Financial Analysis of Woolworths Ltd

This document provides a comprehensive financial analysis of Woolworths Ltd, including an assessment of key financial ratios, profitability, liquidity, and recommendations for improvement. The analysis reveals the company's performance and stability in various business activities.

Running head: FINANCE AND ECONOMICS
Executive Summary

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FINANCE AND ECONOMICS
Nature and Background of the Business
The business which is being considered for the assessment is Woolworths ltd which is
engaged in retail business and also runs supermarket chains in different regions of Australia
(Woolworthsgroup.com.au. 2019). The company is known to be a leading brand in the
supermarket industry and the only close competitor of the business if Coles Supermarket.
Together with Coles supermarket, Woolworths ltd accounts for more than 80% of the market
shares of Australia. As per the recent estimate of the market conditions, Woolworths
supermarket serves around 29 million customers in a week which shows the popularity of the
brand in the markets of Australia. The company is also dedicated towards meeting the needs of
the customers and also follows a sustainable approach in managing the operations of the business
(Marketscreener.com. 2019).
Analysis of Key Financial Ratios of the Business
Ratio Analysis 2018 2017
Ratio Company:
Woolsworth Ltd Formula
Absolu
te
Absolu
te
Categor
y
$
Values
$
Values
Liquidity
Current ratio
Current assets 7,181 7,121
Current liabilities 9,196 8,952
Ratio Ratio
0.78 0.80
Quick ratio
Highly liquid current assets 2,948 2,914
Current liabilities 9,196 8,952
(EXCLUDES INVENTORY AND PREPAID
ASSETS)
Ratio Ratio
0.32 0.33
Profitabil
ity
Return on ordinary
shareholders' equity
Profit after tax 1,795 1,593
Average ordinary shareholders' equity 10,849 9,876
Ratio Ratio
16.55% 16.13%
Return on assets
Profit after tax 1,795 1,593
Total assets 23,558 23,043
Ratio Ratio
7.62% 6.91%
Gross profit rate/margin
Gross profit 16,709 15,929
Sales revenue 56,726 54,841
Ratio Ratio
29.46% 29.05%
Profit margin Profit after tax 1,795 1,593

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FINANCE AND ECONOMICS
Net Sales 56,726 54,841
Ratio Ratio
3.16% 2.90%
Cash return on sales
Net operating cash flow 2,930 3,122
Net Sales 56,726 54,841
Ratio Ratio
5.165% 5.693%
Solvency Debt to total assets
Total liabilities 12,709 13,167
Total assets 23,558 23,043
Ratio Ratio
53.95% 57.14%
Market
Earnings per share
(EPS)
Given Basic EPS disclosed in the income
statement
Ratio Ratio
123.40 110.80
Price-earnings ratio
Share price 26.29 26.50
EPS 1.23 1.11
Ratio Ratio
21 24
Financin
g Debt to Equity Debt/Equity 117% 133%
Interpretation
The table which is shown above reflects the key financial ratios which is shown for the
business of Woolworths ltd. The ratios are computed in the above table for a period of two years
The current ratio of the business has declined slightly which is clearly shown in the table
above which shows that the management of the company needs to think about improving the
liquidity structure of the business for the future of the business (Analytics 2019). the current ratio
of the business which forms part of the liquidity estimates show a slight decrease which suggest
that the business liquidity position of the business has somewhat fallen.
Some of the key ratios are shown in the profitability ratios of the business and the same
are also considered to be most important for judging the performance of the business during the
period. There has also been an increase in the gross profit and net profit margin of the business.
This shows that the focus of the management of the company is on profitability of the business
and has appropriately managed to enhance the same in the business. All the estimates of
profitability ratio for the business shows that the profits of the business have enhanced which is
mainly due to the significant increase in the profitability estimate of the business (Editorial

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FINANCE AND ECONOMICS
2019). In case of Market shares ratios, the EPS of the business which is demonstrated in the table
above shows significant increase which may be due to the increase in the profits of the business.
The solvency ratio shows a slight decrease which is a positive sign for the business as the
same shows decrease in the net debts of the business which also means that the overall risks of
the business has also decreased. The efficiency ratio of the business also shows a slight decline
which is not a positive sign as this suggest that the overall efficiency of the business has
declined. The estimates which are computed in both the cases shows that there is a fall in the
estimates which is shown by the management which suggest that there is a fall in the efficiency
level of the business
Recommendation
The recommendation which can be given to the management of the company for making
improvement in the business structure are listed below in details:
 As per the annual report of the business, the management of the company needs to reduce
the costs of the business so that the profitability of the business can be further enhanced.
 The management of the company needs to revise the internal policies of the business such
as debtor and inventory management policies.
 The management of the company also needs to focus on liquidity which needs
improvement so that more appropriate business structure can be developed. This would
also provide the business the means to finance any projects which the company deems fit.
Conclusion
The financial analysis of the company was conducted with the help of the various
financial and non-financial information’s that were collected for the company. Profitability,
liquidity and operational ratios were some of the key ratio that helped us get insights about the
company. It was important to consider both financial and non-financial ratio for the computation
of the financial position of the company and the same has been applied by the company for
evaluating the overall performance and stability in the various level of business activities carried
out by the company.

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Reference
(WOW), W. (2019). Woolworths Ltd (WOW) Financial Ratios. [online] Investing.com.
Available at: https://www.investing.com/equities/woolworths-limited-ratios [Accessed 31 May
2019].
Analytics, I. (2019). WOOLWORTHS GROUP LIMITED: Financial ratios (WOW | AUS | Food
Retailers & Wholesalers) - Infront Analytics. [online] Infrontanalytics.com. Available at:
https://www.infrontanalytics.com/fe-EN/00097AA/Woolworths-Ltd/financial-ratios [Accessed
31 May 2019].
Editorial, R. (2019). ${Instrument_CompanyName} ${Instrument_Ric} Financials | Reuters.com.
[online] U.S. Available at:
https://www.reuters.com/finance/stocks/financial-highlights/WOW.AX [Accessed 31 May
2019].
Marketscreener.com. (2019). WOOLWORTHS GROUP LTD : Financial Data Forecasts
Estimates and Expectations | WOW | AU000000WOW2 | MarketScreener. [online] Available at:
https://www.marketscreener.com/WOOLWORTHS-GROUP-LTD-6491360/financials/
[Accessed 31 May 2019].
Woolworthsgroup.com.au. (2019). Annual Reports - Woolworths Group. [online] Available at:
https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports/
Annual_Reports [Accessed 31 May 2019].

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