Finance For Business - Assignment

FINANCE FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Description of operation and comparative advantages of listed companies.......................1
2. Calculation of financial ratios and comparison of performance of organisations..............2
3. Analysing monthly share prices movements of companies in past three years...............15
..............................................................................................................................................15
4. Factors influenced the share prices...................................................................................16
5. Computation of beta values and Expected Rates of Return using the CAPM model......17
6. Discussing dividend policies implemented by organisations...........................................18
7. Recommendation letter to client for investing in portfolio..............................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
In context of business unit, manager plays a vital role in decision making which makes
contribution in the growth and development. For this purpose, manager undertakes several tools
and techniques which provides assistance in taking profitable financial decisions. For this project
report, Myer Holdings Ltd has been selected which offers retail products or services to the
customers. Product portfolio of Myer Holdings Ltd include women’s, men’s, babies clothing &
accessories, homewares etc. In relation to this, present report will provide deeper insights about
the extent to which financial position and performance of Myer Holdings Ltd is good over rival
firm namely Wesfarmers Ltd. Further, it will shed light on the share price movements of
companies which in turn will be considered for investigation purpose for investors maintaining
their portfolio. CAPM model helps in assessing required rate of return calculation. Along with
this, report also presents dividend policies which are framed and introduced by higher
management team.
1. Description of operation and comparative advantages of listed companies
Wesfarmers Ltd is one of the biggest company of Australia having diversified businesses
and big name in retail industry. It has been operating since 1914 in Western Australia as a
farmers' cooperative and has grown into conglomerate company listed on ASX. It operates in
Australia, Bangladesh, Ireland, UK and New Zealand having good performances in all its
worldwide areas and able to earn higher amount of profits quite effectively. It has acquired
various companies such as Coles Group, Bunnings Group, Liquorland, Kleenheat and other
subsidiaries collectively providing quality goods and services to customers. In 2001, Wesfarmers
Ltd became public listed organisation and ending cooperative ownership and then it began to
acquire other profitable firms for enhanced operations (Who we are, 2018).
It has been reported in half-year financial statements ended on 31 December 2017 that
organisation observed 54.2 % decline in EBIT to $1.1 billion. The decline in operations were
mainly identified because of poor market performance of Coles Supermarkets which is a leading
profit generator in its overall earnings. The reasons such as lower financial services profits
particularly in sale of credit card receivables, reduction in fuel earnings etc. The operations of
Wesfarmers Ltd include supermarkets, hotel and convenience shops, liquor, supplies to office,
1

home improvement, department stores. Moreover, businesses in energy, chemical, coal and
industrial safety products etc are also handled by company.
Myer Holdings Ltd has been operating since 1900 and founded by Sidney Myer. It is
engaged in department store business with approximately 60 stores in Australia with
merchandise in 11 item categories such as Womenswear, Menswear, apparels, beauty,
homewares, electrical goods, footwear, handbags, fragrances and cosmetics etc. It has various
brands such as TOPSHOP TOPMAN, Seed, French Connection, Mimco and Jack and Jones etc.
which helps to earn profits. The comparative advantage of Myer Holdings Ltd can be explained
such as it is engaged in retail department store which have diversified products. Furthermore, it
has created sustainable point in price and value. Thus, it is easily targeting markets of Australia
by having good profits in hand. While, Wesfarmers Ltd has major competitive advantage as it is
engaged in conglomerate business and caters to demand of customers by delivering quality
services. It is ahead of Myer Holdings Ltd in terms of businesses as it has acquired plenty of
divisions leading to more market share and increased operations.
2. Calculation of financial ratios and comparison of performance of organisations
Financial Ratios
Wesfarmers
Ltd
Myer
Holdings
Ltd
Particulars Formula 2017 2016 2015 2017 2016 2015
Profitability ratios
Net profit
margin(%)
Net Profit /
sales 4.22 0.62 3.93 0.46 2.18 1.08
Gross profit
margin(%)
Gross
Profit / sales 31.8 30.5 30.7 45.8 45.1 46.1
Return on Assets Net Profit / 7.1 1 6.09 0.64 3.23 1.56
2

(ROA)(%) total assets
Return on Equity
(ROE)(%)
Net Profit /
Total equity 12.25 1.71 9.61 1.1 6.14 3.4
Liquidity ratios
Current ratio
Current
assets /
Current
Liabilities 0.93 0.93 0.93 0.88 0.92 1
Quick ratio
Liquid
assets /
Current
liabilities 0.25 0.21 0.22 0.1 0.14 0.14
Efficiency Ratios
Inventory turnover
ratio
Cost of
goods
manufacture
d / Average
inventory 7.25 7.74 7.95 3.7 3.93 3.94
Receivables
Turnover ratio
Credit
sales /
52.56 53.9 56.64 305.92 350.22 573.34
3

Average
trade
receivable
Asset turnover
ratio(%)
Sales / Total
assets 1.68 1.61 1.55 1.4 1.48 1.45
Creditor Turnover
ratio
Credit
purchase /
Average
trade
payable 51.59 49.12 47.39 47.56 45.43 48.23
Capital structure
(leverage) ratio
Debt to Equity ratio
Debt /
Equity 0.17 0.25 0.19 0.13 0.13 0.51
Profitability Ratios-
Net profit margin-
4