Financial Analysis of Wesfarmers: Profitability, Liquidity, and Efficiency Ratios

This article analyzes the financial performance of Wesfarmers using profitability, liquidity, and efficiency ratios. It also discusses the company's corporate social responsibility initiatives. The profitability ratios indicate that the company is making a profit, while the liquidity ratios suggest that the company is able to repay its obligations with available resources. The efficiency ratios indicate that the company is managing its resources effectively. The article also discusses the sustainability initiatives of Wesfarmers and its subsidiaries, including Coles, Bunnings, Kmart, and Office Works.

Accounting

Table of Contents
Question 1...................................................................................................................................................2
Profitability ratios....................................................................................................................................2
Liquidity ratios........................................................................................................................................3
Efficiency ratios......................................................................................................................................4
Question 2...................................................................................................................................................5
References...................................................................................................................................................8
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Question 1
The financial statement is considered to be the primary aspect to provide a key insight into the
financial performance of the company over the particular accounting year. The financial
statement of the company consists of the three basic elements which are income statement,
balance sheet, and cash flow statement. The three basic financial statement helps to provide a
clear and precise idea about the company Wesfarmers financial position in the market. The
company financial statement helps to provide the platform to calculate the key financial ratio and
thus helps the company to take effective decision related to the company. The financial ratio
consists of the profitability ratio, liquidity ratio and efficiency ratio (Britton & Waterston, 2013).
The profitability ratio helps to determine the ability of the company to analyze and evaluate the
overall performance of the company related to the asset management. Liquidity ratio helps to
provide a clear and precise idea of the company able to pay its short-term obligation which
eventually leads to determine the key business risk related to the company. Finally, the efficiency
ratio helps to effectively analyze the overall ability of the company to manage its resource
effective which determine the overall revenue earning. Profitability ratio is considered to be the
most important aspect which helps to provide a clear idea of the overall operational and their
respective performance with the available resource (Shim & Siegel, 2008).
Profitability ratios
Profitability ratio is considered to be the primary measure to analyses the overall ability of the
business to determine and analyses the ability to earn a profit for its owner. The profitability ratio
calculate are net profit margin, return on asset and return on equity. The net profit margin is
considered to be increasing with the gradual increase in the year (Needles & Powers, 2012). The
net profit margin is considered to be increasing which suggest that the company is making a
profit for the two consecutive years.
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Profitability 2016-
06
2017-
06
Net Margin % 0.62 4.22
Return on Assets % 1 7.1
Return on Equity % 1.71 12.25
Return on asset and return on equity is considered to be increasing with the gradual increase of
the consecutive year. In the year 2016 and 2017, the return on asset and equity of the company is
increasing exponentially. The high value of return on asset and return on equity is considered to
be favorable for the company and the value of the return on asset and equity of the company is
increasing and high for the year 2017.
Liquidity ratios
Liquidity ratio is considered to be the primary aspect to determine the key business risk which is
related to a company such as solvency risk and liquidity risk. The ability to repay the obligation
with the available resource has been depicted. The key liquidity ratio is a current ratio, quick
ratio, and debt/equity ratio. The current ratio, quick ratio, and debt-equity ratio are considered to
be one which suggests that the company is able to repay its obligation with the available resource
(Porter & Norton, 2017).
Liquidity/Financial Health 2016-
06
2017-
06
Current Ratio 0.93 0.93
Quick Ratio 0.21 0.25
Debt/Equity 0.25 0.17
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The current ratio of the company is near to one which suggests is the company is able to meet its
current obligation. On the other hand, the company quick ratio suggests that the company is not
able to meet its short-term obligation with the fixed asset available. The company is susceptible
to solvency risk based on the value calculated as per the quick ratio (Northington, 2011). The
current ratio and quick ratio of the company is considered to throw key insight on the company
long-term solvency issues which need to be taken care off based on the value. The current ratio
and quick ratio of the company is considered to be a key business risk as per the analysis the
company is not able to utilize its resource efficiency, this will certainly lead to the solvency risk
in the coming fiscal year. Debt to equity ratio is considered to be providing a key insight of the
ability to manage this resource with the available current asset (Shim, Siegel & Shim, 2012).
The company debt/equity ratio is considered to be playing a pivotal role in determining the
future perspective of the company. The debt/equity ratio is also known as the leverage ratio and
the overall capital availability is depending on the company key statistics. The debt/equity ratio
of the company is below one and it is fatal for the company as it increases the chances of the
solvency risk of the business Wesfarmers.
Efficiency ratios
Efficiency ratio of the company is considered to be providing the key insight of the company
able to manage its resource efficiency. On the basis of the analysis of the company key statistics,
the overall effective management of the resource is analyzed. The company days' sales
outstanding which need to be higher to reflect that the company is managing its resource
effectively is considered to be providing a positive indication (Khan & Jain, 2007). The value of
payable period needs to be high which shows that the company is effectively managing its lender
and is payable. The receivable turnover ratio is considered to be higher and its favorable for the
company, from the analysis of the company receivable turnover the ratio, suggests that the
company is effectively managing its resource (Shapiro, 2014). Inventory turnover ratio suggests
that the company is good in managing its inventory and no such shortage or overflow of the
stock is occurring. Asset turnover ratio is considered to be higher and the value of the company
asset turnover is reflecting the positive sign for the company in long run.
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Efficiency 2016-
06
2017-
06
Days Sales Outstanding 6.77 6.94
Payables Period 49.12 51.59
Receivables Turnover 53.9 52.56
Inventory Turnover 7.74 7.25
Asset Turnover 1.61 1.68
Question 2
The company Wesfarmers has followed the corporate social responsibility in order to achieve
sustainability and ensures positive impact of the business operation on people and environment.
Coles supplies fresh groceries, food, fuel, liquor, and food through the online channels and store
network to more than twenty million customers. The material issues focused on by Coles are
Australian supplier and sourcing engagement, community support and partnership, economic
contribution, product safety and quality, ethical and responsible sourcing, decreasing the
environmental impact, health and safety and career diversity and development (Sawa, Iai &
Ikkatai, 2011). The section is committed to the development of a collaborative and strong
relationship with the growers, producers, and farmers. Coles is rolling out the application based
program for supporting the suppliers for improving the sustainability through traceability,
employee training and monitoring of environmental performance. Coles also supports the
transparency all around the origin of the products. Cole also supports local and national charities
with fundraising, distaste relief, financial contribution, and fundraising. It also supports the
economy of Australia and assists the small businesses. The qualities of the products are
maintained in ensure health safety of the people (Sustainability Report, 2017). Cole is focused on
achieving better health results and responsible service of the alcohol. Cole follows ethical rules
by decreasing the human right issues in the supply chain and focused on the animal welfare. Cole
has also invested to decrease the emission of greenhouse gas, recycling, improving the waste
reduction and efficiencies in the supply chain. Coles provides jobs to the indigenous population
and also supported workplace diversity. Cole has engaged a large number of employees which
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leads to increase the production. Coles has been maintained a balance in the positions of
leadership within the business. Women are also provided with the opportunity to develop and
participate in the different program. The sustainability is appropriately maintained by Coles.
Bunnings is considered as the leading retailer of outdoor living products and home improvement
in New Zealand and Australia and the major supplier to commercial tradespeople, housing
industry, and project builders. Bunnings has provided support to the communities by contributing
to regional, national and local causes, organizations and charities throughout New Zealand and
Australia (Avadhani, 2010). The team members collaborate the government stakeholders on
national and state awareness initiatives. The ethical procedures are followed such engagement
with the suppliers for ensuring high safety standards. Bunnings also integrate the sustainability
through the business operations consisting of selling fewer wastes to landfill. The energy
efficiency methods are also focused on by Bunnings. Bunnings has maintained the sustainability
in an appropriate manner.
Kmart is one of the largest retailers in New Zealand and Australia. The departmental store
network of the company provides a wide range of merchandise products and apparel at a lower
price. The material issue that is being focused on Kmart is energy efficiency, ethical sourcing,
inclusion and diversity, product safety and quality, community contributions, employee safety,
decreasing wastes, and materials. Kmart has established a function for managing and monitoring
the use of energy (Peng., 2013). The health and safety of team are considered and also the quality
of the products. Kmart has also contributed to the society by helping young people with the
supporting programs. The focus is also given to the use of the natural resources and developing
the sustainable material strategy. The ethical rules are followed, wastes are managed. The
employees are provided with the opportunity to grow. The sustainability is appropriately
maintained by Kmart.
The office works are also following the sustainability processes. The safety framework has been
established for ensuring the safety of the team members. The main aim is to promote the choice
of safe work and determination of environmental and human factors. The stores of office work
have contributed around 3 million as a donation to the local community (Griffin, Ebert, Starke,
Dracopoulos & Lang, 2014). The focus has also been given on decreasing the operational impact
on the environment. The workplace diversity is maintained, quality of products is maintained and
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operational efficiencies are also maintained. The sustainability is appropriately maintained by
office works.
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References
Annual Report. (2017). 2017 Annual Report. Retrieved from
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-
annual-report.pdf?sfvrsn=0
Avadhani, V. (2010). Global business. Mumbai [India]: Himalaya Pub. House.
Britton, A., & Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice
Hall.
Griffin, R., Ebert, R., Starke, F., Dracopoulos, G., & Lang, M. (2014). Business. Toronto:
Pearson Canada.
Khan, M., & Jain, P. (2007). Financial management. New Delhi: Tata McGraw-Hill.
Needles, B., & Powers, M. (2012). Financial accounting. Mason, OH: South-Western Cengage
Learning.
Northington, S. (2011). Finance. New York: Infobase Pub.
Peng. (2013). Global Business. Cengage Learning.
Porter, G., & Norton, C. (2017). Financial accounting. Boston, MA: Cengage Learning.
Sawa, T., Iai, S., & Ikkatai, S. (2011). Achieving global sustainability. Tokyo: United Nations
University Press.
Shapiro, A. (2014). Multinational financial management. Hoboken (NJ): J. Wiley.
Shim, J., & Siegel, J. (2008). Financial management. Hauppauge, N.Y.: Barron's Educational
Series.
Shim, J., Siegel, J., & Shim, J. (2012). Financial accounting. New York: McGraw-Hill.
Sustainability Report. (2017). Sustainability Report 2017. Retrieved from
https://sustainability.wesfarmers.com.au/media/2222/2017-Wesfarmers-sustainability-
full-report.pdf
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