Financial Ratio Analysis of a Company

The assignment presents a comprehensive financial ratio analysis of an unnamed company over three years (2014-2016). The analysis covers various aspects such as short-term liquidity, efficiency, and cash flow from operations. Specific ratios calculated include the current ratio, quick ratio, inventory turnover ratio, accounts receivable turnover ratio, and cash flow to current liabilities ratio. The data reveals trends in the company's financial performance over the years.

Running head: FINANCIAL REPORTING AND ANALYSIS ASSIGNMENT
Financial Reporting and Analysis Assignment
Name of Student:
Name of University:
Author’s Note:

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FINANCIAL REPORTING AND ANALYSIS ASSIGNMENT
Executive Summary
The study has aimed to provide the evaluation of ratio analysis of Wesfarmers Limited. Some of
the main aspects of the report have considered overview of the company and its operations. This
has been further seen with corporate social and environmental reporting analysis and various
types of the financial ratios such as Efficiency, Short-term solvency, Long-term solvency and
Market-based ratios. The various depictions has shown with a decreasing trend of 4.47% in 2014
to 3.91% 2015 and 0.62% in 2016 in Net Profit. The main overview of the solvency aspect has
been further discerned with Debt to Equity Ratio. This has been seen with degrading condition of
0.53 in 2014 to 0.63 in 2015 to 0.78 in 2016. The profitability aspect of the study has been
considered with the calculated with Net Profit margin, Return on Assets, Return on Equity and
Asset Turnover. The significant decrease in the net profit margin has been evident with 4.47% in
2014 to 3.91% 2015 and 0.62% in 2016. Despite of increasing revenue the decreasing
profitability has been mainly due to the various types of the facts which have seen to be based on
the decreasing profit over the years.

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FINANCIAL REPORTING AND ANALYSIS ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................3
i. Overview of the company and its operations.......................................................................3
ii. Corporate social and environmental reporting analysis........................................................3
Analysis of the company over three years.......................................................................................3
i. Overall results.......................................................................................................................3
ii. Profitability...........................................................................................................................4
iii. Efficiency..........................................................................................................................4
iv. Short-term solvency..........................................................................................................5
v. Long-term solvency..............................................................................................................6
vi. Market-based ratios...........................................................................................................6
vii. Other analyses...................................................................................................................7
Conclusion.......................................................................................................................................7
Recommendations and limitations...................................................................................................8
List of References............................................................................................................................9
Appendix........................................................................................................................................10

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FINANCIAL REPORTING AND ANALYSIS ASSIGNMENT
Introduction
i. Overview of the company and its operations
Wesfarmers Limited headquartered in Perth, Western Australia has been
identified as the leader in terms of producing chemicals, fertilisers and safety products.
The company has been further seen to the private employer and constituting of 205000
employees.
ii. Corporate social and environmental reporting analysis
The social and the environmental measures have been seen with climate change
resilience. Some of this has been further seen to be based in reducing waste to landfill
and using water wherever possible.
Analysis of the company over three years
i. Overall results
The overall result of the analysis of the results has been considered with
profitability ratio, solvency ratio and market based ratio. Some of the various types of the
solvency aspect of the overall result have been discerned in from of the liquidity and
efficiency. Based on the overview of the net profit margin has been seen with a
decreasing trend of 4.47% in 2014 to 3.91% 2015 and 0.62% in 2016. The main overview
of the solvency aspect has been further discerned with Debt to Equity Ratio (Schmidgall
and DeFranco 2004). This has been seen with degrading condition of 0.53 in 2014 to 0.63
in 2015 to 0.78 in 2016. The market based ratio has been seen with price earning ration
and the overall price earnings ratio has been seen with 0.148 in 2014 which has further

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increased to 0.169 in 2015 and the most significant improvement in the price earnings
ratio for the company has been seen with 1.079 in 2016. The overview of the liquidity of
the company has been seen to be discerned in terms of the evaluation of the current ratio.
The cash for the operating activities has been seen to be decreasing in nature with the
various type of the discernment which has been seen as 1.13 in 2014 to 0.93 in 2016. In
addition to this, the efficiency has been identified with increasing Accounts Receivable
Turnover Ratio of 30.67 in 2014 to 40.99 in 2015 to 42.68 in 2016 (Ashraf, Rizwan and
L’Huillier 2016).
ii. Profitability
The profitability aspect of the study has been considered with the calculated with
Net Profit margin, Return on Assets, Return on Equity and Asset Turnover. The
significant decrease in the net profit margin has been evident with 4.47% in 2014 to
3.91% 2015 and 0.62% in 2016. Despite of increasing revenue the decreasing
profitability has been mainly due to the various types of the facts which have seen to be
based on the decreasing profit over the years. In similar fashion the return on assets has
been discerned with 0.06 in 2014 to 0.01 in 2016 (Hidayat and Meiranto 2014). This is
also due to the decreasing profit over the years. Return on Assets has been further seen to
be based on the evaluation of decreasing Return on Equity. This has been seen with
decreasing profitability of 10.34% in 2014 to 9.61% in 2015 and 1.71% in 2016. The
main reason for this has been further seen to be based on the various types of the
depiction which has been seen to be based on decreasing average equity (Jan 2013).

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FINANCIAL REPORTING AND ANALYSIS ASSIGNMENT
iii. Efficiency
The main form of the increasing aspect of the efficiency has been evident with
increasing Accounts Receivable Turnover Ratio of 30.67 in 2014 to 40.99 in 2015 to
42.68 in 2016. The main reason for the increasing Accounts Receivable Turnover Ratio
has been seen with increasing Accounts Receivable and revenue. The other efficiency
aspect has been seen with Inventory Turnover Ratio of 7.76 in 2014, 7.95 in 2015 and
7.74 in 2016. This shows the company has been unable to increase the COGS in
appropriate proportion with average inventory. Hence, based on the evaluation despite
of increasing Accounts Receivable Turnover Ratio the company’s Inventory Turnover
Ratio has decreased significantly (Karim and Alam 2013).
iv. Short-term solvency
The various types of the consideration for the Short-Term Liquidity Ratio
Analysis have been considered with Total Current Assets, Inventory, Total Current
Liabilities and Cash flow from operation. The main consideration for the ratio has been
further seen to be based on the different types of the evaluation of Current Ratio, Quick
Ratio and Cash flow from operations to current liabilities. It has been further discerned
that the company is seen to be having decreasing in nature for the cash for the operating
activities and the same has been seen as 1.13 in 2014 to 0.93 in 2016 in the current ratio
evaluation. Quick ratio of the company has been also seen to be decreasing in nature.
This has been discerned with 0.48 in 2014 to 0.37 to 2015 to 0.33 in 2016. Despite of the
increasing total current assets and inventory the increasing current liability has led to
degrading quick ratio for the company. The cash from the operations to current liabilities

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has been further seen to be decreasing with 0.39 in 2014 to 0.38 in 2015 to 0.32 in 2016
(Zainudin and Hashim 2016).
v. Long-term solvency
The main items of the particulars of the various types of the aspects associated to
the long-term solvency have been considered with Capital Structure Leverage and Debt
to total assets. The various considerations of the variables have been seen with Income
before Interest & Taxes, Interest Expense and equities. The capital structure has been
seen to be increasing with 1.53 in 2014, 1.63 in 2015 and 1.78 in 2016. Some of the
various types of the aspects of the improvement have been further seen to be discerned in
terms of increasing Debt to total assets with 0.34 in 2014 to 0.39 in 2015 to 0.44 in 2016.
The long term solvency has been further discerned with the calculation of Debt to Equity
Ratio. This has been seen with degrading condition of 0.53 in 2014 to 0.63 in 2015 to
0.78 in 2016. Both the total equities and liabilities has led to the declining Long-Term
Stability Ratio (Adu, Marbuah and Mensah 2013).
vi. Market-based ratios
The main form of the variable for the market based ratio has been seen to be
considered based on the EPS, Market value per share, Annual dividend and Dividend
per ordinary share. The different types of the ratios for the market based ratio have been
seen to be based on Price earnings ratio, Earning yield ratio and Dividend yield ratio.
Based on the variations types of depictions it has been seen with increasing Price
earnings ratio of 0.149 in 2014 to 0.17 in 2015 to 1.081 in 2016. The earning yield ratio
has been further seen to decrease with 6.72 in 2014 to 5.89 in 2015 to dramatic decrease
of 0.933 in 2016 (Zaimah et al. 2013). Moreover, as pert the market based ratio the

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dividend yield of the company has been seen to reduce by 1.77 in 2014 to 1.93 in 2015
to 1.48 in 2016. The various types of the other factors of the market based ratio has
shown reducing performance due to decreasing amount of Dividend per ordinary share.
This has been further seen to be discerned as 61.9 in 2014 to 70.82 in 2015 to 58.115 in
2016 (Babalola and Abiola 2013).
vii. Other analyses
The various types of the other analysis have been seen with return on the assets,
return on equity and return on equity. It has been discerned that the total ROA of the
company has reduced from 0.06 in 2014 to 0.01 in 2016. It has been also discerned that
the there is drastic decrease in the Return on Equity with 10.34% in 2014 to 9.61% in
2015 to 1.71% in 2016 (Overview 2013).
Conclusion
The various types of the depiction has been able to show that Net profit margin has been
seen with a decreasing trend of 4.47% in 2014 to 3.91% 2015 and 0.62% in 2016. The main
overview of the solvency aspect has been further discerned with Debt to Equity Ratio. This has
been seen with degrading condition of 0.53 in 2014 to 0.63 in 2015 to 0.78 in 2016. The
profitability aspect of the study has been considered with the calculated with Net Profit margin,
Return on Assets, Return on Equity and Asset Turnover. The significant decrease in the net
profit margin has been evident with 4.47% in 2014 to 3.91% 2015 and 0.62% in 2016. Despite of
increasing revenue the decreasing profitability has been mainly due to the various types of the
facts which have seen to be based on the decreasing profit over the years. Efficiency has been
evident with increasing Accounts Receivable Turnover Ratio of 30.67 in 2014 to 40.99 in 2015

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to 42.68 in 2016. The main reason for the increasing Accounts Receivable Turnover Ratio has
been seen with increasing Accounts Receivable and revenue.
Recommendations and limitations
The company has been recommended to improve on the both long term and short term
solvency aspects. It has been further seen to be recommended to improvement of the various
types of the performance has seen to be associated to the Return on Equity and Return on Assets.
The company also needs to improve on the various types of the aspects related to the decreasing
Earning yield and Dividend yield. The efficiency of the different aspects also needs to be
improved by the company. The Accounts Receivable Turnover Ratio should be also improved by
increasing Accounts Receivable over the years.

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List of References
Adu, G., Marbuah, G. and Mensah, J. T. (2013) ‘Financial development and economic growth in
Ghana: Does the measure of financial development matter?’, Review of Development Finance,
3(4), pp. 192–203. doi: 10.1016/j.rdf.2013.11.001.
Ashraf, D., Rizwan, M. S. and L’Huillier, B. (2016) ‘A net stable funding ratio for Islamic banks
and its impact on financial stability: An international investigation’, Journal of Financial
Stability, 25, pp. 47–57. doi: 10.1016/j.jfs.2016.06.010.
Babalola, Y. A. and Abiola, F. R. (2013) ‘Financial Ratio Analysis of Firms: A Tool for
Decision Making’, International Journal of Management Sciences, 1(4), pp. 132–137.
Hidayat, M. A. and Meiranto, W. (2014) Prediksi Financial Distress Perusahaan Manufaktur Di
Indonesia, Diponegoro Journal of Accounting.
Jan, O. (2013) Advantages and Limitations of Financial Ratio Analysis, Accounting Explained.
Available at: http://accountingexplained.com/financial/ratios/advantages-limitations.
Karim, R. Al and Alam, T. (2013) ‘An Evaluation of Financial Performance of Private
Commercial Banks in Bangladesh: Ratio Analysis’, Journal of Business Studies Quarterly, 5(2),
pp. 65–77.
Overview, A. (2013) ‘Financial Statement and Ratio Analysis’, Financial Statement Book.
Schmidgall, R. S. and DeFranco, A. L. (2004) ‘Ratio Analysis: Financial Benchmarks for the
Club Industry’, The Journal of Hospitality Financial Management, 12(1), pp. 1–14. doi:
10.1080/10913211.2004.10653782.
Zaimah, R., Masud, J., Haron, S. A., Othman, M., Awang, A. H. and Sarmila, M. D. (2013)
‘Financial well-being: Financial ratio analysis of married public sector workers in Malaysia’,
Asian Social Science, 9(14 SPL), pp. 1–6. doi: 10.5539/ass.v9n14p1.
Zainudin, E. F. and Hashim, H. A. (2016) ‘Detecting fraudulent financial reporting using
financial ratio’, Journal of Financial Reporting and Accounting, 14(2), pp. 266–278. doi:
10.1108/JFRA-05-2015-0053.

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Appendix
Profitability Ratio Analysis:-
Particulars 2016 2015 2014
Revenue 65961 62447 60181
Gross Profit 20436 19402 18757
Net Profit/Loss 407 2440 2689
Total Assets 40783 40402 39727
Common Stock 22949 24791 25987
Average Equity 23870 25389 26004.5
Current Liabilities 10424 9726 8229
Capital Employed 30359 30676 31498
Average Capital Employed 30517.5 31087
Cost of Goods Sold 45525 43045 41424
Selling & General Expenses 19459 16055 16274
EBIT 1346 3444 2449
Tax Expenses 631 1004 939
NOPAT 407 2440 1510
Average total assets 40592.5 40064.5 41441
Net Profit Margin 0.62% 3.91% 4.47%
Return on Assets 0.01 0.06 0.06
Return on Equity 1.71% 9.61% 10.34%
Asset turnover 1.62 1.56 1.45
b) Long-Term Stability Ratio Analysis:-
2016 2015 2014
Total Equity 22949 24781 25987
Total Dloan Debt 7303 6528 5065
Total Liabilities 17,834 15,621 13740

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Total Assets 40783 40402 39727
Income before Interest & Taxes 1346 3759 87255
Interest Expense 308 315 84566
Debt to Equity Ratio 0.78 0.63 0.53
Capital Struture Leverage 1.78 1.63 1.53
Debt to total assets
0.4372
9 0.3866393 0.34586
Market based ratio
2016 2015 2014
EPS 36.2 216.1 234.6
Market value per share 39.06 36.67 34.89
Annual dividend 2270 2597 2160
Dividend per ordinary share 58.11571941 70.82083447 61.90885641
Price earning ratio 1.079005525 0.169689958 0.148721228
Earning yield 0.926779314 5.893100627 6.723989682
Dividend yield 1.48785764 1.931301731 1.774401158
c) Short-Term Liquidity Ratio Analysis:-
2016 2015 2014
Total Current Assets 9684 9093 9311
Inventory 6260 5497 5336
Total Current Liabilities 10424 9726 8229
Cash flow from operations 3365 3791 3226
Current Ratio 0.93 0.93 1.13
Quick Ratio 0.33 0.37 0.48
Cash flow from operations to current liabilities
0.322812
7
0.3897799
7
0.39202
8

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d) Efficiency Ratio Analysis:-
2016 2015 2014
Revenue 65961 62447 60181
Accounts Receivable 1628 1463 1584
Average Accounts Receivable 1545.5 1523.5 1962.5
PP&E 9612 10205 9952
Average PP&E 19817 20157
Cost of Goods Sold 45525 43045 41424
Inventory 6260 5497 5336
Average Inventory 5878.5 5416.5 5336
Accounts Receivable Turnover Ratio 42.68 40.99 30.67
Inventory Turnover Ratio 7.74 7.95 7.76