Financial Performance of a Company Assignment

Question 1
Financial Performance of a Company can be evaluated using a variety of indicators and key ratios. The
analysis given below analyses the key financial performance indicators for the retail divisions of the
Westfarmers viz: Coles, Home Improvements, Department Stores and Office Works.
Growth Indicators
Growth Indicators help in understanding the growth of the Company over the last year. The growth
rations selected below have been selected in order to provide a balanced view of the growth of the
Company, in terms of absolute growth and efficiency. (CPA Australia, 2017)
Growth in Revenues
Growth in revenues is the easiest and the most tangible metric to analyse the growth. Growth in
revenues was calculated as (in AUD) Revenues earned in 2017 - Revenues earned in 2016. (CPA
Australia, 2017) Apart from absolute growth, the percentage growth was also calculated to understand
the impact of growth better. The calculations are given below.
Table 1 Growth in Revenues (in Million AUD) (Year- on -Year)
Retail Business Growth, at actual, in Revenues Growth in Percentage terms
Coles -25 -0.063747864446541
Home Improvement 2015 14.831444133667
Department Stores -118 -1.38367729831144
OfficeWorks 113 5.75356415478615
The Gross Revenues of Coles and the Department Stores divisions were less than the Gross in Revnues in
206 while Home Improvement and Office works managed to grow revenues in 2017. The star performer
was Improvement which showed a 14% growth, year on year.
Growth in Return on Capital Employed
The Return in Capital Employed, calculated in percentage terms, helps understand how efficient a
business operation was in the past year. Calculating the return on capital employed will help understand

whether the business operation became more profitable or less profitable within a given year. (CPA
Australia, 2017)
Table 2 Growth in Return on Capital Employed (in Million AUD) (Year- on -Year)
Retail Business Growth (in Absolute Terms) Growth in percentage
Coles -1.5 -13.3928571428571
Home Improvement -3.4 -10.0890207715134
Department Stores 16.5 217.105263157895
Office Works 1.2 8.88888888888889
: (Wesfarmers Limited , 2018)
Even though Home Improvement grew the most in monetary terms, in terms of efficiency in capital
there has been a decline. This is indicative of growing pains in the Home Improvement Division. On the
other hand, while the revenues of Department Stores shrunk, it became more efficient as there 217%
increase in the return on capital. The efficiency on capital also, grew for Office Works.
Growth in Net Assets
Net Assets can be defined as Assets – Liabilities. The growth in net assets symbolizes an internal growth.
(CPA Australia, 2017)
Table 3 Growth in Net Assets (in Million AUD) (Year- on -Year)
Retail Business Growth (in Absolute Terms) Growth in percentage
Coles -28 -0.659599528857479
Home Improvement 41 1.84104176021554
Department Stores 87 6.11384399156711
Office Works 72 14.7540983606557
: (Wesfarmers Limited , 2018)
Growth in Net Assets was the worst for Coles as net assets declined by 28 million AUD. The net assets of
Office Works showed the highest growth in percentage terms while Department Stores also, increased
their net assets.
Based on the three indicators above, the Department Stores and Office Works divisions performed the
best financially. Office Works grew, in financial terms, without losing sight of efficiency while the
efficiency of Department Stores increased spectacularly. Even though , there was a decline in revenues,

there was an increase in the net assets , implying internal growth. The worst performer was the Coles
division whose financial performance declined on the various indicators. There was an overall loass in
efficiency as well as growth. IF the divisional performance continues in this way, the division may soon
experiences losses. Given that Coles is the biggest retail division among the four, bad performance by
the Coles Division may drag the growth of the entire group.
Other Indicators
There are several other indicators that help understand the financial position of a firm from the point of
view of “going concern” or the ability of the firm to stay in business but are not concerned with the
profit or loss. (CPA Australia, 2017)
Liquidity Ratio
One such ratio is the liquidity Ratio. any liquidity ratio describes the amount of liquid balances that a
firm hols , in order to be able to dispense off its current liabilities or the payments that must be made
within the given year. A low liquidity ratio is dangerous because it can lead to loss of consumer
confidence since the firm will find itself unable to pay off it’s liabilities, in spite of having sufficient
assets. (CPA Australia, 2017)
One of the most commonly used ratios is the “Working Capital Ratio”. It is calculated as
“Working Capital Ratio= Current Assets – Current Liabilities”. (CPA Australia, 2017)
The Working capital ratio for four firms was calculated as below:
Table 4 Working Capital Ratio
Retail Business Working Capital Ratio
Coles 4.97997644287397
Home Improvement 2.9690166142793
Department Stores 2.76036542515812
Office Works 2.87090163934426
Source: (Wesfarmers Limited , 2018)

The Working Capital ratio was the highest for Coles. All other retail business must focus on increasing
their working capital since they are all below 30%.
Question 2
The term business sustainability encompasses several aspects. Sustainable businesses must be
built upon three pillars or the “Triple Bottom Line”. as introduced by John Elkington in 1994.
(Hindle, 2009) . The term encompasses three aspects of Financial, Environmental and Social .
sustainability. Financial sustainability has been discussed in the question. It includes the ability
of a business to manage its financial goals while staying in business. Modern firms, however,
have added responsibilities as members of the society and seek to add net value to the society.
The two other important considerations are mentioned below:
Environmental Sustainability: Environmental sustainability often related to policies and
processes regarding action against contamination, reduction of carbon footprint, energy and
water saving and conservation of resources.
Recycle and Reduce: All the four retail business are introducing processes to reduce their
wastage through the reduce and recycles strategy while also, helping customers to do the same.:
For example, Bunnings has a collection program to collect recyclable waste among communities
that it operates in. Officeworks has adopted the Australian recycling label that makes it easier for
customers to recycle the packaging of their product. (Wesfarmers Limited, 2018)
Energy savings: All the four retail businesses have placed an increased emphasis on energy
saving which will ultimately help in reduction of the carbon footprint of the firms. Target, for
example, has detailed goals regarding energy savings. A joint plan for natural resources
conservation has also been adopted by the four business. (Wesfarmers Limited, 2018)
Sustainable Agriculture: Coles, has policies that promote sustainable agriculture by providing
support to farmers via technological help. Similarly, many divisions of these four businesses
have adopted recyclable packaging. (Wesfarmers Limited, 2018)
Social:

The Social aspects relate to and ensuring that all practices are aligned towards creating a better
society and community. (Hindle, 2009)
People: Social Sustainability begins with “people”. It involves ensuring that the employees and
contractors are being treated without bias, in hiring or in promotion. Policies regarding reducing
or removing gender pay gap have been instituted by all the four firms. The people aspect also
related to ensuring that safety standards for workers are being met. All the four firms have
additional non-mandatory policies such as “‘Mind Your Health program” by Coles which provides
online resources for mental health awareness. (Wesfarmers Limited, 2018)
Inclusivity and Diversity: All four firms have placed an emphasis on increasing inclusivity and
diversity within the Employment of Indigenous people and partnerships with indigenous people
helps the retail business close some in equality within the society. (Wesfarmers Limited, 2018)
Ethical Sourcing: Placing an emphasis on transparency in supply chain by the four Companies have
instituted policies regarding ethical sourcing. For example, Office works has a program for sourcing
wood fibre responsibly while Coles has a Program called Australia First where it has contracted
Australian Farmers for sourcing of local produce. Sourcing od local produce ensures reduced carbon
footprint and contracting Australian farmers helps boost the local economy. Similarly, ethical sourcing of
wood fibre ensures that illegally obtained timbre is not being sold by Officeworks. (Wesfarmers
Limited, 2018)
Partnerships with non-profits: All the four firms have partnerships with non-profits that help them reach
out to the underprivileged.
Business Sustainability would be achieved better if efforts towards financial, environmental and social
sustainability are extra of the business operations but should be ingrained within the operations. Efforts
such as introduction of recyclable packaging, promotion of sustainable farming and ethical sourcing
achieve that. Additionally, each of these businesses have targeted, goal oriented, comprehensive action
plans to achieve business sustainability goals. Hence, the business sustainability efforts of the retails
businesses of Westfarmers should be rated highly. (Wesfarmers Limited, 2018)
Question 3
a) Adjustment Entries

Table 5 Adjustment Entries
Particulars Debit Credit
1 Inventory expenses Inventory (dr) $99 000
2 Depreciation Expense (cr)
Accumulated Depreciation
160000
160000
3 Wages expense (dr) 2000
4 Allowance for Doubtful Debts Expense
(dr)
550
Narration
1) Adjustment 1: Inventory Adjustment
 Expenses (Inventory Expense is increased)
 Assets Inventory is Decreased
2) Adjustment 2: Depreciation
 This is a deferral Adjustment Entry
 20% of $80000 is $16000
3) This is an accrued expense. Hence, it is a liability. Hence, it will be credited.
4) This is a contra asset. However, the entry is an expected. reduction Hence, it is a debit.
b) Income Statement
Table 6 Income Statement For Year Ended 31st May 2018
Annual Income Statement
(in millions, except per share amounts)

Year
Ended
31st
May
2018
Revenue:
Sales
503200
Other (
25 year mortgage on Land & Buildings )
210000
Total revenue 713200
Cost of revenue:
20500
0
Gross margin 298200
Income before income taxes 298200
Provision for (benefit from) income taxes 0
Net income 298200
c) Changes in Owner’s Equity
Table 7 Change in Oneer's Equity
Income earned during the
period 503200
Losses incurred during the
period 0
Owner contributions during the period 190000
Owner draws during the period 26 000

d) Balance Sheet
Table 8 Balance Sheet
Balance Sheet (in million AUD, unless share
price)
,
Year ended
31st May
2018
Assets
Current assets:
Land and buildings 300000
Motor Vehicles net of accumulated
depreciation 64000
Total cash, cash equivalents, and short-term
investments 66 200
Accounts receivable, net of allowance for doubtful
accounts 10,450
Owner’s Capital 190000
Inventories 99000
Bank 33000
Total current assets 161,031
equipment, 24,809
Operating lease right-of-use assets
210000
Loan 6,083
Total assets $249,097
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
6600
0
Short-term debt
2000
0
Accrued compensation 22000

Securities lending payable 3000
Advertising Expense 5000
Drawings 26000
Total current liabilities 51,615
Total liabilities 193615
Closing Balance 345835
Closing entries
Table 9 Closing Entries of Expenses
General Journal (Expenses)
Account Title Explanations Debit Credit
Land and buildings 30000
0
Motor Vehicles 64000
Inventory 99000 101 000
Cost of goods sold
Land and buildings
Vehicle expense 100 000
Rent expense 36 000
Wages expense 37 000
Bank 33000
Advertising expense 5000
Interest repayments
on mortgage
3000

Accounts
Receivables
11000
Petty Cash 200
Equipment 54000
Drawings 26000
Table 10 Closing Entries of Revenues
General Journal (Revenue) (Income Statement)
Account Title Explanations Debit Credit
Sales 503 200
6 month loan – S.
Sandy
25 year mortgage on
Land & Buildings
20 000
210
000
Accounts Payable 66
000
Capital –
Doug
190
000
Table 11 Closing Entries of Depreciation
General Journal (Depreciation) )(Amount in AUD)
Account Title Explanations Debit Credit
Depreciation Expense (cr) Depreciation on
motor vehicles
160000
Accumulated Depreciation 160000
References
CPA Australia. (2017). Financial Accounting and Reporting Study Guide (Seventh Edition). Retrieved from
CPA Australia: https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/
cpaprogram/foundation-exams/farr-study-guide-seventh-edition.pdf?la=en