Finance For Business And Capital Structure Ratio

Running head: FINANCE FOR BUSINESS
Finance for Business
Name of the Student:
Name of the University:
Author’s Note:

1FINANCE FOR BUSINESS
Table of Contents
Introduction......................................................................................................................................2
Discussion and Analysis..................................................................................................................2
Woolworth Company Operations................................................................................................2
Net Working Capital....................................................................................................................3
Cost of Equity..............................................................................................................................4
Liquidity and Capital Structure Ratio..........................................................................................5
Liquidity Ratios.......................................................................................................................6
Capital Structure Ratio............................................................................................................7
Conclusion and Recommendations..................................................................................................9
References......................................................................................................................................11

2FINANCE FOR BUSINESS
Introduction
The financial analysis has been done for the Woolworths Company whereby the business
operations and business activities that are in particular carried out by the firm has been well
discussed. Important aspects of the firm in respect to the business activities and business
operations have been well carried out by the firm for the purpose of a detailed analysis of the
Woolworths Firm. The analysis has been done for the firm by taking the financial data for the
year 2018 and 2019 whereby relevant changes in the financial position of the firm have been
well taken into consideration. Changes observed in the field of liquidity position maintained and
the working capital firm has for carrying on the business operations were some of the crucial
aspects that were analyzed. The capital structure of the firm has also been analyzed based on the
various sources of financing the firm has applied for funding the operations of the firm. The cost
of equity on the other hand, has been well calculated using the dividend growth model which
well allows us to calculate the required rate of return that is desired by the equity shareholders of
the firm for the level of risk taken. All the important aspects that have been in associated with
each of the formulas that have been well applied in determining the cost of equity, liquidity and
capital structure of the firm.
Discussion and Analysis
Woolworth Firm Operations
The Woolworth Firm is a major Australian Firm that is having an extensive retail interest
whereby the firm has its operations primarily in the Australian and New Zealand Area. The firm
is considered as second largest firm when compared in terms of revenue earned or reported by

3FINANCE FOR BUSINESS
the firm for the trend period analyzed. The Woolworths Firm stands as the largest liquor
takeaway retail companies and the largest gaming poker machine and the largest operator of
hotel chains in the Australian region. The firm is listed in the Australia Stock Exchange with its
ticker symbol as WOW and was founded and established in the year 22nd September 1924. The
key areas in which the firm operates is the Australian and New Zealand Area and the total
number of employees that are directly associated with the firm has been around 205,000. The
key divisions of the firm are primarily are as follows:
 Supermarkets (Woolworths and Countdown)
 Liquor (BWS, Dan Murphy's, Langtons, Cellarmasters)
 General Merchandise (Big W)
 Finance (Woolworths Finance and Woolworths Rewards)
 Hotels & Gambling (ALH Group)
The operations of the firm are primarily focused in the Australian and New Zealand area
whereby the firm has its majority of the operations expanded and based for carrying on their
daily business activities. The increasing revenue base for the firm has been primarily due to the
increased amount of goods and services that the firm offers.
Net Working Capital
The net working capital of the firm has been well calculated with the help of the current
asset and current liabilities that has been well reported by the firm for the stated point of time
period (Jahfer and Madurasinghe 2017). The working capital of the Woolworths Firm has been
well calculated with the help of the current assets and current liabilities that has been well
reported by the firm. The working capital that has been well reported for the firm has been
around -2,015,000,000 in the year 2018 and the same has well decreased to around -

4FINANCE FOR BUSINESS
2,322,000,000. The decrease in the ratio well says that the working capital that is available with
the firm has decreased in the trend period that has been well analyzed for the firm. The decrease
in the ratio well says that the same has been primarily due to the increasing amount of current
liabilities in respect to the current assets that the firm has reported for the trend period that has
been analyzed (Haskins et al., 2019). It is important that the management of the firm take
important and crucial steps for well managing the amount of working capital for the various line
of business operations that the firm intends to carry on and this would be in turn helping the firm
in better paying off the current obligations of the firm at a defined period of time (Aziz 2019).
The current ratio for the organisation has been around 0.78 times in the year 2018 and the
same has well decreased to around 0.73 times in the year 2019. The decrease in the ratio in turn
would be affecting the liquidity position of the organisation and the same can well affect the
business activities and operations of the organisation. On the other hand, the quick ratio for the
organisation has been around 0.15 times in the year 2018 and the same has been around 0.17
times in the year 2019. The ratio on a comparative basis has been too low for the organisation
which in turn and the management of the organisation must take important and crucial steps for
the purpose of well improvising the same.
Cost of Equity
The cost of equity for the firm shows the required rate of return that is required by the
investors for the investment that has been done and this in particular can be well analyzed with
the help of the Dividend Growth Model. The cost of equity can be well determined with the
formula (D1/Po + Growth Rate). The constant growth rate that is applicable for well finding out
the expected dividend in the next year can be well calculated by multiplying the last dividend
paid by the organisation multiplied by the constant growth rate. The Po value has been taken by

5FINANCE FOR BUSINESS
taking the share price of the organisation as on June 19 and the same has been well applied for
the purpose of calculating the required rate of return (Brown 2019). The cost of equity for the
firm was calculated to be around 8.24% and has been well calculated by taking important aspects
like the market factors and dividend factors. The key approach that has been well applied for the
purpose of well calculating the Dividend (D1) has been well done by taking last year’s dividend
and the constant growth rate of the organisation. The numbers that have been well generated in
the analyzed time frame would be giving us a hint in the context of what investors perceive about
the required rate of return that they expect to receives from the investors in the given set of time
frame (Marketscreener.com 2020).
Dividend Growth Model
Required Rate of Return
Dividend (Do) 1.02
Dividend (D1) 1.07
Growth Rate 5%
Price (Po) 33.02
Required Return (Re)
8.24
%
Liquidity and Capital Structure Ratio
Liquidity and Capital Structure Ratios some of the important aspects of the financial
position of a organisation which well highlights the amount of current assets a organisation is
having in order to well meet the current obligations of the organisation. On the other hand, the
capital structure ratio of the organisation can also be well analyzed with the help of the debt
financing that the organisation has well applied for meeting and covering the various business
operation’s needs (Jahfer and Madurasinghe 2019).

6FINANCE FOR BUSINESS
Liquidity Ratios
Liquidity ratio of the organisation can be well calculated for assessing how the
management of organisation are dealing with the current which are primarily in the form of
accounts payable, short term debt and other current liabilities which may be in the form of bank
overdrafts. It is important that that the management of Woolworths Organisation well maintain
an adequate amount of working capital in the business so that the operations does not get
materially affected from the same. If the ratio stated for the organisation is too low this states that
the management of the organisation might be finding a hard time in well managing the business
operations of the organisation. The current ratio and quick ratio have been the two key measures
which has been well deployed for the purpose of calculating the liquidity aspects of the
organisation. The current ratio for the organisation has been around 0.83 times in the year 2016
and the same has decreased to around 0.73 times in the year 2019. The decrease in the ratio has
been primarily due to the decrease in the current assets of the organisation with respect to the
current liabilities which has rather increased in the time period analyzed (Datanalysis-
morningstar-com-au.eu1.proxy.openathens.net 2020).
2016 2017 2018 2019
0.68
0.70
0.72
0.74
0.76
0.78
0.80
0.82
0.84 0.83
0.79 0.78
0.73
Current Ratio
On the other hand, the quick ratio for the organisation takes key liquid assets that are
available in the organisation which are primarily in the form of cash or assets which can be

7FINANCE FOR BUSINESS
easily converted into cash and they can be primarily in the form of short-term marketable
securities and accounts receivables. The key reason why inventory is disregarded from the list of
current assets in the organisation has been primarily because of the key reason that the same
could not be easily converted into liquid cash and may take time for the management of the
organisation in well converting the liquid assets of the organisation. The quick ratio for the
organisation has been around 0.32 times in the year 2016 and the same has well decreased to
around 0.23 times in the year 2019.
2016 2017 2018 2019
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35 0.32 0.33 0.32
0.23
Quick Ratio
Capital Structure Ratio
The key capital structure ratio that has been well analyzed for the organisation has been
debt ratio and interest coverage ratio for the Woolworths Organisation. The debt ratio for the
organisation has been around 0.63 times in the year 2016 and the same has well decreased to
around 0.55 times in the year 2019. The decrease in the ratio has been primarily due to the
decrease in the total liabilities that has been shown by the organisation in corresponding to the
value of the current assets that has been reported by the organisation. The decrease in the ratio
well shows that the management of the organisation might be taking important and crucial steps
for the purpose of well improvising the asset position of the organisation (WOW 2020).

8FINANCE FOR BUSINESS
2016 2017 2018 2019
0.48
0.50
0.52
0.54
0.56
0.58
0.60
0.62
0.64 0.63
0.57
0.54 0.55
Debt Ratio
On the other hand, the interest coverage ratio for the organisation has been well
calculated for determining the amount of earnings the organisation is earning before paying
interest expenses and taxes that is EBIT. The same has been well divided by the amount of
interest expenses that the organisation has reported for the sum of four year time period in order
to well analyze the coverage ratio for the organisation (Woolworthsgroup.com.au 2020). The
interest coverage ratio for the organisation has been around 10.44 times in the year 2016 and the
same has increased consistently for the organisation to a number like 21.62 times and this has
been primarily because of the reason that the management of the organisation has taken
important and crucial steps for the purpose of reducing the total debt amount that has been
reported by the organisation. The decrease in the debt position has been the key reason which
have helped the organisation in well reducing the interest expenses and increasing the coverage
ratio or position for the organisation for the time period that have been analyzed.
2016 2017 2018 2019
0.00
5.00
10.00
15.00
20.00
25.00
10.44 12.01
16.55
21.62
Interest Coverage Ratio

9FINANCE FOR BUSINESS
Conclusion and Recommendations
The financial analysis has been done for the Woolworths Organisation for the time period
of four years whereby liquidity aspects and capital structure ratio of the organisation has been
some of the key aspects of the organisation, that have been well taken into considerations. The
business operations of the organisation has been spread across the various regions of Australia
and New Zealand area which in primarily have helped in well increasing the revenue base for the
organisation for the time period that has been analysed. In terms of recommendation, it is
important that the management of the organisation must take important and crucial steps for the
purpose of well improvising the liquidity and profitability aspects of the organisation that have
been well analysed for the time period of four years taken into consideration. Improvement in the
liquidity position of the organisation will be helpful for the organisation in well improvising the
operational aspects of the organisation whereby the management of the organisation will be
taking important and crucial steps for the purpose of well improvising the overall business
aspects of the organisation. On the other hand, it was also seen that the management of the
Woolworths Organisation has reduced the debt position of the organisation and the same has
been due to the increase in the equity financing which has been primarily seen by the
organisation. It is also recommended that the management of the organisation takes important
and crucial steps in the form of reformed actions and measures such as taking non-financial
measures also for improving the financial performance and financial position of the organisation.

10FINANCE FOR BUSINESS
References
(WOW), W. 2020. Woolworths Ltd (WOW) Financial Ratios - Investing.com India. [online]
Investing.com India. Available at: https://in.investing.com/equities/woolworths-limited-ratios
[Accessed 25 Jan. 2020].
Aziz, L.H., 2019. The Effect Of Liquidity, Profitability, Capital Structure Of Corporate Values
In Mining Sector In Indonesia. Sains: Jurnal Manajemen dan Bisnis, 12(1), pp.16-37.
Brown, S., 2019. What an asset impairment really means-organisation
financials. finweek, 2019(29 August), pp.19-19.
Datanalysis-morningstar-com-au.eu1.proxy.openathens.net. 2020. OpenAthens / Sign in. [online]
Available at: https://datanalysis-morningstar-com-au.eu1.proxy.openathens.net/af/organisation/
dividendhistory?ASXCode=WOW&xtm-licensee=datpremium [Accessed 25 Jan. 2020].
Haskins, B., Nehme, Z., Cameron, P., Bernard, S., Parker‐Stebbing, L. and Smith, K., 2019.
Coles and Woolworths have installed public access defibrillators in all their stores: It is time
other Australian businesses followed their lead. Emergency Medicine Australasia.
Haskins, M.E., 2017. Remington, Inc.: Instant Insights for Financial Ratios. Darden Business
Publishing Cases.
Jahfer, A. and Madurasinghe, S.I., 2017. Liquidity and capital structure: the case of Sri Lanka.
Jahfer, A. and Madurasinghe, S.I., 2019. Liquidity and capital structure: special reference to
manufacturing sector in the Colombo stock market.

11FINANCE FOR BUSINESS
Marketscreener.com. 2020. WOOLWORTHS GROUP LIMITED : Financial Data Forecasts
Estimates and Expectations | WOW | AU000000WOW2 | MarketScreener. [online] Available at:
https://www.marketscreener.com/WOOLWORTHS-GROUP-LIMITED-6491360/financials/
[Accessed 25 Jan. 2020].
Rakićević, A., Milošević, P., Petrović, B. and Radojević, D.G., 2016. DuPont financial ratio
analysis using logical aggregation. In Soft computing applications (pp. 727-739). Springer,
Cham.
Woolworthsgroup.com.au. 2020. Woolworths Group: Quality Brands and Trusted Retailing.
[online] Available at: https://www.woolworthsgroup.com.au/ [Accessed 25 Jan. 2020].

12FINANCE FOR BUSINESS
Appendix
1) Ratio Analysis
Ratio Analysis
Particulars 2016 2017 2018 2019
Capital Structure Ratio
Total Liabilities 14,720,300,000 13,039,700,000 12,709,000,000 12,822,000,000
Total Assets 23,502,200,000 22,915,800,000 23,558,000,000 23,491,000,000
Debt Ratio 0.63 0.57 0.54 0.55
Capital Structure Ratio
EBIT 2,563,800,000 2,326,000,000 2,548,000,000 2,724,000,000
Interest 245,600,000 193,600,000 154,000,000 126,000,000
Interest Coverage Ratio 10.44 12.01 16.55 21.62
Liquidity Ratio
Current Asset-Inventory 2,868,500,000 2,913,800,000 2,948,000,000 2,018,000,000
Current Liabilities 8,992,700,000 8,824,200,000 9,196,000,000 8,620,000,000
Quick Ratio 0.32 0.33 0.32 0.23
Liquidity Ratio
Current Assets 7,427,000,000 6,994,200,000 7,181,000,000 6,298,000,000
Current Liabilities 8,992,700,000 8,824,200,000 9,196,000,000 8,620,000,000
Current Ratio 0.83 0.79 0.78 0.73
Working Capital -1,565,700,000 -1,830,000,000 -2,015,000,000 -2,322,000,000