Company Performance Analysis

Running head: COMPANY PERFORMANCE ANALYSIS
Company Performance Analysis
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1COMPANY PERFORMANCE ANALYSIS
Abstract:
Company performance analysis denotes a number of techniques used for
quantifying the performance of an organisation over a specific timeframe. It has been
found that in terms of profitability, Wesfarmers Limited is observed to maintain a
stable position in the Australian retail industry. However, focus needs to be kept on
improving net income so that adequate profit could be generated for investing in
future capital projects and distribution to the shareholders. From the viewpoint of
operating efficiency, Wesfarmers has maintained competitive edge in the Australian
retail sector. Although the organisation is subject to certain systemic and un-
systemic risks, they could be managed effectively by enforcing appropriate policies
in place. In addition, although dividend payout ratio has fallen over the years, it has
maintained stable dividend policy. Therefore, the investor is recommended to invest
in the shares of Wesfarmers Limited in order to maximise overall return on
investment.

2COMPANY PERFORMANCE ANALYSIS
Table of Contents
I. Introduction:...............................................................................................................3
II. Financial analysis of Wesfarmers Limited:...............................................................3
2.1 Description of Wesfarmers Limited:....................................................................3
2.2 Calculation and analysis of profitability and operating efficiency ratios:............3
2.3 Cash management analysis:..............................................................................7
2.4 Sensitivity analysis:.............................................................................................7
2.5 Systemic and un-systemic risks:.......................................................................10
2.6 Dividend payout ratio and dividend policy of Wesfarmers Limited:..................11
III. Recommendation letter:........................................................................................11
IV. Conclusion:............................................................................................................12
References:................................................................................................................13

3COMPANY PERFORMANCE ANALYSIS
I. Introduction:
Company performance analysis denotes a number of techniques used for
quantifying the performance of an organisation over a specific timeframe. A
performance analysis could be conducted on any key business areas by considering
that accurate performance indicators have been factored in the analysis This report
would focus on analysing the financial performance of an ASX listed organisation
with the help of appropriate financial techniques. The intention is to assess the
feasibility of investing in the chosen organisation from the perspective of a big
institutional investor from overseas. The organisation selected for this assignment is
Wesfarmers Limited, which is the leading retailer operating in the province of
Australia.
The first section of the analysis would provide a detailed overview of business
operations of Wesfarmers Limited. The next part would find out the performance of
the organisation in the Australian supermarket by computing and analysing the
profitability and operating performance ratios of the organisation. The third portion
would identify the marketable securities from the current asset section and
accordingly, the role of these securities for cash management by the organisation
would be discussed. In addition, the analysis of a potential project for Wesfarmers is
conducted with the help of net present value to undertake investment decision.
Furthermore, the section would focus on systemic and un-systemic risks of the
organisation along with the dividend policy. Finally, the report would shed light on
providing a recommendation letter to the potential investor to assist in investment
decision after analysis of the findings.
II. Financial analysis of Wesfarmers Limited:
2.1 Description of Wesfarmers Limited:
Wesfarmers Limited has started its journey in the form of a cooperative in
1914; however, with the passage of time above 100 years, the organisation has
evolved into a large corporate retailer in the Australian market. The organisation has
diversified business interest in the form of leisure business, hotels, supermarkets
along with serving liquor to the customers. The roster of the organisation contains
above 223,000 staffs working in various divisions and departments and its current
headquarter is in Perth, Australia (Wesfarmers.com.au 2019). In 2016, it has
generated revenue of A$65.98 billion, which has assisted the organisation in
enjoying competitive advantage over its rivals as the market leader.
2.2 Calculation and analysis of profitability and operating efficiency ratios:
For knowing about the current financial health of Wesfarmers Limited, the
investor has stressed on the profitability and operating efficiency position of the
organisation. Therefore, the two groups of ratios that have been chosen include the
following:
Profitability analysis:
Profitability ratios analyse the ability of an organisation in generating income
against expenses and other costs related to business operations. In case of
Wesfarmers Limited, three profitability ratios are taken into consideration, which
include gross margin, net margin and return on capital employed (ROCE). The