Financial Performance Analysis of Woolworths Limited

The assignment content analyzes the financial position of Woolworths Limited using ratio analysis. The ratios used include profitability ratios, liquidity ratios, asset turnover ratios, and leverage ratios. The results show that the company has a growing trend in its profitability ratios, indicating growth with increased profitability. However, the liquidity ratios are declining and less than one, indicating an inability to repay short-term obligations using current resources. The asset turnover ratio is showing a positive trend, indicating good financial health. Finally, the leverage ratios indicate a decrease in debt financing and increase in equity financing, further supporting the company's financial health.

Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
Question 5........................................................................................................................................4
Question 6........................................................................................................................................5
Question 7........................................................................................................................................5
Question 8........................................................................................................................................6
Profitability ratios........................................................................................................................6
Liquidity ratios.............................................................................................................................7
Asset turnover ratios....................................................................................................................7
Leverage ratios.............................................................................................................................8
Works Cited.....................................................................................................................................9

Question 1
This report is presenting a financial analysis of company Woolworths Limited. This is a public
company and listed on ASX with code WOW. This company is having the second highest
position in revenue in all around the Australia. The company is having 205000 employees in
2016 (IBIS World , 2016). The company is having its headquarters at Bella Vista, New South
Wales, Australia. Chief executive officer of the company is, Mr. Brad Banducci.
Moreover, the company is having so many retail stores in Australia and New Zealand. These
retail stores earn revenue by selling food, liquor, petroleum, products for home improvements
and other general products. The company is having various brands some of them are, Essentials,
Woolworths, Dan Murphy’s and BWS. Company is having following segments,
 Australian food: engaged in food procurement for selling in Australia
 Australian Petrol: engaged in petroleum procurement for selling in Australia
 New Zealand super markets: engaged in petroleum and food procurement for selling in
New Zealand
 Endeavors drinks group: engaged in liquor procurement for selling in Australia
 Hotels: It provides hospitality, food, alcohol, accommodation and entertainment services
in Australia.
 BIG W: engaged in general merchant material’s procurement for selling in Australia
Furthermore, the company is having a long history. The company was established 92 years ago
on its foundation date September 22, 1924. The company faces various ups and downs of
industry and business to reach this position. This report is presenting small analysis regarding the
company on the basis of the annual report of the company for the year ending in 2017.
Question 2
Financial analysis and profitability analysis is an essential and inseparable part of any business
conducted for the making profit and maximizing the wealth of shareholders. Annual report of a
company is a report of the annual performance of the company. Annual report of all profitable
business focuses on the financial data and financial achievement of the company in the year for
which annual report is prepared. In the same way annual report of Woolworths Limited is
focusing towards the financial data and financial achievements of the company in the financial

year ending in 2017. Out of 132 pages in the annual report company, 53 pages of the report
reserved for remuneration report and 69 pages of the report containing financial data of the
company and rest pages contain general information regarding the company and its key
shareholders (Woolworths Limited , 2017). Remuneration report of the company is also
containing financial data regarding the amount of remuneration provided to key personals of the
company. Analysis of segregation of pages reserved for specific data makes it clear that annual
report of the Woolworths Limited company majorly focus on financial aspects and hence this
aspect dominate the whole report.
Question 3
In the compaany form of business, governance and ownership are not remain in same hands.
Hence it is become an essential requirement to regulate the governance structure and
compensation by key personals of governance. Woolworths Limited company follows the
remuneration standards defined by the ASX. Directors of the company are,
 Gordon Cairns: Gordon Cairns appointed by the company on September 1, 2015. He is
having a great experience of 30 years in food and retail industry. In past, he holds the
posts of chairmen, senior director, and director in various companies. At present, he is
holding the post of chairman of the board of directors of Woolworths Limited Company
(Woolworths Limited , 2017).
 Brad Banducci: Brad Banducci appointed by the company on February 26, 2016. In past,
he holds the post of managing director and chief executive officer in group companies. At
present, he is holding the post of managing director and chief executive officer in
Woolworths Limited Company (Woolworths Limited , 2017).
 Jillian Broadbent: Jillian Broadbent appointed by the company on January 28, 2011. She
is having a great experience in corporate banking and financing. In past, she holds a
position in reserve bank of Australia. At present, he is holding the post of independent
non-executive director in Woolworths Limited Company (Woolworths Limited , 2017).
 Holly Kramer: Holly Kramer appointed by the company on February 8, 2016. She is
having a great experience of 20 years in management, sales and marketing. At present,

she is holding the post of independent non-executive director in Woolworths Limited
Company (Woolworths Limited , 2017).
 Siobhan McKenna
 Scott Perkins
 Kathee Tesija
 Michael Ullmer
Question 4
Deloitte Touche Tohmatsu is the independent auditor of the company Woolworths Limited.
Audit report of the company signed by Andrew Griffiths, a partner at Deloitte on August 23,
2017. Auditor’s report of Woolworths Limited for the year 2017 is an unqualified report. In the
opinion paragraph of the report, the auditor concludes that company’s financial statement are
presenting the accurate financial position of position of the company and financial statements of
the company prepared by following Australian accounting standards and other regulations which
imposed on the company.
Moreover, in the audit report of the company auditor make it clear that audit report is prepared
by following Australian auditing standards, and ethical requirements laid by corporation act 2001
and accounting professional and ethical standards board. Audit report presented various key
other matters like the exit of home improvement, carrying a value of BIG W’s property plant
and equipment, provisioning for inventory, rebate’s accounting and IT system and defined scope
of the audit regarding these matters. At the end of auditor’s report of the company, director’s and
auditor’s responsibility is defined in the audit report so that no reader of audit report would
mislead.
Question 5
Revenue is the financial assertion which puts major impacts on the profitability of the company.
This is most important assertion for cash inflow in the retail industry (Mani, Kesavan, &
Swaminathan, 2015) in which Woolworths Limited performing. Following are the sales figures
of company in the year 2017 and 2016,
Year 2017 2016

Revenue from sale of goods and services $55,475 million $53,473.9 million
Change in Total operating revenue $2,001.1million
Change in Total operating revenue in % 3.74%
Increase in the sales of the company is only 3.7% of last year’s sales (Letts & Janda, 2017). This
fact shows there is not a big and considerable change in revenue of company from the last year.
This is because of industry growth.
Question 6
Cash inflow from operating activities refers to operating cash converted earnings of the
organization. This can be taken as realized profits of the company. Operating cash inflow of
company having lower chances of manipulations hence many analyses take it as real profits of
the organization (Wild, Bernstein, Subramanyam, & Halsey, 2004). Following are the cash from
operating activities figures of company in the year 2017 and 2016,
Year 2017 2016
Cash inflow from operating activities $3,122 million $2,357.5 million
Change in Cash inflow from operating activities $764.5 million
Change in Cash inflow from operating activities in % 32.43%
Question 7
Retained earnings of company refer to the accumulated profits of the company. This is the part
of earnings which not paid by the company to its shareholders as a dividend (Libby, Libby,
Short, & Kanaan, 2004). Following are the retained earnings figures of company in the year 2017
and 2016,
Year 2017 2016
Retained earnings $3,797.2 million $3,124.5 million

Borrowings of the company refer to the amount borrowed by the company. Higher the
borrowings of the company higher will be the external interference in the company’s operations.
Following are the long term and short term borrowings figures of company in the year 2017 and
2016,
Year 2017 2016
Long term borrowings $2,777 million $3,780.9 million
Long term other financial liabilities $115.7 million $179.8 million
Short term borrowings $253.5 million $490.7 million
Short term other financial liabilities $313.8 million $120.3 million
Question 8
Ratio analysis is the easiest technique to make analysis regarding the financial position of the
company. Under this analysis various ratios calculated on the basis of a number of various
assertions of the statement of income, statement of financial position and statement of cash flow.
Some ratios of the Woolworths Limited are,
Profitability ratios
Name of ratio Formula 2017 Ratio 2016Ratio
Gross profit Ratio
Net profit ratio
Return on Equity Ratio
Profitability ratios present profit related ratios of the organization. Gross profit ratio shows a
gross profit of the organization in organization’s revenue’s percentage. Net profit ratio shows a
net profit of the organization in organization’s revenue’s percentage. Return on equity ratio
shows a net profit of the organization in equity investment’s percentage. Profitability ratios
present company’s financial health. If such ratios show growing trend then it is assumed that

company is making growth with increased profitability and if such ratios show negative trend
then it is assumed that company is not making growth because of having lower profitability (Bird
& McHugh, 1977). In the present case, all profitability ratios of the company showing growing
trend mean the company is on the path of growth from the prospective of profitability.
Liquidity ratios
Name of ratio Formula 2017 Ratio 2016 Ratio
Current Ratio
Liquidity ratio
The current ratio is a ratio a ratio between current assets and current liabilities. Liquidity ratio is
a ratio between the liquid assets i.e. current assets subtracted by prepaid expenses and accounts
receivable (Ertuğrul & Karakaşoğlu, 2009). These ratios show the ability of the organization to
repay its short term obligation by using short term resources. This ratio should be kept by every
organization at a moderate level, but resource part must be higher than obligation part so that
organization could handle unexpected obligations. In the present case, both ratios are declining
and less than one i.e. obligation part is higher than the resource part which is not good for the
financial health of the company.
Asset turnover ratios
Name of ratio Formula 2017 Ratio 2016 Ratio
Asset turnover ratio
Asset turnover ratio of the company shows the sales made by a company by using the assets of
the company. The result of this ratio shows dollar sale made by the company using per dollar
asset of the company. In the present case asset turnover ratio of the company is showing a
positive trend. This trend indicates that company is having good financial health.

Leverage ratios
Name of ratio Formula 2017 Ratio 2016 Ratio
Debt Equity Ratio
Debt ratio
Equity ratio
Leverage ratios of the company show that how the company finances its assets. Debt ratio shows
debt financing in the company equity ratio shows equity financing in the company and debt
equity ratio shows debt financing in terms of equity. In the present case, the company reduced its
debt financing and increased equity financing, which shows that company decreasing its
dependence on external financing. This is an indicator of the good financial health of the
company.

Works Cited
1. Bird, R. G., & McHugh, A. J. (1977). Financial ratios—an empirical study. Journal of
Business Finance & Accounting, 4 (1), 29-46.
2. Ertuğrul, İ., & Karakaşoğlu, N. (2009). Performance evaluation of Turkish cement firms
with fuzzy analytic hierarchy process and TOPSIS methods. Expert Systems with
Applications, 36 (1), 702-715.
3. IBIS World. (2016, June 26). Woolworths Ltd - Premium Company Report Australia.
Retrieved September 2017, 2017, from https://www.ibisworld.com.au:
https://www.ibisworld.com.au/australian-company-research-reports/retail-trade/
woolworths-ltd-company.html
4. Letts, S., & Janda, M. (2017, August 23). Woolworths bounces back with $1.5b profit.
ABC News. Australia.
5. Libby, R., Libby, P., Short, D., & Kanaan, G. (2004). Financial accounting. McGraw-
Hill.
6. Mani, V., Kesavan, S., & Swaminathan, J. M. (2015). Estimating the impact of
understaffing on sales and profitability in retail stores. roduction and Operations
Management, 24 (2), 201-218.
7. Wild, J., Bernstein, L., Subramanyam, K., & Halsey, R. (2004). Financial statement
analysis. McGraw-Hill.
8. Woolworths Limited. (2017). Annual report 2017. Retrieved September 9, 2017, from
woolworths group: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-
report-2017.pdf