Financial Performance of a Company Assignment
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Added on 2021-06-17
Financial Performance of a Company Assignment
Added on 2021-06-17
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Question 1Financial 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 IndicatorsGrowth 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 RevenuesGrowth 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 BusinessGrowth, at actual, in RevenuesGrowth in Percentage termsColes-25-0.063747864446541Home Improvement201514.831444133667Department Stores-118-1.38367729831144OfficeWorks1135.75356415478615The Gross Revenues of Coles and the Department Stores divisions were less than the Gross in Revnues in206 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 BusinessGrowth (in Absolute Terms)Growth in percentageColes-1.5-13.3928571428571Home Improvement-3.4-10.0890207715134Department Stores16.5217.105263157895Office Works1.28.88888888888889: (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 AssetsNet 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 BusinessGrowth (in Absolute Terms)Growth in percentageColes-28-0.659599528857479Home Improvement411.84104176021554Department Stores876.11384399156711Office Works7214.7540983606557: (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 IndicatorsThere 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 RatioOne 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 RatioRetail BusinessWorking Capital RatioColes4.97997644287397Home Improvement2.9690166142793Department Stores2.76036542515812Office Works2.87090163934426Source: (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%.
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