Financial Analysis of Wesfarmers: Profitability, Liquidity, Efficiency, Market and Gearing Ratios

Wesfarmers
FIN600 TX 2017
NAME: STUDENT ID:

Student name – ID FIN600 TX 2017
Assignment – Wesfarmers
Executive Summary
The aim of the assessment is to understanding the current financial position of Wesfarmers by
calculating the profitability, liquidity, efficiency, market and gearing ratios from 2016 to 2017. In
addition, the financial performance of the organization has improved exponentially from 2016 to
2017, as detected from the financial ratios. The company has improved its operations and net
income by reducing the impairment cost during 2017, as compared to 2016. Moreover, the net debt
of the company has declined by 31%, which has improved its current financial condition. Hence,
investment in Wesfarmers could allow the investor to raise its investment capital and enjoy the
rising dividends, which is being provided by the company.
1

Student name – ID FIN600 TX 2017
Assignment – Wesfarmers
Contents
1 Introduction...................................................................................................................................3
2 Company Analysis........................................................................................................................3
3 Ratio Analysis...............................................................................................................................3
4 Recommendations and overall assessment...................................................................................6
5 References/Bibliography...............................................................................................................8
Appendices – attached Excel Spreadsheet.........................................................................................10
2

Student name – ID FIN600 TX 2017
Assignment – Wesfarmers
1 Introduction
1.1 Background and Business
The assessment aims in evaluating the financial performance of Wesfarmers for the two
fiscal years. Moreover, adequate ratios are used in detecting the current financial performance of the
organization and how it could be an adequate business investment. Wesfarmers is considered to be
one of the highest levels of income generating organization, which operates in retail sector of
Australia. The organization has been operating since 1914, where it started its operation in Australia
and now is operating in different countries. The organization has grown immensely, where it has
become an Australian conglomerate. The company has been operating in retail, fertilizers, safety
products, chemicals, coal mining, and industrial products. The wide variety of industry that has
been maintained by the organization has provided them the name of conglomerate, the ones who
operation in different sector or industries from the parent company. However, the main operation of
Wesfarmers is in retail sector, which has provided the organization with higher revenue and profit.
Moreover, Wesfarmers is also considered to be one of the biggest employers, where it currently
employees 220,000 persons within its vicinity (Wesfarmers.com.au, 2018).
2 Company Analysis
2.1 Financial statements, Current Financial performance, economic outlook
The financial performance of Wesfarmers is relatively increased in 2017 as compared to
2016, as your organization has generated higher revenues and profit during the fiscal year. The
increment in financial performance was relatively detected from the growth of net profits, which
increased from 407 million in 2016 to 2,873 million in 2017. This drastic growth in net profit was
mainly achieved by the reduction in administrative expenses of the organization. The overall
revenues of the organization increased nominally, while the profit was raised by exponential
numbers. This was only achieved with the production in impairment expenses, which declined from
the levels of 2,172 million in 2016 to 49 million in 2017 (Wesfarmers.com.au, 2018).This
improvement in the financial performance of Wesfarmers indicate a positive attribute for the
organization. The current financial performance of Wesfarmers has relatively improved, as the
organization has generated higher returns during the fiscal year. the current economic outlook of
Australia is a relatively positive, as maximum of the Australian industries are generating profits.
The GDP of Australia is relatively increasing due to the presence of low unemployment and higher
income generated by its citizens. The economic growth in Australia has allowed multinational
companies to increase their revenues and generate higher profits.
3 Ratio Analysis
3.1 Profitability and Market ratios
(see appendix for
calculations)
2017 2016 Industry average
Return on assets 7.10% 1.00% 3.77%
Return on equity 12.25% 1.77% 9.14%
Net profit margin 4.20% 0.62% 1.97%
Gross profit margin 32.27% 31.00% 31.90%
Expense ratio/Cost to
Income ratio
82% 95% 60%
Cash return on sales 6.17% 5.10% 5%
Earnings per share $2.547 per share $0.362 per share $1.34
Price earnings ratio 16 times 111 times 67.38 times
3