reporting the business
operations in the period and as a result, it is not possible to include these items in other
comprehensive income statement (Bratten, Causholli and Khan 2016).
Part (ix):
As evident from the annual reports of the three organisations, cash flow hedges are
incorporated in their other comprehensive income statements. From these statements, it could be
observed that Woolworths has registered highest other comprehensive income followed by
Wesfarmers Limited and JB Hi-Fi Limited. Moreover, foreign currency translation reserve is

14CORPORATE ACCOUNTING
another item that is reported by all three organisations in their other comprehensive income
statements. These incomes are attributed to the shareholders and non-controlling interests (Kim
2016). Hence, if the above-mentioned items are included in their income statement, the impact
would be direct on net profit, since they could be either understated or overstated. This would
impact the decision-making process of the shareholders in terms of investment decisions
(Hodgson and Russell 2014).
Part (x):
It is noteworthy to mention that the performance of the firms should not depend on the
comprehensive business items because they are depicted characteristically in their annual reports.
Moreover, it could be observed that such items have extraordinary features and they are non-
periodic in nature. Along with this, the incorporated items under these statements are generally
extraordinary in nature. Therefore, when all these aspects are evident, the management of the
organisation need not take into account these items for undertaking business decisions (Huang,
Lin and Raghunandan 2015).
Accounting for corporate income tax:
Part (xi):
According to the latest annual report of Woolworths Group Limited, income tax expense
incurred has been $718 million in 2018 compared to $651 million in 2017. For Wesfarmers, the
tax expense incurred has been $1,246 million in 2018 in contrast to $1,169 million in 2017. In
case of JB Hi-Fi Limited, the organisation has incurred $101.3 million in 2018 compared to
$86.8 million in 2017 as income tax expense.

15CORPORATE ACCOUNTING
Part (xii):
In order to compute the effective tax rate, the profit before tax is divided by income tax
expense (Taylor and Richardson 2014). The above table makes it clear that Wesfarmers has
incurred the highest effective tax rate followed by JB Hi-Fi Limited and Woolworths.
Part (xiii):
It is necessary for the firms to disclose the amounts related to deferred tax assets and
deferred tax liabilities in their annual reports published at the end of a period (Dowling 2014).
From the annual reports of the three organisations, it could be observed that they have made
adequate disclosures of their deferred tax assets and liabilities supported by financial footnotes.
The main reason that these items have to be reported in the balance sheet is because of the
provisional difference between taxable profit and accounting profit. Moreover, the tax liabilities
and tax assets are carried forward in the existing year from the past year (Rimmer, Smith and
Wende 2014).
Part (xiv):
From the latest annual report of Woolworths Group Limited, the organisation has realised
deferred tax assets amounting to $908 million in 2018 compared to $998 million in 2017. On the
other hand, deferred tax liabilities have been $637 million in 2018 compared to $626 million in
2017 (Woolworthsgroup.com.au 2019).

16CORPORATE ACCOUNTING
In case of Wesfarmers Limited, deferred tax assets have amounted to $1,365 million in
2018 in comparison to $1,693 million in 2017. On the other hand, deferred tax liabilities have
declined to $673 million in 2018 from $722 million in 2017 (Wesfarmers.com.au 2019).
Finally, JB Hi-Fi Limited has experienced an increase in its deferred tax assets from
$89.5 million in 2017 to $99.4 million in 2018. On the contrary, slight decline in deferred tax
liabilities could be observed from $105.6 million in 2017 to $105.1 million in 2018
(Investors.jbhifi.com.au 2019).
Part (xv):
Part (xvi):
The above table makes it evident that JB Hi-Fi Limited has incurred the highest tax rate
followed by Woolworths Group Limited and Wesfarmers Limited.
Part (xvii):
Cash tax rate does not resemble book tax rate due to the fact that the former is projected
by keeping in mind the existing year (Kawano and Slemrod 2016). On the contrary, both existing
year and upcoming year are considered for computing the book tax rate. In order to compute the

17CORPORATE ACCOUNTING
cash tax rate, there has been consideration of a number of aspects that include deferred tax assets,
deferred tax liabilities and interest weights, which result in minimisation of tax (Mohanram
2014). In case of book tax rate calculation, the aforementioned items are not taken into
consideration.
Conclusion:
By taking into account the above-discussed aspects, it could be inferred that Woolworths
and JB Hi-Fi raises funds mostly from bank loans for financing its assets, while Wesfarmers uses
equity financing for raising funds from the market. Moreover, it has been analysed that these
organisations have invested largely in PPE; however, the positive cash flows generated from
operations are adequate to cover these outflows. Along with this, they do not consider the other
comprehensive income items to be included in their income statements owing to their
extraordinary nature. Finally, from the taxation part, it has been assessed that the companies take
into account certain items like income tax expense, deferred tax assets, deferred tax liabilities
and finance cost for appropriate calculation of their cash tax rates.

18CORPORATE ACCOUNTING
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taxes. Research in Accounting Regulation, 28(2), pp.77-85.
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irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.
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Finance Research, 2(2), pp.77-87.
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19CORPORATE ACCOUNTING
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