Analysis of Woolworths Group Limited Annual Report

This report provides an analysis of Woolworths Group Limited's annual report, including sections dominating the report, director's report, auditor's report, changes in sales, net cash flow, retained earnings, and ratio analysis. The report also includes a brief history of the company and its establishment, as well as information on its business activities and expansion plans. The ratio analysis covers profitability, leverage, and liquidity ratios, and provides insights into the financial health of the company.

sTable of Contents
Brief about the company.............................................................................................................................1
Sections of business dominating the report................................................................................................1
Summary of the Director’s report...............................................................................................................2
Summary of the Auditor’s report................................................................................................................3
Change in the sales and analysis..................................................................................................................3
Change in the net cash flow and analysis....................................................................................................4
Change in Retained Earnings and Analysis..................................................................................................4
Ratio Analysis..............................................................................................................................................4
References...................................................................................................................................................9

Brief about the company
Organization name: Woolworths Group Limited
Year of Establishment: The Company came into existence with the opening of its first
store on December 5th, 1924.
History & Background: When the company was opened, it started with a share capital of
just one hundred and eighty-five thousand pounds which were subscribed a little over six
hundred people which includes its five founding members. By 1929, the company
expanded its operations in New Zealand and opened its first store in the country in the
city of Wellington (Belton, 2017). The company had a landmark moment in the year of
1955 when it opened its 200th store. In the year 1981, the company introduced itself in the
electronics retail market by acquiring Dick Smith. From the 1970‘s to the late 1980’s the
company began a transition phase of moving from variety stores to supermarket stores.
By 1985, Woolworths had transformed itself into the largest food retailer in the country
of Australia. The company entered into the fuel supply market in the year 1996 by
opening petrol outlets. It expanded itself into liquor business by acquiring Dan Murphy in
the year 1998. In 2005, Woolworths Group ventured into the hotel business by the
acquisition of ALH group (Alexander, 2016).
In 2011, Woolworths came up with its first home improvement store. They offer
furniture, bathroom fittings and other varieties of home furnishing items.
Sections of business dominating the report
Going through the contents page, it can be concluded that the business review and the
financial report are the two sections that overwhelmingly dominate the entire annual
report.
The business review majorly entails the performance of the different verticals of the
business namely the Food divisions in Australia and New Zealand, its liquor division of
Dan Murphy, Retail giant Big W and hotels (Bromwich & Scapens, 2016). Highlights of
the balance sheet, cash flows are also given. This part also contains information on the
operations that have been discontinued and the expansion plans of the company.
The financial report comprises of the auditors as well as the directors report and the
financial statements of the entity.

Summary of the Director’s report
Base on the Director’s report section of the annual report, the four main directors of the
entity are:
 Gordon Cairns (Also the chairman of the board)
 Michael Ullmer (Also Chairman of the audit, risk management & compliance
committee)
 Holly Kramer (Also the Chairman of the People Performance Committee)
 Scott Perkins (Also the chairman of the sustainability Committee)
The initial page of the report states the gender composition of the board (comprising
of half male and half female members), the average tenure of the board members
ranging between zero to nine years and the pie charts depicting the experience of the
members of the board in different areas like Finance, retail, risk management among
others. The report also highlights the experience and backgrounds of the directors and
other executive committee members (Choy, 2018). The reports enlist the main
business activities that the group undertakes. It also gives director wise details for
both executive and non-executive details of the number of meetings of the board and
various committee meetings that they have participated in throughout the year. This is
a disclosure required from a corporate governance perspective. The report names the
two company secretaries of the company. The report contains a declaration on the
compliance of environment regulation and director’s indemnity against lawsuits. It
states that certain non-audit services were rendered by its auditors which are within
the compliance purview of the Code of ethics for auditors (Das, 2017). A significant
part of the director’s report is the remuneration report of the key managerial
personnel and directors. The report covers the financial and other performances of the
company Vis a Vis the remuneration paid. It covers the fixed as well as other short
term and long term incentives paid to the directors and key managerial personnel. It
has details about the set targets for the executive KMP and how much of it has been
achieved and its comparison with the actual remuneration received by them during
the year. The report has a financial year 2019 outlook on the payments to be made to

them. Among other things the remuneration report lays down policy guidelines
related to the minimum shareholding requirement of the independent directors,
restrictions on securities trading for the senior executives and the roles and
responsibilities of the people performance committee (Dichev, 2017).
Summary of the Auditor’s report
The statutory auditors of the company are Deloitte Touché Tohmatsu. AV Griffiths is the
signing partner from Deloitte for the company. As per the opinion stated in the report, the
financial statements of the group depict a true and fair view of the view of the financial
performance of the company. The report states that in preparing the financial statements,
the regulation of the Corporations Act 2001 and the Australian accounting standards have
been complied with. In the Basis for opinion paragraph, the auditors state that the basis of
their opinion is the statutes under the act and the audit evidences obtained during the
audit which are sufficient and appropriate (Gooley, 2016). The report covers three key
audit matters that were significant in the audit of the financial statements. The three
major matters include:
 Valuation of the Property, plant and equipment of Big W and the consideration of
provisions related to onerous lease.
 Evaluation of the accounting methodologies used for the accounting of rebates.
 Testing of IT controls (Vieira, et al., 2017).
Change in the sales and analysis
Compared to the previous year figures, the sales have increased. The reason for the
change in sales could be attributable to the following:
 There has been a 4.3 percent increase in the revenues from the Australian food
division and 4.5% growth in Endeavour drinks which has been the major driver in
pushing the sales figures upwards.
 Another reason for the increase in sales was the first full year comparable growth
since financial year 2009 in the segment Big W. Lower prices and improved
product ranges triggered the growth in this division (Werner, 2017).

Change in the net cash flow and analysis
The net cash inflow from operating activities for the company stands at 2,930 million
dollars.
In terms of money there has been a decline of 192 million dollars $2930 million for the
current period as against $ 3122 million in the preceding reporting period. In percentage
terms the decline is 6.15% as compare to the previous reporting period (Kuhn & Morris,
2016).
Change in Retained Earnings and Analysis
The closing retained earnings for the year stands at $4,073 million. It had an opening
balance of $3,554 million and a further $1,724 million was added to it as net income for
the year. After paying $1,208 million its balance stood at the above-mentioned closing
figure.
Yes, the company has borrowings. The borrowings comprise of both short term and long-
term commitments. The total borrowings sum up to 2,804 million out of which $604
million are short term and the remaining being Long term. Bank Loans comprise a major
segment of the borrowings while some of it are unsecured securities (Heminway, 2017).
Ratio Analysis
Computation of Profitability Ratios
Return on Asset Ratio: The formula for calculating it is Net Income/Total Assets
Net income = $ 1,795 million
Total Assets = $ 23,558 million
Return on Asset Ratio = 1,795/23,558 = 0.0761 or 7.61 %
Return on Capital Ratio: The formula for computing is
Earnings before Interest and Taxes /Capital Employed. For computing capital employed
we have to deduct Current Liabilities from Total Assets.
Earnings before Interest and Taxes = $ 2,548 million
Capital Employed = 23,558 – 9,196 = 14,362 million (Goldmann, 2016)

Return on Capital Ratio = 2,548/14,362 = 0.1774 or 17.74 %
Return on Equity Ratio: Net income/Shareholder Equity
Net income = $ 1,795 million
Shareholder Equity = 10,849 million
Return on Equity = 1,795/10,849 = 0.1654 = 16.54 %
Return on Common Equity: Computed by the formula: Net Income/Common Equity
Common Equity: Contributed Equity + Non-Controlling Interest
= 6,055+368 = $ 6,423 million
Return on Common Equity = $ 1,795/6,423 = 0.2795 or 27.95 %
Computation of Asset Turnover:
Total Asset Turnover: We can compute this as
Net Sales/Average Total Assets
Net Sales = 56,965 million (Jefferson, 2017)
Average Total Assets = (Opening Total Assets + Closing Total Assets) /2
= (23,043+23,558)/2 = $ 23,301 million
Total Asset Turnover = 56,965/23,301 = 2.44x
Fixed Asset turnover: It can be computed using the formula
Net Sales/Average Fixed Assets
Average Fixed Assets = (Opening Fixed Assets + Closing Fixed Assets)/2
Fixed Assets comprises of Property, Plant & Equipment and Intangible Assets
Average Plant Property and Equipment = (9,026+8438)/2 = $ 8,732 million
Average Intangible Assets = (6,465+6,533)/2 = $ 6,499 million
Therefore, Average Fixed Assets = 8,732+6,499 = $ 15,231 million
Fixed Asset Turnover = 56,965/15231 = 3.74x
Accounts Receivable Turnover = it is computed by the formula:
Net Credit sales/ Average Accounts Receivable
Since there is no information on credit sales, hence this ratio can’t be computed.

Inventory Turnover Ratio: It is computed by the formula
Cost of Goods Sold/Average Inventory
Cost of Goods Sold = $ 40,256 million
Average Inventory = (Opening Inventory + Closing Inventory)/2
= (4,207 + 4,233)/2 = $ 4,220 million
Inventory Turnover Ratio = 40,256/4,220 = 9.54x
Leverage Ratios:
There are three kinds of leverage ratios to be calculated.
Long-term Debt/Equity Ratio:
Long term Debt = 2,199 million
Equity = 10,849 million
Long Term Debt-Equity Ratio = 2,199/10,849 = 20.27 %
Debt Ratio: This is computed by dividing total liabilities by total assets
Total Liabilities = 12,709 million
Total Assets = 23,558 million
= 12,709/23,558 = 53.95 %
Earnings before Interest and Taxes/Interest expense:
Earnings before Interest and Taxes = $ 2,548 million
Interest expense = $ 154 million (Knechel & Salterio, 2016)
= 2,548/154 = 16.55x
Liquidities Ratios:
In this we need to calculate the following:
Current Ratio: This is obtained by dividing the Current Assets by Current Liabilities
Current Assets = 7,181 million
Current Liabilities = 9,196 million

= 7,181/9,196 = 0.78x
Quick Ratio: We calculate this by the equation:
(Total Current Assets – Prepaid expenses – Inventory) / Current Liabilities
= (7,181 - 381 – 4,233) / 9196
=0.28x
Cash ratio: It is derived by the following equation
Cash and Cash Equivalents/Current Liabilities
Cash and Cash Equivalents = 1,273 million
Current Liabilities = 9,196 million
Cash ratio = 1273/9196 = 0.14x
Comment on the financial health of the company based on the ratios calculated:
 Three out of the four profitability ratios are in double digits indicating that the
margins of the company and the gains made are very healthy
 The Asset turnover ratios are good indicating the company is successfully
utilizing its fixed assets to generate revenues. Especially a significantly healthy
Inventory Turnover ratio is suggesting that the company is efficiently managing
its inventory to generate revenue (Linden & Freeman, 2017).
 The debt equity ratio has gone down from last year signifying that the company is
having the enough profits to repay its loans. This will eventually boost the credit
rating for the company enabling it to get cheaper loans in the future. Also, the risk
perception of the company would improve as the debts decrease.
 From 57.14 % in the last year to 53.95 % this year, this ratio has improved.
Lowering of Debt ratio signifies the portion of assets of an organization that are
financed by debt. A high ratio would indicate that the risks associated with the
company’s activities of business are greater. A lower ratio indicates that
borrowings in the future can happen at lower risks.
 The interest coverage ratio has shot up significantly from 11.99 % last year to
16.55 % in the current year. This is a very good sign as this ratio depicts the

ability of the company to pay for its interest obligations for the year. If the ratio
rises, it suggests that the company is in a better position than before to pay for the
interest on borrowings (Sithole, et al., 2017).
 There is a marginal decrease in the Current liabilities from 79.5 % last year to 78
% this year. Since the fluctuation is very little, it is not making much of a
difference. However, attention should be paid on this ratio as this shows the
ability of the company to repay the current obligations of the company using
current assets. However, this minor impact is more or less taken care of by the
improvement in the Cash ratio from 10.15 % last year to 14 % this year. This
shows that the company’s liquid assets are on the rise and hence speedy
settlements can take place.

References
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