Financial Analysis of Woolworths Limited and Wesfarmers in the Retail Industry

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Principal of financial management
By (Name)
Course
Instructor’s Name
Institutional Affiliation
The City and State
The Date

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Executive summary
The paper presents financial analysis of two companies in the same industry. The
companies described are Woolworths Limited and Wesfarmers belonging to the retail industry.
The contribution of the country to these companies through applying the Top-down analysis was
carried out through analyzing how inflation, currency exchange rates, interest rate, and economic
cycle within the country affect these two companies. The bottom-up analysis was also applied in
the paper to analyze the impact of these companies to the country. These companies contribute a
lot to the country, they provide job opportunities to the citizens of the country because of their
tremendous diversity in production of services and goods as well as rising revenue to the
country.
Introduction
Woolworths Limited and WesFarmers are the largest retail business companies in the
industry of retailing within Australia. The Australian Retail business and industry is
characterized with the following; the industry has over 150,000 retail companies or businesses,
these account for 4.1% contribution to GDP and 10.7% employment in the country (Australian
Government 2011). The industry possesses tremendous diversity by; region, competitions within
the sector, retail format, nature of commodities and services provided, and business size. This
industry has faced many challenges and problems in the past. Entry of newly creative global
retailers and online retailing are just now the latest. Some of the challenges faced by the industry
include; the intensified competitions, the industry cannot be favorably compared to other related
industries in overseas countries in productivity terms, and the gap of productivity is always

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widened overtime. The industry is also characterized with operation of retailers under a number
of regulatory regimes which restrict the degree of competitiveness. Some of these restrictions
that mainly need to be addressed include "Zoning and planning restrictions" and "trading hour’s
regulations”. Australia’s online retail business is lagging behind. It's estimated that the
percentage of online retailing is 6% of Australia's retail sales. Therefore comparing online sales
statistics of Australia and those of other countries, other countries are higher.
Wesfarmers on number of financial years has been considered as the biggest company in
terms of revenue through overtaking Woolworths and other retail companies. It’s also considered
to be the biggest private employer within Australia where its employs an estimate of 220,000
employees (Patrick 2016). The company carries out its services within New Zealand, Ireland,
Bangladesh, United Kingdom and Australia. It was founded in 1914 as just a co-operative with
aim or vision of providing merchandise and services to Australian farmers in the west. It
predominantly deals in retailing as the major service but also deals in fertilizers, chemicals,
safety and industrial products as well as coal mining(Greenblatt 2009). The ASX for the
company is WES. The objective of the company is "delivering satisfactory returns to
shareholders through financial discipline and exceptional management of a diversified portfolio
of business".
Considering Woolworths Limited, it’s not a conglomerate like Wesfarmers; it’s the main
retailing company within New Zealand and Australia (Cummins 2017). It is considered to be the
second biggest revenue earner next to Wesfarmers. This group is the largest take away retailer
within Australia. In the 2008 was considered to be among the largest retailers in the world at a
position nineteenth. It has an operating revenue of $55.669 billion employing over 205,000

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employees making it one the largest employers within Australia. The companies ASX is WOW.
Woolworths aim is stated as "Being at the heart of the community and the best loved retailer for
kids, home and family leisure"(Greenblatt 2009). The objective of the company was "Improving
stock turns and optimizing network efficiency while ensuring that its customers are served by
more than 800 stores that are virtually found on every main street across united kingdom-find in-
stock the value-for-money products they have come to expect".
TOP DOWN ANALYSIS.
The environment of retail business industry in Australia is understudy using Top down Analysis
(Investopedia 2018). The retail industry in Australia comprises of products such as Food
retail/grocery, footwear, Durable goods, hardware stores, furniture, Apparel, beauty products,
goods that are durable, and others (IBISWorld 2018). The retail stores include; convenience
stores, supermarkets and hypermarkets, Discounters stores plus home shopping, and other kind
of stores. This industry in Australia has continued to gain momentum being driven by social and
economic developments (Buiter 2009). The very key factors that are responsible for growth of
this industry are the rising population, robust social and economic growth of the state as well as
the increasing purchasing power in the state. The industry was expected to expand at CAGR of
2% between 2013 and 2018 making it the second lowest growth country in retail within the
region of Asia Pacific (Goodhart 2013). CAGR (Compound Annual Growth Rate) is referred to
as the average annual rate of growth of investment with in a country over a given long time
period of over one year. Australia is characterized with a flexible market which suddenly rises
and falls. In the past years there were low interest rates within the country thus giving a relief to
the industry (Goodhart 2013). Interest rates is defined as loan proportion charged in interest