Financial Analysis of Woolworths Company for Financial Management

Woolworths Company
Financial Management
Financial analysis
PC-AS0197
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Executive Summary
With the ramified economic changes, and complex business activities, every investor
needs to take imperative financial decisions to create value on their invested capital. There
are several financial analysis tools such as ratio analysis, top down analysis, du pont analysis,
share price valuation analysis and capital budgeting tools which could be used to evaluate the
financial performance of company.

Table of Contents
Executive Summary...............................................................................................................................1
INTRODUCTION.................................................................................................................................2
Description of Woolworths Company...............................................................................................3
Task-1....................................................................................................................................................3
Assess the company’s performance over the last three years.................................................................3
LIQUIDITY RATIOS.......................................................................................................................3
PROFITABILITY RATIOS..............................................................................................................3
EFFECIENCY RATIO OR ACTIVITY RATIO...............................................................................6
CAPITAL STRUCTURE RATIOS...................................................................................................7
Long -term solvency of the company over the last three years..............................................................8
Trend analysis of Woolworths Company...............................................................................................8
Recommendation to investors............................................................................................................11
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13
INTRODUCTION
This report reveals the key information and financial analysis of company which
could strengthen the financial investment decisions of company. In this report, financial
performance of Woolworths has been assessed which will help in determining whether the
invested capital could be used to create value on the investment. The ratio analysis and
shareholder value analysis is the most effective tool which could be used to assess
profitability, liquidity, efficiency and share price fluctuation of company in long run. In the
starting, financial performance analysis is made. After that share price value analysis has
been done by using the share price valuation tool. Afterward, CAPM method is used to
identify the cost of capital and weighted average cost of capital of company. It will assist
organization to determine whether it has performed well in market. After that, discussion
about the share valuation and financial position of company has been made by analysing the
data. Investors needs to assess the financial performance of company before investing their

money so that they could identify whether the invested capital will provide return to company
or not.
Description of Woolworths Company
It is an Australian company which is engaged in providing the super market services to
clients so they could get all types of goods from only single one store chain. The
headquartered of company is in Bella, Vista, Australia. The share price value of company has
increased by 14% since last three years which reflects higher amount of business growth and
sustainability in long run (Woolworths Limited, 2017).
Task-1
Assess the company’s performance over the last two years
The ratio analysis of company is made to establish the relation between two financial factors.
It would assist in assessing the profitability, liquidity, efficiency and share price fluctuation
of company (Woolworths Limited, 2017).
LIQUIDITY RATIOS
The liquidity ratio is used to analysis whether company is able to meet its short term and long
term liabilities. It is analyzed that company has good amount of cash blockage in its current
assets (Delen, Kuzey, &Uyar, 2013). This company has decreased its cash blockage in its
current assets with a view to lower down its cost of capital. It is analysed that company has
reduced its investment in its current assets which might negatively impact the business
growth of the organization. It is analyzed that company could easily reduce the cost of capital
if it effectively manages its liquid assets. With the changes in time, it has lower down its cash
blockage but it might negatively impact the business functioning of organization if there is
high demand in market (Goldmann, 2017). As compared to market industry ratio, it has
maintained higher liquidity in its business.
PROFITABILITY RATIOS
This ratio divulges the profit earning capacity of company in long run. It measures
company’s earning capacity which will assist in determining how well company has

performed throughout the time. It is analyzed that Woolworths Company has increased its net
profit margin to 8% in 2017. It has increased due to the increase in its overall turnover. It has
been reflected that company has improved its profitability by increasing the overall sales. In
context with the gross margin, Woolworths has faced high decrease in its gross profit margin
and resulted to 22% GP margin in 2017. It has decreased its gross profit margin by 20% since
last three years (Goldmann, 2017).
The returns on assets have been stable since last three years. However, company did not
increase its investment amount and maintained stable return on its investment. As compared
to market industry ratio, it has maintained higher equal profitability in their net profit and
return on earning, capital investment is higher.
Description Formula WOOLWORTHS HOLDINGS LTD (WHL)
2013
-08
2014
-08
2015
-08
2016
-08
2017
-08
Average
industry ratio
Net profit Margin
Net
profit/revenues 7% 7% 6% 7% 8% 8%
Gross profit
Margin Gross profit/ Sales 38% 39% 41% 41% 40% 22%
Administrative
expenses ratio
Administrative
expenses/ Sales 29% 29% 31% 30% 30% 85%
Return on equity Net profit/Equity 46% 44% 22% 22% 29% 24%
Return on assets
Net profit/ Total
sales 7% 7% 6% 7% 8% 8%

Earnings per
share
Net profit/ Share
outstanding 0.50 0.25 .1.5 0.65 0.45 0.85
The return on equity of company has increased to 24% which is 2% higher since last three
years. This reflects that company has more earning available to distribute to its equity
shareholders (Woolworths Limited, 2016).The earning per share of company has also
decreased with the decrease in its overall profit. These all things have reflected that company
has lower down its profitability. In order to improve the profitability, company must lower
down its operating expenses and increase its overall revenue (Goel, Chadha, and Sharma,
2015).