Financial Performance Analysis of Woolworths for 2017

This assessment analyzes the financial performance of Woolworths for the fiscal year 2017. The assessment includes profitability, efficiency, short-term and long-term solvency, and market-based ratios. The common size analysis and trend analysis of Woolworths are also conducted to detect its current financial performance.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The financial performance of Woolworths is mainly analyzed in the current assessment,
which might help investors understand the financial progress and the investment scope
present within the organization. The comparison of two fiscal years is conducted to identify
the current financial position and the progress that has been made by Woolworths during the
period. Further evaluation has been conducted for investigating the current Common size
analysis and trend analysis of Woolworths for detecting its current financial performance.
After conducting the relevant evaluation the performance of the organization is anticipated,
which relatively helps in detecting the level of income and revenue that can be generated in
future. The identification of positive trend in Woolworths would eventually allow the
investors to generate high returns from investment.

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Table of Contents
Introduction:...............................................................................................................................3
Relevant Background of the company:......................................................................................3
Analysis of discussion:...............................................................................................................4
Conclusion:..............................................................................................................................10
Recommendation:....................................................................................................................11
References and Bibliography:..................................................................................................13

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Introduction:
The assessment aims in identifying the current financial capability of Woolworths for
the financial year of 2017. Adequate background of the organization is depicted in the
assessment, where its products and services are analyzed. Furthermore, the calculations such
as profitability ratio, efficiency ratio, solvency ratio, and market ratio are conducted to
identify the current financial position of Woolworths. Moreover, relevant comparison of two
fiscal years is conducted to identify the current financial position and the progress that has
been made by Woolworths during the period. Further evaluation has been conducted for
investigating the current Common size analysis and trend analysis of Woolworths for
detecting its current financial performance. After conducting the relevant evaluation the
performance of the organization is anticipated, which relatively helps in detecting the level of
income and revenue that can be generated in future. The identification of positive trend in
Woolworths would eventually allow the investors to generate high returns from investment.
Relevant Background of the company:
Woolworths Limited is one of the largest Supermarkets that adequately operate in
Australia since 1924. The company during the initiation stage was relatively small and was
considered a grocery store. However, the rising demand and changing customer preference
directly lead to augmentation of supermarkets in Australia, which supported the growth and
expansion process of Woolworths. Woolworths is considered to be under supermarket
industry, the composition of the competitors relatively indicate duopoly condition in
Australia. The company is selling adequately everything in supermarkets starting from
vegetables to the electronics components demanded by consumer. Woolworths Limited has
around 1000 stores across Australia, which comprises of 976 supermarket and 19
convenience stores that provides services to the customers. The company not only limits

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appearance to physical stores but also has a presence in online market, which allows the
organization to reach out more customers and improve their current revenue generation
capability. The current employee strength of wolves is around 111,000, while the overall
revenue that is generated from operation is 55.92 billion dollars (Woolworthsgroup.com.au
2018). The organization has adequately improved their condition over the past fiscal years for
supporting their operation and improving the capability of generating high revenues from
operations. Adequate improvements from the overall operations of Woolworths can be seen
today, which has allowed your management to sustain the competitive edge against its peers.
Woolworths has adapted to the changing requirements of the industry, which allowed the
organization to increase its operation from a single store to large supermarkets.
Analysis of discussion:
Profitability Ratio:
PROFITABILITY RATIOS Formula 2017 2016
Net Profit Margin Net profit / sales 2.86% -4.37%
Gross Profit Margin Gross profit / sales
28.61
%
28.18
%
Interest cost as a percentage of
sales Interest expense / sales 0.35% 0.46%
Asset turnover Sales / Average total assets 2.40 2.20
Return on assets Net profit / Average total assets 0.07 (0.10)
Return on ordinary
shareholders equity
Net profit / Average ordinary share
holder equity 0.17 (0.24)
The financial ratios depicted in the above table indicate the profitability condition of
Woolworths from 2016 to 2017. This improvement in the current financial performance of
Woolworths can be identified with the rising net profit margin from -4.37% to 2.86%.
However, the overall gross profit margin of the organization relatively increased from the

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level of 28.18% to 28.61%, which indicates that the administrative expenses of the company
substantially reduced during 2017. On the other hand, the overall asset turnover ratio, return
on Assets and return on shareholders has relatively improved over the period of one fiscal
year. This is relevant improvement in the overall financial performance was a relatively
delivered by the rising net income that was generated by the organization during the fiscal
year of 2017. The loss was from discontinued operations, which directly reduced the level of
profit that was generated during the fiscal year. Therefore, from the valuation it can be
understood that the current progress of the organization is adequate, while the discontinuation
of some operation led to losses (Scarborough 2016).
Efficiency Ratio:
EFFICIENCY RATIOS Formula 2017 2016
Accounts receivable
turnover Revenue / Average accounts receivable 73.80 65.08
Average days sales
uncollected
days in a year / Accounts receivable
turnover 5 6
Inventory turnover Cost of goods sold / Average inventory 9.20 8.17
Inventory turnover in days days in a year / Inventory turnover 40 45
The efficiency ratio of Woolworths can be identified from the above table, which
relatively indicates the level of improvements that has been conducted by the organization
during the festival of 2017 as compared to 2016. The formulas directly indicate the current
efficiency condition of the organization, which has the relatively improved, as the accounts
receivable turnover has increased from the levels of 65.08 to 73.08 in 2017. This
improvement in the accounts receivable turnover decrease the average days sales and
collected from 6 days to 5 days in 2017. The efficiency of the organization has relatively
improved over the past year, which can be identified from the rising inventory turnover ratio
calculated in the above table. The inventory turnover ratio is increased from the levels of 8.17

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to 9.20, which relatively depicts the efficiency that is being made by the management to clear
out the inventory in time. This improvement has a relatively allowed the organization to
reduce the blockage of capital that is conducted in inventory. The reduction in the inventory
turnover ratio has relatively allowed the organization to reduce the number of days that is
taken into consideration to clear their inventory, which has decreased from 45 days to 40 days
(Vogel 2014).
Short-term solvency Ratio:
SHORT-TERM SOLVENCY
RATIOS Formula 2017 2016
Current ratio
Current Assets / Current
Liabilities 0.79 0.83
Quick ratio Quick Assets / Current Liabilities 0.33 0.32
Cash flow from operations to current
liabilities
Operating cash flow / Current
Liabilities 0.35 0.26
The short-term solvency position of wolves can be identified from the above ratios,
which relatively indicates the improving performance of the company over the period of one
year. The current ratio of the organization is relatively decline from the levels of 0.83 to 0.79,
which indicates the current problematic condition faced by the organization to sustain its
capability for supporting their short-term obligations. However, the increment in overall
quick ratio has been witness for the period of one fiscal year, which indicates the efficiency
and improvements that has been conducted by the organization to be improve its current
financial capability (Evans and Mathur 2014). The rising cash flow from operation has also
supported improvements that have been obtained by the organization during the fiscal year of
2017, as the ratio has improved from the levels of 0.26 to 0.35. The rising quick ratio and
declining current ratio indicate that the overall current assets of the organization is being

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blocked by inventory, which needs to be improved for boosting the financial position of
Woolworths.
Long-term Ratio:
LONG-TERM SOLVENCY
RATIOS Formula 2017 2016
Debt to equity
Total liabilities / total shareholders
equity 1.32 1.68
Debt to total assets Total liabilities / total assets 0.57 0.63
Leverage ratio
Total assets / total shareholders
equity 2.32 2.68
Interest coverage
(Net profit + Income + interest) /
Interest 9.23 (8.56)
Cash flow from operations to total
liabilities
Operating cash flow / total
liabilities 0.24 0.16
Long-term solvency ratios are relatively depicted in the above table, which depicts the
rising performance and financial stability of Woolworths. The calculations relatively indicate
that debt to equity condition of the organization has a relatively improved, where the values
have declined from 1.68 to 1.32 in 2017. Furthermore, the improvements in depth to total
assets has been also conducted where the values has decrease from the levels of 0.63 to 0.57.
This directly indicates that the overall debt accumulated by Woolworth has relatively
declined during the financial year of 2017. The decline in leverage ratio was relatively as the
overall Assets of the organization decline, while the shareholders equity value increase. This
was mainly conducted, as the organization sold off their assets to support the operations
(Omar et al. 2014). However, the inclination in the overall interest coverage ratio can be seen
due to the rising profits that were obtained during the financial year of 2017. The cash flow
from operations has relatively improved over the period of 1 year, which has increased the
value from the levels of 0.16 to 0.24. This improvement has been achieved by the rising

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profits and financial stability that has been maintained by Woolworths during the fiscal year
of 2017.
Market based Ratio:
MARKET-BASED
RATIOS Formula 2017 2016
Price/Earnings
Market price per share / earnings per
share 21.24 18.66
Earnings yield
Earnings per share/ Market price per
share 4.71% 5.36%
Dividend yield
Dividend per share / Market price per
share 3.31% 3.75%
The ratios depicted in the above table relatively represent the market conditions of
Woolworths and states the level of returns that could be made from investment in the
organization. The above calculations relatively indicate that the price earnings ratio of the
company has relatively improved from the levels of 18.66 to 21.24. The rising earnings per
share of the organization have obtained this improvement. The calculation also depicts the
earnings yield of the company, which has deteriorated for the period of one year. This depicts
the relevant decline in its performance to maintain a high earnings yield on each fiscal year.
Similarly, the dividend yield of the organization has also declined which was due to the rising
share price of the organization during the fiscal year. The analysis of the market-based ratio
directly indicates the deteriorating performance of the organization, as both the earning yield
and dividend yield has relatively declined for the period of one year. However, only the
price/earnings ratio of the organization has improved indicating a possibility of higher
earnings, which can be obtained by the organization in future fiscal years. Lakshmi, Martin
and Venkatesan (2016) mentioned that with the use of fundamental analysis investors are
able to anticipate the future performance of the organization and make adequate investment
decision.

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Common Size Analysis:
Item 06/13 06/14 06/15 06/16 06/17
Total Revenue Excluding Interest
100.00
%
100.00
%
100.00
%
100.00
%
100.00
%
Operating Expenses -92.03% -92.19% -92.00% -93.88% -94.03%
EBITDA 7.97% 7.81% 8.00% 6.12% 5.97%
Depreciation -1.37% -1.35% -1.83% -1.71% -1.78%
Amortization -0.26% -0.28% -0.04% -0.04% -0.03%
Depreciation and Amortization -1.64% -1.63% -1.87% -1.75% -1.81%
EBIT 6.34% 6.18% 6.13% 4.38% 4.16%
Interest Revenue 0.04% 0.02% 0.00% 0.00% 0.00%
Interest Expense -0.70% -0.45% -0.42% -0.42% -0.35%
Net Interest Expense -0.66% -0.44% -0.42% -0.42% -0.35%
Pretax Profit 5.68% 5.74% 5.71% 3.96% 3.81%
Tax Expense -1.69% -1.73% -1.71% -1.22% -1.16%
Net Profit after Tax Before
Abnormal 3.99% 4.02% 4.00% 2.74% 2.65%
Abnormal -0.22% 0.00% -0.70% -1.64% 0.00%
Abnormal Tax 0.06% 0.00% 0.19% 0.33% 0.00%
Net Abnormal -0.16% 0.00% -0.50% -1.31% 0.00%
Reported NPAT After Abnormal 3.84% 4.02% 3.50% -4.01% 2.85%
The common size analysis that has been conducted in the above table relatively
represents the level of expenses and income that has been conducted by the company during
the past five fiscal years. The calculations is relatively portrayed that the incremented
operating expenses of the organization has been witnessed, which has directly affected the
EBITDA of the company. Furthermore, the overall EBIT of Woolworths has relevantly
deteriorated due to the rising administrative expenses, which has been conducted by the
company over the past fiscal years. Furthermore the calculation also indicate that the tax
expense of the company has declined, which is relatively due to the disappearance of interest
revenue declining interest expenses and reducing EBIT (Greco, Figueira and Ehrgott 2016).
The profits of the company has been steadily declining over the past 5 years, which relatively

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indicates the rising expenses and measures that has been taken by Woolworths to increase
their competitiveness in the market.
Trend Analysis:
Particulars 06/14 06/15 06/16 06/17
Total Revenue Excluding Interest 3.86% -0.09% -4.25% -4.51%
Reported NPAT After Abnormal 8.56%
-
13.06% -209.85% -167.86%
The calculations conducted in the above table relatively represent a trend analysis for
revenues of the organization and the total net profits. The calculation is relatively indicated a
decline in the current revenue generating capability of the organization, which relatively
increased and deteriorated over the period of 5 years. The reduction in the revenues was
relatively initiated by intense competition that was conducted by other competitors in the
market. However, the reduction in revenues directly produced the capability of the
organization to sustain high profits. Therefore, the decline in profits of the organization was
relatively witness, which can be seen in the above table. The net income of the organization
deteriorated quickly as Woolworths obtained lost during the fiscal year of 2016. Woolworths
mainly conducted the loss due to the non-continuation of the current operations (Ibn-Homaid
and Tijani 2015).
Conclusion:
The assessment directly evaluated the current financial position of Woolworths,
where adequate improvements in the current financial performance are seen. The company
has relatively improved the levels of net profits generated during the fiscal year of 2017. The
financial ratios such as profitability, efficiency, liquidity, and solvency relatively indicate the
financial improvements, which have been obtained by Woolworth during the fiscal year of
2017. Adequate improvements are relatively conducted during the financial year of 2017,

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where reduction in debt was seen. This decline in debt accumulation of the organization has
mainly allowed the company to increase their current financial performance. The financial
ratios depict the current improvements that have been mastered by Woolworths for improving
its financial performance and reducing the level of losses incurred from operations. The
company has relatively improved its current net profits by adequately adjusting to its
operations and improving the profits by 2.86%.
Recommendation:
After evaluating the financial performance of Woolworths, it could be assume that the
organization is a viable investment opportunities which can be used by investors. The
company's overall financial performance has improved during the past two fiscal years. The
loss that was incurred during 2016 was due to the non-continuation of operations, which was
only a onetime event. Hence, the improvements in the profits can be witnessed during the
fiscal year of 2017. Therefore, investors can use Woolworths as an adequate investment
opportunity, which might allow them to generate high returns from investment. The share
value of the company has relatively improved over the fiscal years, which was supported by
the P/E ratio. This indicates the growth and opportunity that is present within the
organization, which could allow investors to improve their profits in future. The
recommendation is supported with by the above tissue, which has been calculated for
understanding the current financial position of Woolworths. The improvements in the
operations of Woolworths directly indicate an investment opportunity, which the investors
can utilize to generate high returns. However, the investment scope needs to be adjusted
adequately, which might help in reducing the level of risk involved in investment.

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