Comparing Financial Results and Sustainability Reports of Wesfarmers

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Question 1
Comparing Financial Results for Wesfarmers Annual Reports
Financial accounting provides important organization finance information that is required for
making sound economic decisions. Financial accounting communicates with external
stakeholders of company’s financial performance for a specific period of time (Weil, Schipper,
& Francis, 2013). All for profits organization aim to increase return on investment to achieve
maximization of shareholders’ wealth through improved financial performance (Henderson,
Peirson, Herbohn, & Howieson, 2015). Financial performance is measured by company
profitability and financial ratios (Berk et al., 2013). The following write up compares financial
results of Westfarmers group from 2016 to 2017 financial years. This will involve use of key
results to explain performance and discussion of the improvement or not in financial position
profitability.
Wesfarmers is one of the largest listed companies in Australian Securities Exchange and has it
headquarters in Western Australia. The company history dates back to 1914 when it started as a
farmers’ cooperative (Jones, Comfort, & Hillier, 2014). Wesfarmers has 515000 shareholders
and 223000 employees and operates in Australia, Ireland, New Zealand, and the United
Kingdom. The company has diverse business operations that include supermarkets, home
improvements, departmental stores, industrials, office supplies, coal, and safety products
divisions (Campbell, 2017). The Westfarmers Company is led Michael Chaney as the Chairman
and Rob Scott as the Chief Executive Officer. The Wesfarmers financial year starts on 1st July
and ends 30th June of every year.
The Wesfarmers financial performance for 2016 and 2017 financial year were recorded to have
improved compared to previous financial years. The net profit for Wesfarmers increased by
22.1% in 2017 FY amounting to $2873 million compared to 2016 FY $2353 million recorded.
The low profits in 2016 FY were attributed to high impairment charges in Target and Curragh
Company’s divisions. The Wesfarmers Company earnings per share significantly increased by
21.6% to $2.55 in 2017 FY as compared to $2.09 recorded in 2016 FY. The Company
impressive financial performance in 2017 was as a result of increased revenue to 68444 million
from 65981 million in 2016 financial year. Coles division had the highest revenue recorded for

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both financial year at $39217M in 2017 FY and $39424M in 2016 FY. The department stories
division had the second highest revenues amounting to $8528M in 2017 FY and $8646M in
2016. The Officeworks division recorded $1964M revenues in 2017 FY compared to $1851M in
2016 FY. The industrials divisions also had an increase in revenues amounting to $5161M in
2017 FY compared to $4672M in 2016 FY. The net debt decreased in 2017 FY to $4809 million
from 2016 FY net debt that accumulated to $7103 million. The Wesfarmers shareholders’ equity
amounted to $23941M in 2017 FY which was higher than 2016FY recorded at $22949M.
The Wesfarmers Company financial ratios indicated improvement in financial performance in
2017 financial year compared to 2016 financial year. The company return on average equity
increased in 2017 FY to 12% compared to 9.6% in 2016 FY. This profitability ratio shows that
the company was able to generate more returns in 2017 FY which was an improvement from
2016 FY (Kent, & Zunker, 2013). The net debt to equity ratio for Wesfarmers Company reduced
to 20.1% in 2017 FY from 31% in 2016 FY. This gearing ratio shows that the company’s portion
financed by debts reduced hence reducing leverage risk of the company (Schaltegger, & Burritt,
2017). The return on capital for each division varied with home improvement division having the
highest ratio of 30.3% in 2017 financial year compared to 33.7% in 2016 FY. The department
stores and industrials divisions had the highest improvement in return on capital employed from
2016 financial year to 2017 financial year. The department stores recorded 24.1% increase in
return on capital in 2017 from 7.6% in 2016 FY while industrial division improved from 1.1% in
2016 FY to 27% in 2017 FY.
According to Michael Chaney, the Wesfarmers 2017 FY results are attributed to the
conglomerate structure. The industrial businesses, Bunnings and Kmart in New Zealand and
Australia increased their earnings in 2017 FY and Target reduced losses as compared to 2016
financial year. Michael also added that the focus of the company’s Board and management
constantly provides superior returns to shareholders in the long term.
From Wesfarmers annual financial reports, the company recorded both improvement and no
improvement in certain aspects of the company’s financial position and profitability. The highly
improvement in financial position for Wesfarmers is net debt. The company was able to reduce
net debts by 32.3% which enhances the company stability in financial position. The financial
performance reduced the net debt to equity ratio of Westfarmers by 10% from 2016 to 2017. The