Financial Analysis of Wesfarmers

The report sheds light on the financial analysis of Wesfarmers, including the company's annual report, financial statement analysis, and recommendations for future activities. It discusses the importance of the annual report, consolidation and conversion procedures, asset and liability valuations, and financial discrepancies. The report also provides a comparison of the report and analyzes the income statement, cash flow statement, and balance sheet. Overall, it offers a comprehensive understanding of Wesfarmers' financial performance.

Running head: FINANCIAL ANALYSIS OF WESFARMERS
Financial Analysis of Wesfarmers
Name of the student:
Name of the University:
Author’s Note

1
FINANCIAL ANALYSIS OF WESFARMERS
Executive summary
The report shed light on the financial analysis of the Westfarmers. For the purpose the report
has undertaken an analysis of the Westfarmers annual report. The report has identified the
content that are mentioned into the annual report. The report identified the requirement of
analysing the financial statement for the shareholders and the investors. The report identifies
the evidences of the benefit and allowances. The report also identifies the income and
expenditures mentioned into the income statement. The report explains the financial
statement analysis and understanding the decline the report provides recommendation over
their performance. The report also identifies that there is no material statement and lastly the
report draws attention towards the foot note that are given into the annual report.

2
FINANCIAL ANALYSIS OF WESFARMERS
Table of Contents
Introduction................................................................................................................................3
Part A.........................................................................................................................................3
Dissemination of Annual Report............................................................................................3
Importance of Annual Report.................................................................................................3
Annual Report........................................................................................................................4
Consolidation and Conversion...............................................................................................5
Asset and Liability Valuations...............................................................................................5
Financial Discrepancies.........................................................................................................6
Available Benefits and Allowances.......................................................................................6
Income and Expenditure........................................................................................................6
Financial Summary................................................................................................................6
Business Activities.................................................................................................................7
Comparison of Report............................................................................................................7
Part B..........................................................................................................................................8
Financial Statement Analysis.................................................................................................8
Accounting Terms..................................................................................................................9
Conclusion................................................................................................................................10
Reference..................................................................................................................................11
Appendices...............................................................................................................................13

3
FINANCIAL ANALYSIS OF WESFARMERS
Introduction
An annual report is a comprehensive report that are intended to give information to
the company shareholders and the investors about the company’s activities and financial
performance throughout the preceding year. Therefore, the report focuses on analysis of the
annual report where the financial data presented by the company is analysed.
Part A
Dissemination of Annual Report
The Annual report has been disseminated to the shareholders and the investors of the
Wesfarmers
Importance of Annual Report
The annual report presented by the Wesfarmers Company is needed for analysing and
identifying the growth and the performance of the company. This gives an impression of the
company’s corporate strategy where the shareholders and investors get knowledge over their
investment return. The annual report contains the financial statement such as income
statement which gives idea on the company net profit after incurring all expenses. The
company’s profitability position, cash flow statements provides an idea about the company’s
financial performance. It also reflects the efficiency of the management in utilizing the assets
of the company and the earning capability from company’s different activities undertaken.
Finally, the balance sheet which gives idea on the company’s financial position reflecting the
assets & liabilities and the net worth of the company. The financial data and information
presented by the company is further taken into consideration for the purpose of investment
evaluation by the shareholders of the company. These information helps the recipients to
understand the return on investment and the company’s ability in paying dividends (Kirklin et
al., 2013).

4
FINANCIAL ANALYSIS OF WESFARMERS
Annual Report
The Annual Report of Wesfarmers contained the following information:
 Overview: The overview includes the introduction of company in the field of
operations it undertakes and their objective overview, performance overview,
overview on chainman’s massage and directors’ report, leadership team, company
group structure.
 Operating and financial overview: The business for the company is segmented into
two different category broadly retail business and industrial activities.
o Retail business: The retail business provides information on the company’s
retail store stores and their financial information, office works (Zolnowski,
Weiß & Böhmann, 2014).
o Industrial: Information on the company core business. Such as Westfarmer’s
Chemicals, energy and fertilizer, resources (Brennan, 2014).
 Sustainability Report: This gives information on company’s suitability strategy.
This contains the current year’s sustainability report. The company’s social
involvement, PR activities and social activities are mentioned here.
 Corporate governance: This gives an overview on the company’s corporate rules
and principles into the management, Accounting policies and company structure. The
transparency policies into the company’s work process that are being followed by the
Westfarmers (Armstrong et al., 2015).
 Director’s Report: The director’s report includes the remuneration report. The
directors are responsible to present their report with respect to the company’s affair, to
any reserve and dividend, material changes, conversion of energy, Foreign exchange
earnings and the technology absorption (Reetz, Krylowicz & Mistler, 2014).

5
FINANCIAL ANALYSIS OF WESFARMERS
 Financial Statement: The financial statement includes the income statement, cash
flow statement, Balance sheet and the statement of change in equity.
 Shareholders’ Information: shareholders present into the company their capacity
into the company, investor’s information, five years financial information as per ASX,
Westfarmer’s brand and corporate directory.
Consolidation and Conversion
The operations of the company is primarily based in New Zealand and Australia
where NZD dollars is the functional currency for the company and the AUD is the Reporting
currency for the company. Thus, the annual report has indicated towards the conversions and
the consolidation procedure for proper analysis of the financial data.
The financial statement of the subsidiary company of the Westfarmer has been
prepared for the same period as per the similar accounting policies of the parent company.
While preparing the consolidated statement all intercompany balances and transactions,
income and expenses and the profit and losses that are resulting from the intergroup
transaction are being eliminated.
The conversion has been done from the New Zealand currency dollar from the
Australian dollar. The functional currency has been changed into the reporting current as the
report has been represented into the AUD value. As a result of the operation into the New
Zealand, the consolidated balance also gets effected with the movement in the AUD/NZD
exchange rate.
Asset and Liability Valuations
Except corporate bonds, the long term debt instruments are valued using quoted
market price and dealer quotes. The fair value of corporate bond held at fair value has been
calculated through discounting the expected future cash flow at prevailing interest rates using

6
FINANCIAL ANALYSIS OF WESFARMERS
market observable inputs. The fair value method has been followed to value the assets and
liability. The fair value has been calculated through identifying quoted price in the active
market. The other method of calculating the fair value is done through estimating the fair
value using inputs for assets and liability which are not based on observable market data
(Wesfarmers.com.au, 2019).
Financial Discrepancies
No there is no such material financial discrepancies and unusual feature been notified.
There was no material misstatement or queries in the same context were observed in the
annual report or the audit report presented.
Available Benefits and Allowances
The benefits such as health insurance, accidental benefit and dismemberment benefit,
long term disability benefit has been identified as the allowances and benefits that were
granted to the employees of the company.
Income and Expenditure
Yes the organization has recorded details on their income and expenditure in income
statement and that the relevant transaction details in the same context were explained in the
footnotes of the company.
Financial Summary
The current ratio has shown a value a reduction in the year 2018 compared to the
previous year. This means that the company has realised more debt in the current year which
has reduced their current ratio below 2:1 (Wesfarmers.com.au 2018).
The return on equity also shown a reduction into the performance as the net profit has
reduced in the current year. This reefers to the possibility of reduction in return on
investment.

7
FINANCIAL ANALYSIS OF WESFARMERS
Lowering the debt to equity refers to the increase in the equity fund. Hence, this has
been recognized that Westfarmers has reduced their debt to equity ratio compared to previous
year which means the company is using less leverage and has a strong equity position.
The net profit has provided a value which is more than 1. However, if the comparison
is done with the previous year, this can be seen that the company has earned lesser amount of
net profit which resulted in comparatively lower net profit ratio.
Business Activities
Recommendation for Wesfarmers Company for the upcoming year activities:
 Reduction into the current assets which has reduced the possibility of meeting current
liability and enhanced the possibility of realising short term debt. Hence, this has been
recommended that the company needs to focus on their cash generation activities and
mainly into the investing activities which would help the Westfarmers to increase the
liquidity position (Panigrahi, 2014).
 The company needs to reduce their operating expenses as to increase the net profit for
the company. The adoption of the Activity based accounting would help the company
to identify and reduce cost of production and would enhance the profitability
(Andersson & Titov, 2014).
Yes the report has presented logical value based on practical information shared by
company members and reviewed under auditor.
Comparison of Report
The final report has been done through following Australian audit standard and
Accounting standard under AASB framework. The Australian audit standards under section
336 of corporate act 2001has been followed. Schedule 6 has been followed into the
representation of balance sheet. For the financial statement representation the AASB 101 has

8
FINANCIAL ANALYSIS OF WESFARMERS
followed properly into the annual report. This has been done through complying IAS 1
(Aasb.gov.au., 2019). Income statement has shown a difference in the revenue. This has
created difference in net profit. The operating expenses of 2017 audit report has realised a
difference of $3308 Million.
Part B
The annual report of the company containing the relevant financial and operational
details are attached. (Appendix 1)
Financial Statement Analysis
 Income statement: The income statement has shown a growth of 2.94% in revenue in
the year 2018 compared to 2017. The expenses for raw material and inventories has
increased the overall operating expenses in the current year. The EBIT has reduced by
2.85%. The net profit has decreased by 140% compared to previous year, this is
recognized to be the highest drop into Westfarmers’ performance (Guay, Samuels &
Taylor, 2016). The decrease in net PAT has occurred because of the increase in the
operating expenses in the current expenses (Christiawan & Rahmiati, 2015).
 Cash flow statement: The cash flow statement has generated less amount of cash in
the year 2018 from their operating activities. The company has shown a decrease of
3.57% compared to previous year. Under the operating activity the payment to
supplier and income tax payment has increased. The cash flow from financing activity
has shown a negative value on earning as the segment realises more expenses over the
income. Under the investing activity the equity dividend payment has increased by
20.96%. The investing activity has realised a negative value although the proceeds
from borrowings have realised an increase of 68.20%. The cash balance realised at the
end of the year has been recorded at $683 million which is reduced compared to $
1013 million in 2017 (Robinson et al., 2015).

9
FINANCIAL ANALYSIS OF WESFARMERS
 Balance sheet: The balance sheet has shown a reduction in the current assets 11%. As
a result of which there is reduction of company’s ability to meet short term
obligations has been notified. The reduction in the liquidity position has been noticed
with the reduction in cash balance. The reduction of 7.8% in the fixed assets has been
notified. The current liability has shown a 3.91% reduction. While at one hand the
current assets has reduced by 11% with the reduction in current liability only by
3.91%, this has enhanced the possibility for the company to realise debt for not having
appropriate liquidity in to the company account. The issue of equity share has
increased although the total equity has realised has realised a reduction with the
reduction in the retained earnings in the current year by 757% in 2018 compared to
2017 (Bobryshev et al., 2014).
Accounting Terms
The common accounting terms that were used by the management of the company
while presenting the annual reports of the company were as follows:
 Tax Expenses: 30% tax has been calculated to identify the taxable amount and this
has been calculated to identify the PAT through deducting this from EBIT. As the
company is having their headquarter into the Australia and the audit has been done
based on following the Australian audit principles, the tax has been calculated based
on the percentage of tax on public limited company.
 Goodwill and Intangible assets: The Company has provided note on the goodwill.
The goodwill has been recognized as an intangible assets as this does not have a
physical presence but this represents a portion of entire business value which cannot
be attributed to other income proceeding business assets.
 Revenue Recognition: The revenue recognition has been done based on AASB 15.
Based on the Australian accounting principle the revenue has been recognized when a

10
FINANCIAL ANALYSIS OF WESFARMERS
critical event has occurred and the measurable amount of revenue has been
recognized. The revenue recognition has been recognized when the good or service
has been delivered or rendered. This does not relate to the matter when cash is
received. Further the revenue is recognized when they are realizable (McCarthy &
McCarthy, 2014).
Conclusion
The report has shown an importance of analysing the financial report. The report has
shown the requirement of analysing the annual report. This includes the analysis of the
financial statement of the Wesfarmers. The report has shown the content that are present in
the annual report. The report has answered different question through which the company’s
profitability and the company’s position has been identified. The report has provided a
recommendation through identifying the company’s profitability. Finally the report has
provided idea on the company financial performance through analysing the financial
statement of the company.

11
FINANCIAL ANALYSIS OF WESFARMERS
Reference
Aasb.gov.au. (2019). Australian Accounting Standards Board (AASB) - Home. Retrieved
from https://www.aasb.gov.au/
Andersson, G., & Titov, N. (2014). Advantages and limitations of Internet‐based
interventions for common mental disorders. World Psychiatry, 13(1), 4-11.
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate
governance, incentives, and tax avoidance. Journal of Accounting and
Economics, 60(1), 1-17.
Bobryshev, A. N., Uryadova, T. N., Lyubenkova, E. P., Yakovenko, V. S., & Alekseeva, O.
A. (2014). Analytical and management approaches to modeling of the accounting
balance sheet. Life Science Journal, 11(8), 502-506.
Brennan, R. (2014). Business-to-business Marketing (pp. 83-86). Springer New York
Christiawan, Y. J., & Rahmiati, A. (2015). Earnings Management of Firms Reporting Long
Term Debt: An Alternative Method. Jurnal Akuntansi dan Keuangan, 16(2), 113-120
Guay, W., Samuels, D., & Taylor, D. (2016). Guiding through the fog: Financial statement
complexity and voluntary disclosure. Journal of Accounting and Economics, 62(2-3),
234-269.
Kirklin, J. K., Naftel, D. C., Kormos, R. L., Stevenson, L. W., Pagani, F. D., Miller, M. A., ...
& Young, J. B. (2013). Fifth INTERMACS annual report: risk factor analysis from
more than 6,000 mechanical circulatory support patients. The Journal of heart and
lung transplantation, 32(2), 141-156.

12
FINANCIAL ANALYSIS OF WESFARMERS
McCarthy, M., & McCarthy, R. (2014). Financial statement preparers' revenue decisions:
Accuracy in applying rules-based standards and the IASB-FASB revenue recognition
model. Journal of Accounting and Finance, 14(6), 21.
Panigrahi, D. (2014). Relationship of working capital with liquidity, profitability and
solvency: a case study of ACC Limited. Asian Journal of Management
Research, 4(2), 308-322.
Reetz, D. R., Krylowicz, B., & Mistler, B. (2014). The association for university and college
counseling center directors annual survey. Aurora, 51, 60506.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. Hoboken: John Wiley & Sons.
Wesfarmers.com.au. (2018). Annual Report. [online] Available at:
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-
annual-report.pdf?sfvrsn=0 [Accessed 23 Mar. 2019].
Zolnowski, A., Weiß, C., & Böhmann, T. (2014, January). Representing Service Business
Models with the Service Business Model Canvas--The Case of a Mobile Payment
Service in the Retail Industry. In 2014 47th Hawaii International Conference on
System Sciences (pp. 718-727). IEEE.

13
FINANCIAL ANALYSIS OF WESFARMERS
Appendices
Appendix 1
Figure 1: Income statement
(Source: Wesfarmers.com.au. (2018)

14
FINANCIAL ANALYSIS OF WESFARMERS
Appendix 2
Figure 2: Balance sheet
(Source: Wesfarmers.com.au. 2018)

15
FINANCIAL ANALYSIS OF WESFARMERS
3) Ratio Analysis
Particulars 2018 2017
Current Assets 8706 9667
Current Liabilities 10025 10417
Current Ratio = Current Assets/ Current Liabilities 0.87 0.93
Net Profit 1197 2873
Equity Shareholder's Capital 22574 23941
Return on Equity = Net Profit/ Equity
Shareholders 5.30% 12.00%
Total Long Term Interest Bearing Debt 2965 4066
Equity Shareholder's Capital 22574 23941
Debt to Equity Ratio= Debt/Equity 13% 17%
Net Profit 1197 2873
Revenue 66863 64913
Net Profit Margin = Net Profit/ Revenue 1.790% 4.426%