Common Size Income Statement Analysis of Wesfarmers Limited

This assignment provides an analysis of Wesfarmers Limited's financial performance for the years 2014, 2015, and 2016. The analysis includes a review of various financial ratios such as current ratio, debt-to-equity ratio, return on equity (ROE), and earnings per share (EPS). Additionally, the common size income statement is presented to provide an overview of the company's financial performance. The analysis shows that Wesfarmers Limited has a sound financial performance with a stable trend, except for a decline in 2016 due to impairment of assets.

Ratio Analysis
Ratio Analysis
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Ratio Analysis
Table of Contents
Ratio Analysis:.......................................................................................................................................3
Common Size Income Statement..........................................................................................................7
References:............................................................................................................................................9
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Ratio Analysis:
Return on Equity (ROE) 2016 2015 2014 2013
Profit 407 2,440 1605 2128
Equity 22,949 24,781 25987 26022
ROE 1.77 9.85 6.18 8.18
Return on equity measures how much company is earning on equity provided by its
shareholders. In the case of Wesfarmers Limited Return on equity of the company is
increased in the year 2015 but later on decreased in the year 2016. There is major decline in
the year 2016 due to impairment of the assets of the company. There is no cash loss to the
company.
Return on Asset (ROA) 2016 2015 2014 2013
Profit 407 2,440 1605 2128
Assets 40,783 40,402 39727 43155
ROA 1.00 6.04 4.04 4.93
Return on Assets measures the return on capital invested into the assets. How much the
company is earning on the assets by utilizing them. Return on assets of the company is
increased in the year 2015 as compared to 2014 but later on showing a sharp decline in the
year 2016 due to impairment of the assets. Return on Assets of the company in the year 2016
is 1% as compared to last year 6.04%.
Asset Turnover/Operating
Efficiency 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Assets 40,783 40,402 39727 43155
Asset Turnover 1.62 1.55 1.51 1.34
Assets Turnover presents how much time assets has routed in the form of sales. High assets
turnover is feasible for the company. In case of Wesfarmers Limited Assets turnover of the
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company is in increasing trend that represent that company is growing. It is also present that
the business of the company is increased despite of impairment of assets i.e. growth of the
company is high. It also measures operating efficiency of the company.
Interest Efficiency/ Interest Coverage
Ratio 2016 2015 2014 2013
EBIT 1346 3759 2890 3453
Interest Expenses 308 315 346 417
Interest Efficiency 4.37 11.93 8.35 8.28
Interest Efficiency ratio measure the capability of the company to pay its finance cost with
the available profit. Efficiency of the Wesfarmers to pay its finance cost is high up to the year
2015 but the same is decreased in the year 2016 due to impairment of the assets.
Leverage/ Debt to Equity Ratio 2016 2015 2014 2013
Total Debt 7303 6528 5065 5779
Total Equity 22,949 24,781 25987 26022
Leverage 0.32 0.26 0.19 0.22
Debt to Equity ratio presents the capital structure of the company. In case of Wesfarmers
limited the company is increasing debts in its capital structure as compared to equity. Debt to
Equity ratio of the company is increased to 0.32 as compared to last year 0.26. Leverage of
the Wesfarmers is in increasing trend that shows company is taking risk.
Trade Receivable Turnover 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Average Trade Receivable 1628 1463 1584 2341
Trade Receivable Turnover 40.53 42.68 37.99 24.67
Trade Receivable Collection Period 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Average Trade Receivable 1628 1463 1584 2341
Trade Receivable Collection Period 9.01 8.55 9.61 14.80
Trade Receivable turnover period shows that how much time Company takes to recover its
debt. Trade Receivable turnover presents that how much time sales has been converted into
debtors. Position of the Wesfarmers is stable in case of debtors. In the year 2016 the company
has converted its sales into debtors by 40 times which is less as compared to 2015 i.e. 42
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times. The Company is collecting from its debtors in 9 days in 2016 which is more as
compared to 2015 i.e. 8.55 days.
Inventory Turnover 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Inventory 6260 5497 5336 5047
Trade Receivable Turnover 10.54 11.36 11.28 11.44
Inventory Holding Period 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Inventory 6260 5497 5336 5047
Inventory Holding Period 35 32 32 32
Inventory holding period presents that how much time company is taking to covert its
inventory into sales. Inventory turnover presents the no. of times the company has converted
its inventory into sales. Inventory holding period of the company is similar in the year 2013
to 2015 but the same is increased in the year 2016. The Company is increasing inventory
holding period as the business of the company is also increased.
Trade Payable Turnover 2016 2015 2014 2013
Total Purchase 45525 43045 41424 39617
Average Accounts Payable 6491 5761 5417 5999
Trade Payable Turnover 7.01 7.47 7.65 6.60
Trade Payable Payment Period 2016 2015 2014 2013
Total Purchase 45525 43045 41424 39617
Average Accounts Payable 6491 5761 5417 5999
Trade Payble Payment Period 52 49 48 55
Trade payable payment period presents the time the company will take to pay its suppliers.
Trade payable turnover presents the no. of times the company has paid its suppliers. In case
of Wesfarmers Limited payment period is increased in the year 2016 as compared to 2015.
The Company is increasing business and more time period to pay its suppliers is feasible to
the company.
Property, Plant and Equipment (PP&E)
Turnover 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
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Property, Plant and Equipment (PP&E) 9612 10205 9952 10164
PP&E Turnover 6.86 6.12 6.05 5.68
It represents that how much time fixed resources of the company are converted into revenue.
High ratio is advisable for the company. In case of Wesfarmers Limited the PP&E ratio is
showing increasing trend which is feasible for the company.
Intangible Asset Turnover 2016 2015 2014 2013
Sales/Revenues 65,981 62,447 60181 57749
Intangible Assets 4625 4601 4446 4459
Intangible Asset Turnover 14.27 13.57 13.54 12.95
It represents that how much time intangible resources of the company are converted into
revenue. High ratio is advisable for the company. In case of Wesfarmers Limited the
Intangible ratio is showing increasing trend which is feasible for the company.
Current Ratio 2016 2015 2014 2013
Current Assets 9684 9093 9311 10586
Current Liabilities 10424 9726 8229 9572
Current Ratio 0.93 0.93 1.13 1.11
Current Assets of the company are representing liquidity position of the company. As per
industry standard it should be around 2. High current ratio represents high liquidity of the
company. Current ratio of the company is stable and showing small decline in the year 2016
as compared to 2015. Current ratio of the Wesfarmers in the year 2016 is 0.93 which is less
than the industry standard. The liquidity position of the Wesfarmers is medium.
Liabilities-to-Equity Ratio 2016 2015 2014 2013
Liabilities 17834 15621 13740 17133
Equity 22,949 24,781 25987 26022
Liabilities-to-Equity Ratio 0.78 0.63 0.53 0.66
A liability to equity ratio represents that how much liabilities company have as compared to
equity. The Company is increasing debts in its capital structure due to which liabilities of the
company is increased as compared to equity. High ratio represents that the company is taking
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more risk. It is advisable that it should be stable so that financial statement of the company is
more reliable.
Coles Home Kmart
Segment ROA
Profit 1860 1214 470
Assets 22122 6620 2324
Segment ROA 8.41 18.34 20.22
Segment return of assets shows how much the company is earning from particular segment.
The Company is earning more from the Kmart segment. Home segment is also providing
more return as compared to coles segment. With the help of segment result company can
identify the area in which company should expand. It is recommended that the Company
shall expand its business in the area of Home or Kmart division to increase its return for
shareholders.
Common Size Income Statement
Common-Size Income Statements
2016 2015 2014 2013
Revenue 65,981 62,447 60,181 57,749
Expsenses
Raw materials and inventory (45,525) (43,045) (41,424) (39,617)
Employe benefits expense (8,847) (8,198) (7,746) (7,517)
Freight and other related expenses (1,078) (1,019) (1,032) (1,021)
Occupancy-related expenses (2,959) (2,637) (2,502) (2,341)
Depreciation and amortisation (1,296) (1,219) (1,082) (1,033)
Impairment expenses (2,172) (41) (734) (49)
Other expenses (3,107) (2,941) (3,178) (2,993)
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Total expenses (64,984) (59,100) (57,698) (54,571)
Other income 235 330 342 227
Share of net profits of associates and
joint ventures 114 82 65 48
349 412 407 275
Earnings before interest and income
tax expense (EBIT) 1,346 3,759 2,890 3,453
Finance costs (308) (315) (346) (417)
Profit before income tax 1,038 3,444 2,544 3,036
Income tax expense (631) (1,004) (939) (908)
Profit from continuing operations 407 2,440 1,605 2,128
Profit after tax for the year from
discontinued operations - - 1,084 133
Profit attributable to members of the
parent 407 2,440 2,689 2,261
Common size income statement presents the financial performance of the company. It is
represented that financial performance of the Wesfarmers limited is sound and showing stable
trend. In the year 2016 there is a decline which is due to impairment of Assets.
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References:
 D K Singhal, 2015, Financial Mamangement, Available at Offline, [Accessed on
05/12/2016]
 Investopedia, n.d., Ratio Analysis: Using Financial Ratios, [Online], Available at
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05/12/2016]
 Accounting Coach, n.d., Financial Ratio, [Online], Available at
http://www.accountingcoach.com/financial-ratios/explanation [Accessed on
05/12/2016]
 My Accounting Course, n.d., Financial Ratio Analysis, [Online], Available at
http://www.myaccountingcourse.com/financial-ratios/ [Accessed on 05/12/2016]
 L Joe, n.d., 16 Financial Ratios for Analyzing a Company’s Strengths and
Weaknesses, [Online], Available at http://www.aaii.com/journal/article/16-financial-
ratios-for-analyzing-a-companys-strengths-and-weaknesses.touch [Accessed on
05/12/2016]
 Investopedia, n.d., Common Size Income Statement, [Online], Available at
http://www.investopedia.com/terms/c/commonsizeincomestatement.asp [Accessed on
05/12/2016]
 S Lisa, 2011, How to Common Size Financial Statements, [Online], Available at
http://www.investinganswers.com/education/financial-statement-analysis/how-
common-size-financial-statements-2157 [Accessed on 05/12/2016]
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