Financial Analysis of Woolworths: Liquidity Ratio, Profit Trend and Cash Flow

This report analyzes the financial performance of Woolworths through liquidity ratio, trend analysis of profit and cash flow statement. It also provides recommendations to improve the financial position of the company.

Financial Analysis

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Introduction
Financial analysis is the process of evaluating, and summarizing the financial performance of the
company. It is required for the company to analyze the financial performance for expanding or
operating the business effectively (Williams, & Dobelman, 2017). In this report, Woolworths has
been taken into consideration to analyses the financial performance. In this paper, liquidity ratio,
trend analysis of profit and the cash flow statement of the company will be analyzed.
Woolworths is an Australian supermarket store which was founded in the year 1924
(Woolworths, 2018).
Financial Analysis
1.
2017 2018
100.00% 104.90%
Gross Profit 15929 16709
100.00% 112.29%
Profit before income
tax 2132 2394
100.00% 112.68%
Profit for the period 1593 1795
According to Annual Report of 2018 of Woolworths, the profit of the company is 1795 in
millions. As per the horizontal analysis, it is observed that the percentage of profit of the year is

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increasing from the previous year with the 12.86%. It has been evaluated that the percentage of
profit for the period is 112.68% which is increasing from the base year 2017. As per the trend
analysis, it has been evaluated that the percentage of gross profit is also increasing from 2017 in
the year 2018(Woolworths Group, 2018). The main reason of increasing profit is decreasing
finance cost and increasing revenue from sales. Due to increasing revenue from sales and
reducing cost helps to increasing the percentage of profit. According to the analysis, it is
observed that the financial position of 2018 is more effective as compare to 2017.
2.
Woolworths
Industr
y
2017 2018
Liquidity
Ratio
Current ratio Current assets 6994 7181
Current
liabilities 8824 9196
0.79 0.78 0.81
Quick ratio Quick assets 660 847
Current
liabilities 8824 9196
0.07 0.09 0.3
A.

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As per the evaluation of liquidity ratio of Woolworths, it is observed that the percentage of
current ratio is decreasing from the year 2017 to 2018 such as 0.79 to 0.78 respectively. The
quick ratio of the company is also increasing from last year 2017 by 0.07 to 0.09. It depicts that
the company has the strong liquidity position but it is getting worse in the year 2018 as the
current liabilities is also increasing (Clear Tax, 2018).
B.
As per the analysis, it has been seen that the current ratio of the company is decreasing from the
year 2018 by 0.79 to 0.78. But the quick ratio of the company is increasing with the ratio of 0.07
to 0.09. Difference between both the ratios is that the current ratio is decreasing but quick ratio is
increasing (Robinson, Henry, Pirie, & Broihahn, 2015). It has been seen that the quick assets of
the company is increasing with the increasing current liabilities but quick assets is more
increasing then current liability due to which the percentage of quick ratio is increasing. In the
evaluation of current ratio, it has been seen that the value of current assets of the company is
increasing with the increasing current liability. But the current liability is more increasing due to
which the current ratio is declined from 2017(Woolworths Group, 2018).
It has been seen that the average of current ratio of industry is 0.81 which is high from the
current ratio of Woolworths. The difference between the percentage of average industry and the
company is 0.3 as the current ratio of average industry is 0.81 and the company is 0.78. The
quick ratio of the company is 0.09 in the year 2018 and the average of the industry is 0.3 which
is less than the company ratio. The quick ratio of the company is normal as per the average rate
of industry.
3.

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Cash Flow Statement 2017 2018
Cash Flow From Operating
Activities 3122 2930
Cash Flow From Investing
Activities 1431 1510
Cash Flow From Financing
Activities 1729 1060
According to the cash flow analysis, it has seen that the company operating activities is
decreasing from the year 2017 to 2018 such as 3122 to 2930. The operating activity of the
company is decreasing due to increasing operating expenses. It has been seen that the investing
activities of the company is increasing which depict that Woolworths invests the large amount in
different activities. In the year 2017, the investing activity is 1431 which is increasing in the year
2018 by 1510. As per the analysis of financing activities, it is observed that the financing activity
of the company is decreasing which depict that the company pays the fewer amounts as dividend
(Investing, 2018).
Conclusion
From the above analysis, it is concluded that the financial position of Wesfarmers is getting
strong from the previous year 2017. As per the liquidity ratio analysis, it is observed that the
company current ratio is decreasing but quick ratio is increasing due to increasing current
liabilities. As per the trend analysis, it has been founded that the profit of the company is

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increasing from the previous year 2017. But as per the cash flow statement, it has been
evaluated that the financial situation of the company is getting worse as the company invests
more in different activities and also spend the large amount for operating expenses due to which
the financial position of the company is declined in the year 2018 from the previous year 2017.
The company has to follow the recommendations which are discussed below:
Recommendation
As per the analysis, it is observed that the liquidity position of the company is declined due to
increasing current liabilities more than the current assets that is why; it is recommending that the
company has to invest in current assets instead of fixed assets so that the financial position of the
company will improve by enhancing the liquidity of the company (Gitman, Juchau, & Flanagan,
2015).
It has been found that the amount of operating activities of the company is decreasing due to
increasing operating expenses. It is suggesting that the company has to maintain all the expenses
and revenue so that the amount of operating activities is constant. The company has to reduce the
expenses so that the operating income is increasing.

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References
Clear Tax. (2018). Liquidity Ratio, Formula With Examples. Retrieved From:
https://cleartax.in/s/liquidity-ratio
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
Investing. (2018). Woolworths Ltd (WOW). Retrieved From:
https://in.investing.com/equities/woolworths-limited-ratios
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.
Woolworths Group. (2018). About Us. Retrieved From:
https://www.woolworthsgroup.com.au/page/about-us
Woolworths. (2018). Annual Report 2019. Retrieved From:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf
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