Analysis of Financial Statements for Wesfarmers Limited

RUNNING HEAD: BUSINESS FINANCE
Analysis of financial statements

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Contents
Introduction.................................................................................................................................................3
Company’s overview...................................................................................................................................3
Calculation and analysis of performance ratios...........................................................................................4
Short term solvency.................................................................................................................................4
Long term solvency.................................................................................................................................6
Asset utilization.......................................................................................................................................8
Profitability ratios....................................................................................................................................9
Market value ratios................................................................................................................................11
Graphs and comparison of share price movements....................................................................................12
Share valuation..........................................................................................................................................13
Recommendation and Conclusion.............................................................................................................14
References.................................................................................................................................................15

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Introduction
The report talks about the overall analysis of Wesfarmers Limited’s financial performance for
the past two years. The financial statements, share price trends and value of stock have been
analyzed in the whole report. Constant Dividend Growth Rate Model is applied to figure out the
value of company’s stock and then the same is compared to its current share price. It gives a
short overview about the organization selected, featuring its core activities, competitive
advantages and depicting the market in which it works. In the later part, performance ratios or
financial metrics are been computed which reflect the overall performance and position of
Wesfarmers in the past two years that are 2016 and 2017.
The report also presents graphical portrayal and comparison of past share prices with the market
index along with the assessment of organization's stock value. The purpose of the report is to
determine that whether the chosen company is monetary sound or not. In the last, a suggestion
and conclusion is given which summarizes the result of the analysis performed. It gives bits of
knowledge about the financial performance and position of Wesfarmers in 2016 and 2017.
Company’s overview
Wesfarmers Limited is an Australia based conglomerate company which deals in several types of
business consists of supermarkets, office supplies, coal products, fertilizers and many others. The
company was founded in 1914 and is listed on ASX with a symbol ASX: WES. It is considered
as the largest private employer across the country. Wesfarmers operates through segments named
as Coles, Home Improvement, Department stores including Kmart and Target, WIS and
WesCEF and others. The division Coles is a supermarket dealer having more than 770

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supermarkets; Home Improvement provided outdoor living products in Australia and New
Zealand. According to the annual report of 2017, the company has made revenue amounted to
$6.44 billion and profit worth $2.87 billion (Bloomberg. 2018).
The competitive advantage of Wesfarmers is its Kmart division which is delivering products at
reasonable prices and has maintained the style and quality of the services. Moreover, the
company is focused on keeping Coles highly competitive despite of the Woolworth’s billion
dollar investment in prices. In addition the sale of coal and competent float of Officeworks can
deliver more earnings to the company (SMH. 2017). According to the last year report of Deloitte,
Wesfarmers and Woolworths are the only two retailers that appeared in the list of top 250
retailers around the globe. Wesfarmers was ahead of Woolworth because of its constant growth
in Bunning brand and exit of WOW’s Home Improvement segment. The company has one a
major contribution to the retail industry of Australia (Deloitte. 2017). However, as per the report
of KPMG the retail sector of Australia is facing disruption due to the changes in customer
preferences and entrance of overseas businesses with a new approach of retailing. The future of
retail industry requires more multiplicity of delivery platforms to ensure that every requirement
is met. All such can easily impact the performance of Wesfarmers (KPMG. 2018).
Calculation and analysis of performance ratios
Short term solvency
 Current ratio: It is one of the liquidity ratios which determine the probability of the
organization in satisfying its present liabilities by utilizing its current resources. The ideal
ratio is 2:1 which implies that the current assets should be twofold of liabilities in order to
meet all the obligations efficiently and effectively (Saleem and Rehman, 2011).