Wesfarmers Financial Performance Analysis

This assignment delves into the financial performance of Wesfarmers through the lens of its sustainability report. Employing a balanced scorecard framework, it identifies key performance indicators (KPIs) across various quadrants, analyzing their contribution to value creation. The report further explores the impact of a 10% revenue hike on Wesfarmers' profitability, culminating in a comprehensive understanding of the company's current financial standing.

ACCOUNTING AND REPORTING

TABLE OF CONTENTS
Introduction..........................................................................................................................................
Balance score care and Strategy Map...................................................................................................
Wesfarmers competitive strategies..............................................................................................1
Objectives of the Wesfarmers......................................................................................................2
Balance score card.......................................................................................................................2
Wesfarmers Strategy Map...........................................................................................................3
Sustainability Reporting.......................................................................................................................
Integrated Reporting.............................................................................................................................
Embracing full integrated reporting.............................................................................................6
Budgeting.............................................................................................................................................
Budgeted Income Statement of Wesfarmers of 2016..................................................................6
Conclusion............................................................................................................................................
References............................................................................................................................................

INTRODUCTION
Financial accounting is defined as the branch of accounting that focuses on keeping the
track records of firm’s financial transactions (Kaplan and Atkinson, 2015). Whereas, reporting is
considered as a broader concept than financial statement which apart from statements also
consist of company’s annual report to stockholder, its sustainability report, integrated reporting
so that smart decisions can be made. Herein, researcher focuses on illustrating financial reporting
in strategic approach for Wesfarmers that is a public company operates as Australian
conglomerate as well as in chemicals, fertilizers, coal mining and industrial and safety products.
In this researcher focuses on company’s strategy, sustainability reporting as well as budgeting to
compare the actual and budgeted performance of the Wesfarmers.
BALANCE SCORE CARE AND STRATEGY MAP
Wesfarmers competitive strategies
According to Michael Proter, firm’s strengths ultimately fall into one of the two
headings: cost advantage and differentiation. On the basis of these headings strategies can be
divided under three generic strategies: cost leadership, differentiation and focus. Looking at the
functioning of Wesfarmers and the level at which it operates it is important to undertake
effective and smart strategies for enhancing the business performance. Operating as
conglomerate, Wesfarmers offers its wide range of products and services to Australia, UK,
Bangladesh and New Zealand.
Considering the diverse business operations of Wesfarmers that consist of supermarkets,
liquor, hotels, convenience stores, home improvement, office supplies, department stores and an
industrial division with businesses in chemical, energy and fertilisers, industrial, coal and safety
products. Herein, top level management of Wesfarmers have used Focus strategy to maintain the
competitiveness of the firm in different parts where it operates. The main purpose of using this
competitive strategy is that assist in concentrating on a narrow segment and within that segment
makes valiant efforts to achieve either a cots advantage or differentiation (Brenes, Montoya and
Ciravegna, 2014). The main advantage the cited attaining from using focus strategy is that it
helps them increasing the number of loyal customers. On the basis of this strategy offering
quality of wide range of products helps in differentiating the Wesfarmers and changing
affordable prices assist the firm to attain cost advantage.
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Objectives of the Wesfarmers
There are various corporate objectives that cited firm focuses on achieving through the
means of employing effective strategies and tactics. Following are the corporate objectives of
Wesfarmers Ltd:
 Satisfying the expectations of customers through the provision of goods and services on a
competitive and professional basis.
 Offering and maintaining safe working environment for fulfilling basis needs and wants.
 Promoting reward and growth opportunities for better performance.
 Positively contributing the growth and prosperity of the countries in which Wesfarmers
operates by carrying operations in smart and efficient manner and constantly seeking
opportunities for expansion.
 Constantly making efforts to respond customers and communities’ expectation for
delivering them the best they deserve.
 Emphasising on ensuring safe and secure environment.
 Dealing with integrity and honesty with internal and external stakeholders of the
company.
Balance score card
In general it is a strategic planning and management system that is used in extensively in
business and industry, government and non-profit organisation to align the activities of business
with the vision and strategy of business for improving internal and external communication
(Hoque, 2014). Balance scorecard consist of four quadrants i.e. learning and growth perspective,
business process perspective, customer perspective and financial perspective.
Customer perspective Financial perspective
Attaining utmost level of customer’s
satisfaction.
Providing quality of products and services
Enhance business volume by offering
diversified products and services
To provide satisfactory returns to th
shareholders (Cheng and Humphreys, 2012).
Internal business process perspective Learning and growth perspective
Dealing with internal and external
stakeholders with integrity and honesty.
Better opportunities for employees through
offering better working environment.
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Responding to the customers and
communities for delivering expected services
Contributing the growth of community by
carrying out operations efficiently and
seeking opportunities for expansion.
Balance scorecard is a comprehensive performance monitoring tool that assist in
measuring all the critical factors for the success of firm’s strategy.
Wesfarmers Strategy Map
(Developing Strategy Map, 2016)
SUSTAINABILITY REPORTING
From the annual report of Wesfarmers, researcher has been able to evaluate that,
company will only be sustainable if it continues its financial success. However, management is
making valiant efforts to address issues which are significant in their own right and ultimately
influence financial outcomes. The evidence of sustainability in the corporate aim and objectives
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Financial
Provide Satisfactory Returns
Increase business volume
Customers
Offering Quality of Products
Attaining utmost level of customer's satisfaction
Internal
Business
Process
Resproning to stakholders expectations
Promoting honesty and intergrity at each level of business fro dealing with
internal and external stakeholders
Learning and
Growth
Positively contributing towards Community
Better working environment for workers growth

reflects through the long term value creation on which management of Wesfarmers emphasises
(Bebbington, Unerman and O'Dwyer, 2014). However, for the managerial level people,
sustainability is about understanding and managing their impact on the community and the
environment so as to make sure that company in long term perspective will still be creating the
value in the future.
Further, the sustainability issues are managed at a divisional level and overseen by the
Wesfarmers Board through regular reporting. However, targets are set by the divisions in relation
to some sustainability matters as well as firm’s annual risk process identifies and addresses the
risks and uncertainties associated with sustainability (Hahn and Kühnen, 2013). Evaluating the
sustainability report 2015 of Wesfarmers Ltd it has been observed that, Board of Directors aim to
operate businesses in accordance with 10 community and environmental impact principles which
are relating to the five significant areas i.e. people, sourcing, community, environment and
governance. With the help of materiality process, Wesfarmers ensures in review of the issues
affecting to the stakeholders as well as addressing these issues for maintaining long term
relationship. On the basis of this report, researcher identified that Wesfarmers signed United
Nations Global Compact (UNGC) in order to reinforce firm’s commitment towards the defined
principles (Sustainability Report 2015 Wesfarmers, 2016).
People:
 Safety: Wesfarmers maintain a relentless focus on offering safe and secure working
environment to its employees. However, it is one of the highest priority for the frim. In
year 2015 company achieved 7.5% improvement in TRIFR from last year. Whereas,
LTIFR decreased by 5.2% this year from 7.7 to 7.3% driven by improvement across most
businesses. Initiative of “nurse on call” for injury care service for team. On the other
hand, hazard spotter app has been developed for in-store iPods as well as introduced
injury management process (Bonilla-Priego, Font and del Rosario Pacheco-Olivares,
2014).
 People development: Herein, management focuses on providing opportunities for people
to enhance their job performance and develop their careers. Further, initiatives like new
executive orientation for new general managers and executive development program for
future potential executives across the group.
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 Diversity: Company strive to create an inclusive work environment with particular
attention to gender diversity. Herein, management ensures pay equity and improve talent
management for enhancing the overall employee performance across group.
Sourcing:
 Suppliers: Maintaining relationship with 15000 supplier across the group is significant
priority of Wesfarmers (Sustainability Report 2015 Wesfarmers, 2016). Herein, main
focus of management is to increase the efficient and cost competitiveness of supply chain
so that products can be offered to customer at lower prices.
 Ethical Sourcing: BOD strive to source products in a responsible manner while working
with suppliers to improve their social and environmental practices. However, 2139
approved factories, 1500 conditional approached factories and 210 factories were due for
re-audit. Whereas, only 39 critical breaches across the factories in Wesfarmers audit
programmes (Frias‐Aceituno, Rodriguez‐Ariza and Garcia‐Sanchez 2013).
Community:
 Product safety: Company’s commitment to offer safe products to consumers is given
great importance. It is the base on which Wesfarmers strive to sustain for longer period of
time.
 Community contribution: Herein, company aims to meet basic need of society such as
food, clothing, tools and providing nearly one in every 59 working Australians.
Environment:
 Climate change resilience: In this Wesfarmers aim to reduce the emission intensity of
business and enhancing its resilience to climate change. Company’s greenhouse gas
emission intensity has improved by 37% over five years (Sustainability Report 2015
Wesfarmers, 2016).
 Waste and water use: In this company purpose is to reduce the waste and make optimum
utilisation of water. Recycling of 136093 tonnes waste material in 2015 is one of the
biggest statement by the company.
Governance:
 Corporate governance: BOD abide varied rules and regulations to direct and control its
business operations across group.
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INTEGRATED REPORTING
Embracing full integrated reporting
In context to the core concepts of sustainability which focuses on maintaining the
economic position of the company within the target market. Whereas, integrated reporting
concerns about the value creation for the firm over a period of time (de Villiers, Rinaldi and
Unerman, 2014). It can be defined as the concise communication about how Wesfarmers Ltd
strategy, governance and performance leads to creation of value over the short, medium and long
term. According to the BOD of Wesfarmers, roadmap to integrated reporting based on three
fundamental foundations i.e.
 Materiality analysis: Wesfarmers ensures in review of the issues affecting to the
stakeholders as well as addressing these issues for maintaining long term relationship.
 Value creation: It is the second key component of company’s roadmap which consist of
circular process and depends upon the seven interlinked building blocks i.e. stakeholders,
their key messages, risk, strategy, value drivers (what activities influence the
achievement of strategic objectives), performance and impact.
 Evaluating impact: In doing so management has to translate the value creation process
into management information system and processes on the basis of which Wesfarmers
Ltd can measure its performance and make sound and smart decisions (Frias‐Aceituno,
Rodriguez‐Ariza and Garcia‐Sanchez, 2013).
BUDGETING
Budgeted Income Statement of Wesfarmers of 2016
Consolidated Income Statement
Particular 2015 2016
Revenue 62447 68692
Expenses
Raw materials and inventory 43054 46498
Employee benefits expense 8195 8851
Freight and other related expenses 1019 1101
Occupancy-related expenses 2637 2848
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Depreciation and amortization 1219 1317
Impairment expenses 41 44
Other expenses 2941 3176
Total expenses 59106 63834
Other income 330 330
Share of profit/(losses) of associates and joint ventures 82 82
412 412
EBIT 3759 5269
Finance costs 315 330.75
Profit before tax 3444 4938
Income tax expense 1004 1124
Profit from continuing operations 2440 3814
Variance analysis
On the basis of above depicted budgeted income statement of Wesfarmers it can be said
that the estimated figures for income statement will assist the course of cited firm in generating
better return of net profit after the financial year. Increasing the revenue by 10%, company will
generate the volume of $68692 million. Revenue for the firm consist of sale of goods i.e.
merchandise through retail operations, fertilizers and specialty gases, coal both nationally and
international and LPG and LNG are the major source of sales. Further, rendering services,
interest, dividends and operating lease rental revenue are the major source of income for the
company.
On the other hand, there are several expenses that Wesfarmers occurred during the course
of reporting period and in order to raise the revenue by 10% BOD has estimated 5% increase in
overall expenditure. Employee are entitled to benefit such as retirement, disability or death from
the group’s superannuation plan which increases the expenditure for firm to significant level as
$8195 in 2015 to $8851 in 2016. Furthermore, operating leases and contingent rental payments
are the major expenses for the firm. In order to offer more, firm have to produce more thus,
expenses relate to raw material increases to $46498 million. Further, maintaining the other
income and Share of profit/(losses) of associates and joint ventures to constant figures overall
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expenditure of Wesfarmers, EBIT has shown better result of $5269 million. Thereafter, increase
in finance cost by 5% which company has incurred higher expenses apart from interest charges
due to which Profit before tax shown increasing result of $4938m in 2016 as compared to
$3444m in 2015. Furthermore, BOD has estimated 12% increase in income tax which is a
significant number and this is because of the fact that, there is increase in current taxes and
deferred taxes. Therefore, despite of increase in overall expenditure of firm, 10% hike in revenue
has helped the course of Wesfarmers in achieving profit of $3814m which is significant figure
for a conglomerate company.
CONCLUSION
In summing up the report researcher assessed that, sustainability report is one of the
major document that Wesfarmers have provided for the sake of its stakeholders. On the basis of
balance scorecard different KPI’s for each quadrant has been identified that clearly indicates the
value creation of company in near future. Lastly, through the means of budgeted consolidated
income statement 2016, researcher has been able to understand the current year performance of
cited company.
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REFERENCES
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sustainability reporting index and baseline data for the cruise industry. Tourism
Management. 44. pp.149-160.
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Cheng, M.M. and Humphreys, K.A., 2012. The differential improvement effects of the strategy
map and scorecard perspectives on managers' strategic judgments. The Accounting
Review. 87(3). pp.899-924.
de Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and an
agenda for future research. Accounting, Auditing & Accountability Journal. 27(7).
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Developing Strategy Map, 2016. [PDF]. Available through:
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in the dissemination of integrated corporate social reporting. Corporate Social
Responsibility and Environmental Management. 20(4). pp.219-233.
Hahn, R. and Kühnen, M., 2013. Determinants of sustainability reporting: a review of results,
trends, theory, and opportunities in an expanding field of research. Journal of Cleaner
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Hoque, Z., 2014. 20 years of studies on the balanced scorecard: trends, accomplishments, gaps
and opportunities for future research. The British accounting review. 46(1). pp.33-59.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Sustainability Report 2015 Wesfarmers, 2016. [PDF]. Available through:
<http://sustainability.wesfarmers.com.au/?
utm_medium=banner&utm_source=www.wesfarmers.com.au&utm_campaign=SR2015
&utm_content=module_text>. [Accessed on 30th May 2016].
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