Financial Analysis of Wesfarmers

This report reveals the qualitative analysis of the financial performance of the Wesfarmers and how well it has been managing its financial capital in the market. It covers various aspects such as activities of Wesfarmers, equity composition, share price, debt composition, fixed capital, and dividend distribution. The report concludes that Wesfarmers has a strong financial position and is a good option for investors.

Wesfarmers
Financial analysis

Table of Contents
Introduction...........................................................................................................................................2
Answer to the given question no-1........................................................................................................2
Several activities of Wesfarmers.......................................................................................................2
Answer to the given question no-2........................................................................................................3
Equity shareholders...........................................................................................................................3
Answer to the given question no-3 and 4..............................................................................................3
Share price.........................................................................................................................................3
Answer to the given question no-5........................................................................................................4
Debt composition..............................................................................................................................4
Answer to the given question no--6......................................................................................................5
Fixed capital.......................................................................................................................................5
Answer to the given question no--7......................................................................................................5
Answer to the given question no—9.....................................................................................................7
Dividend distribution of Wesfarmers.................................................................................................7
Retained earning...............................................................................................................................8
Equity capital.....................................................................................................................................8
Conclusion.............................................................................................................................................9

Introduction
This report reveals the qualitative analysis of the financial performance of the
Wesfarmers and how well it has been managing its financial capital in market. Nonetheless,
Wesfarmers is having good amount of profitability which has strengthen its business and
helps it to increase its overall share capital in market. This report, reflects the key
understanding on the capital value, share price valuation and changes in the profitability of
the company in market. However, company has kept low financial leverage which has
increased its overall business costing in long run. This report has shown the activities of the
Wesfarmers and its efficiency to deploy its funds in the business process. There are several
parts in which the company’s business growth, share price movement and financial leverage
have been assessed.

Answer to the given question no-1
Several activities of Wesfarmers
Wesfarmers deals in various kinds of activities. It covers diverse kind of business
operations such as outdoor living, home improvement, office supplies, apparel, general
merchandise, as well as industrial division in the energy, chemicals, industrial products,
fertilisers, and safety products. It also indulges in activities of supplies maintenance,
packaging, repair, operating, and safety products. Besides this, it also has the subsidiary that
specialises in ammonium nitrate, ammonia, sodium cyanide, word plastic products and
polyvinyl chloride resin. It also seeks the activities of main program related to schooling.
The main objective of this program is to promote the significant role of the entire
school community. In addition to this, it also has diverse business operation that covers the
departmental stores, supermarkets, home improvement, coal production, office supplies,
fertilisers and energy, chemicals (Fang, Kosev, & Wakeling, 2015). Wesfarmers also has the
shareholder base of around 5, 00,000. For shareholders, the main objective of the Wesfarmers
is to provide the satisfactory return to their shareholders. The other activities of Wesfarmers
include head office, treasury, as well as the central support function. In the private equity
investment, it has 50% interest in the “Gresham Private Equity.” (Fang, Kosev, & Wakeling,
2015).
Answer to the given question no-2
Equity shareholders
From the given financial statements of Wesfarmers (2018), it is seen that the
organisation`s equity composition consists of issued capital, reserved shares, retain earnings,
and reserves. Sum of total equity is $22754 million in 2018 (Wesfarmers, 2017). Whereas, it
was just $23941 million in 2017 (Wesfarmers, 2017). In the total of equity in 2018, issued
capital of $22277 million in 2018, which was less in $ 22268 in 2017. Reserved shares has

been seen negative impression on equity as it was -26 in 2017 and -43 in 2018 (Wesfarmers,
2017). The reserved capital is seen as it was $1509 million in 2017 that decreased $176
million in 2018. Total reserves have been estimated as $190 million in 2017 as compared to
2017 where it is $344 million in 2018 (Wesfarmers, 2017).
Answer to the given question no-3 and 4
Share price
It has been reported that closing share price of nearly $ 41.84 in 2014, $ 39.03 in
2015, $ 40.10 in 2016, $ 40.12 in 2017, $49.36 at June 2018 (Yahoo Finance, 2019). On 28th
June 2017, it is seen that the share price is $ 40.77 in Wesfarmers because of WLTIP grant
rights have been continued. As per the (WESAP) Wesfarmers employee share Acquisition
Plan, the employee are invited to acquiring fully paid equity ordinary shares (ASX
(Australian stock exchange), 2017).
This plan signifies that non-discriminatory subordinate`s share schemes which have
complied with the requirements of division (83A) under the Income Tax Assessment for the
Australians only (ASX (Australian stock exchange), 2017). While browsing the share prices,
it is seen from the ASX that the share price is estimated at $36.62 on 13th May 2019 (Yahoo
Finance, 2019). Whereas, the share price is estimated at 34.73 on April 13th 2019
(Wesfarmers, 2017). It is important to say that share price and share capital has a strong
relation as higher price of the share reflects stronger business activities and more share
capital. Whereas, lower price of the Wesfarmers share reflects that it has low share capital
(ASX (Australian stock exchange), 2017).

Source: (ASX (Australian stock exchange. 2017).
Answer to the given question no-5
Debt composition
Non-current liabilities comprises of items such as interest bearing loan and the
borrowings, provisions, derivatives, and other non-current liabilities. Interest bearing loans
$4066 million in 2017 and it decreased to $2965 million in 2018 (Wesfarmers, 2017). The
provisions has $1511 million in 2018 that has lowered to $1033 million in 2017. Net
Financial debt is inclusive of interest swaps, cash at banks and the interest-rate bear contracts
for swap (ASX (Australian stock exchange), 2017).

Answer to the given question no--6
Fixed capital
The Annual reports has been reported on the historical costing basis by excluding
investments as held by the associates with a certain financial instrument (Wesfarmers, 2017).
The carrying value of certain assets and liabilities, which are seen as the hedged item in the
fair value hedging relationships (ASX (Australian stock exchange), 2017).
The main elements in the fixed asset of Wesfarmers include deferred tax assets, plant
and equipment, property, goodwill, derivatives, and intangible assets. As compare to 2017,
investment in joint venture has increased from 703 $ to 748 $ (Fang, Kosev, & Wakeling,
2015). As compare to this, deferred tax asset has been decreased from 970$ to 692$
(Wesfarmers, 2018b). In addition to this, property has reduced from the year 2017. In year
2017, total property was 2,195. As compare to this, 1,920 was the property in 2018. The
increment has been seen in the derivatives. In the year 2017, it was 246. As compare to this, it
became $391 in the year 2018. However, the huge decrease has been seen in the goodwill. It
has reduced by 869 million dollar that proves to be negative situation in the company.
Provisions were also $ M 154 in the year 2017 and it becomes 16 million dollar in the year
2018 (Campbell, 2017).
Answer to the given question no--7
As per the GAAP, it is seen that impairment account is needed when intangible assets
are realised more than the value given in the books of the accounts. Impairment account is
used when assets are once recorded at much lower price (Wesfarmers, 2017). As per ASAB
136, it is seen that when calculating the amount of impairment loss. As it is seen that the
goodwill has been lowered by 869 million dollars which reflects that book value is less than
the estimated. In this situation, the loss has been transferred in impairment account
(Campbell, 2017). Overvaluation of impairment loss is a difficult in cash generating unit

(Wesfarmers, 2017). There are significant items such as expenses included in amortisation
and depreciation is related to one of the segment “target” as non-cash impairment amount
nearly of $306 million before tax.
Impairment losses include impairment of plants, assets, and equipment as $306
million, impairment of free hold property as $68 million and impairment of goodwill $47
million (Wesfarmers, 2017). It is seen that on the basis of statutory, net profit after tax in
2018 has fallen down 58.3 percent till $1.2 billion as an outcome of the impairment charges.
Further impairment on the basis of Target business, there was partially paid as an offset by
the profit on sales of curragh coal operation. As per the annual report of 2018, it is seen that
$677 million of 2014 has been carried forward to the 2018 (Wesfarmers, 2017).
This group tests the intangible assets for the impairment on the basis of least annually
indefinite life of intangibility and the goodwill. If the asset is not able to generate independent
cash inflows where the value cannot be estimated to close to the fair value (Campbell, 2017).
With the references to the Wesfarmers calculations, there are several cash flow projections on
the basis company`s corporate plans and the forecasts prepared by the managers and finally
approved by the customers (Wesfarmers, 2017).

Answer to the given question no—9
Dividend distribution of Wesfarmers
The dividend policy of the group Wesfarmers considers the current earning, franking credits,
cash flows, targeted credit metrics. The board of Wesfarmers has also declared the fully
franked final ordinary dividend of the 12 cents per share (Vandyck, 2018).
Source: (ASX (Australian stock exchange. 2017).
It has paid the final dividend on 27 September 2018 to the entire shareholder of the
company, who all have registered on 21 August 2018 (Campbell, 2017). By giving the
preference to the several shareholders, company has decided to continue the operation of the

dividend. It has stated the last date for participating in the applications that is 22 August
2018. It is also said that no discount will be applied to the price of allocation (Campbell,
2017). The company has a diversified portfolio and offer huge range of investments to its
equity shareholders. From coal dealings to supermarkets, the company has been using its
potential in such a way that the equity shareholders are increasing.
Retained earning
In year 2017, the retained earnings of Wesfarmers were $1,509 million (Wesfarmers, 2017).
It has reduced to 176 in the year 2018. It might be possible that company has made the
investment. In addition to this, there might be possibility of buy back of equity shares
(Vandyck, 2018).
Equity capital
In the equity capital of the company, increment has been seen. In the year 2017, $22,268
million was the value of equity share. In the year 2018, it was total $22,277 million
(Wesfarmers, 2018). It means that shareholders were interested to invest in the equity share
of the company. Due to its strong image or may be the rate of growth, shareholders are ready
to invest in the Wesfarmers (Adams, 2016).

Conclusion
After evaluating all the financial details of company, it is evaluated that company has
strengthen its business position in market by keeping high profitability. Nonetheless, the
share price of company has also increased with the increase in the earning capacity of the
company. This reveals that company has strong financial position in market and will be
sustainable in long run. The crux of this report is that Wesfarmers is the good option for the
investors to invest their capital which will be useful for them to create value on their invested
capital. Now in the end, it could be inferred that the share price movement of the company is
highly based on the return on capital employed, retained earnings and dividend offered by
company to its shareholders. Nonetheless, in order to strengthen the transparency of the
recorded financial items in the books of account, company needs to align its domestic
reporting frameworks with the international accounting standards.

References
Adams, M. A. (2016). Contemporary case studies in corporate governance
failures. Governance Directions, 68(6), 335.
ASX (Australian stock exchange), (2017). Wesfarmers. Retrieved from:
https://www.asx.com.au/
Campbell, J. (2017). Insights from the company monitor: Wesfarmers. Equity, 31(8), 16.
Fang, A., Kosev, M., & Wakeling, D. (2015). Trends in Australian Corporate
Financing. RBA Bulletin, 29-38.
Filapek-Vandyck, R. (2018). A three pronged investment strategy. Equity, 32(2), 6.
Wesfarmers, (2017). Annual reports, (2017). Wesfarmers. Retrieved
from:https://www.wesfarmers.com.au/docs/default-source/default-document-library/
2017-annual-report.pdf?sfvrsn=0
Wesfarmers, (2018b). Wesfarmers annual report 2018. Retrieved from:
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-
annual-report.pdf?sfvrsn=0
Wesfarmers. (2018a). Our businesses. Retrieved from: https://www.wesfarmers.com.au/our-
businesses/our-businesses
Yahoo Finance, (2019). Wesfarmers. Retrieved from:
https://au.finance.yahoo.com/quote/WES.AX/history?p=WES.AX