Woolworths Limited: An Analysis of Financial Performance and Corporate Governance

This report provides a comprehensive analysis of Woolworths Limited's financial performance and corporate governance practices. It examines the company's adherence to the ASX Corporate Governance Principles, conducts a thorough risk assessment, and evaluates key financial ratios. The report also includes an analysis of the company's business strategy, market overview, and regulatory environment. The report concludes with recommendations for improving the company's audit risk management practices.

HI6026 - Audit, Assurance and Compliance

Contents
Executive Summary.................................................................................................................................3
ASX Corporate Governance Principles...................................................................................................4
Risk Assessment......................................................................................................................................6
Audit risk and recommendations...........................................................................................................11
References.............................................................................................................................................12

Executive Summary
This report analyses the financials as well as the management policies that are responsible for
driving the business to provide a correct overview to the investors on whether to bank on such
companies or not. Woolworths ensure that the stakeholders as well as shareholders are satisfied
by their service and thus continue to keep faith in their decisions as well as their company. This
ensures that the shareholders do not seem dissatisfied and raise any issues with the management.
Till now the company has shown great potential and has been leading it along with another
competitor company. The following analysis covers the key observations from their financial
reports and also incorporated several key decisions made in the previous financial year.

ASX Corporate Governance Principles
Principle 1:
Out of the 9 Board of directors 4 our women. This shows the company gives importance to fair
and equal representation and the fact that it is not biased towards women in general and supports
them at positons of power by trusting in their abilities. These directors are also members of key
committees of the company to ensure proper and overall governance. The following are the
various committees: audit and risk committee, the people performance committee, sustainability
committee and the last one being the nomination committee (Sajadi and Avesta, 2005). The MD
and the Chief Executive Officer of the company is Brad Banducci, who is highly skilled and
educated. He holds an MBA, LLB and BCOM in accounting. Also, he has almost about 15 years
of retail experience which adds to the value provided to the company. Various other skills that
the people at leadership roles in the company hold are: retail space marketing, strategy,
distribution acumen, financial strategy, regulatory and risk policies.
Principle 2:
Of the executive board, the two major roles other than the MD are played by Richard Dammery
and David Marr as the Company secretary, and chief financial officer, respectively. Richard is a
PhD from Cambridge and has over 20 years of experience in the legal space and the roles in
general management. David has been with the company since the year 2011, and prior to that has
worked with several Australian conglomerates and key positions (Soleimani, 2003). Deloitte
Touche Tomahatsu worked as the company’s auditors who were also responsible for performing
several non-audit services in the financial year. The company has a made a point to declare that
nothing was in the violation of the rule of independence of auditors. The company has also
furnished details in this report catering to the number of meetings of the board and the committee
that were held throughout the year , and how many of them were attended by the Directors:
executive as well as non- executive. Also it has been mentioned that the directors can attend the
meeting of committees that they don’t belong to.
Principle 3:

The company has furnished all the details the shareholder of the company would be interested to
know of. There have been no negative miss finding by the auditors and overall the vibe in the
markets have been positive towards this company because of several expansion initiatives. The
company has also highlighted clear the financial transaction they undertook during the year, like
the refinancing of their notes by using some debt, equity and also the added cash. The company
has also borrowed a capital of $ Seven hundred million for different purposes. Also, it has stated
that they are not planning on refinancing any of the current projects during this coming financial
year.
Principle 4:
The company has prepared a very attractive and meaningful financial annual report which can be
misconstrued as trying to hide some minute or major details. But as per the recent plans of the
company there are going to be several changes in the coming financial year. The goals and the
way forward have been mentioned as: they opened 3 Woolworth’s supermarkets, and undertook
several key acquisitions like the Dan Murphy’s. They are trying to outperform themselves with
each financial year, which is quite impressive given the economic downturn (Namazi and
Rostami, 2006).
Principle 5:
The company has published the shareholding patterns n the company that shows that most of the
shares are being held by corporations that have a stake around 3% or even less, very few have
5% around. Also, it can be seen that since these shares are being held by companies or corporates
in place of individual investors, we can expect more rational and less hurried results that can help
us by not affecting the prices at a very rate and quantity wise as well.
Principle 6:
The company has bene responsible in the way it has illustrated all the information in diagrams
and side boxes such that the investors can know what they are investing in. The company has
employed over 70,000 employees that are young and majority of them belong to Australia. The
company has clearly also mentioned that it has no plans of expanding g in areas other than this
continent.

Principle 7:
The company runs both brick and mortar stores which is what their primary business is. They
sell groceries, household stuff, products stationery, cosmetics and beauty ranges etcetera. The
company accepts that this business is seasonal with maximum sales on public holidays and
weekends. They also acknowledge that they need a good amount of borrowings to meet their
plans of expansion.
Principle 8:
The report has also openly stated the remuneration provided to certain people in the management
to ensure that no assumptions are being paid properly and understand that it believes in fair
wages, and accepts healthy competition.
Risk Assessment
Nature of the company and Market Overview
The company was started in the year 1924, and has since been a very successful player in the
supermarkets space in Australia. It offers grocery items, household items, and baby as well as
beauty products (Pasiouras et al, 2007). Also the company runs an online portal with the same
name where they provide home delivery for items ordered online. Woolworths along with
another of its competitor in the same market space, Coles , both of these together constitute of
about 80% of the market share showing intense competition with each other and it represents a
duopoly very accurately, thus ensuring us of profitable business because of a stable sales system.
Regulators
Since the company runs supermarkets, it faces regulations from several different sides. The most
important of them being that of food. It includes food safety, packaging, labeling as well as
import regulations. The others of consumer products ensure that these are approved by public
health and safety measures, are being fairly traded in the market and are not being sold above the
mark up value. New Zealand also falls under the jurisdiction of Australia in the case of many
regulations, and if not Woolworths needs to abide by those as well.
Business Strategy

The company has a very strong position in the market and it is striving towards gaining and even
larger percentage of market share by increasing its number of stores. They are expanding with an
annual target of 3-4 additions to their supermarket family in Australia. Also it has adapted with
the online rage of shopping and religiously is as committed on its online platform as it is in its
stores. The company has made several key acquisitions in the previous years, to gain strategic
advantage over other supermarkets by having exclusive dealership of certain famous brands.
This ensures that they have a monopoly in those areas (Rahimian, 2008).
Income Statement ratios
2017 2016
Gross Margin 0.038 0.023
Gross Profit/Sales
Net Margin 0.027 0.014
Net Income/Sales
RoA 0.065 0.032
Net Income/Total Assets
RoE 0.150 0.087
Net Income/Equity
The above ratios can help us make some key observations regarding the financials of the
company. The gross margin as well as the net margin have shown a decline from 2016 to 2017,
which shows that as compared to the sales in the previous years they had made more surplus than
it did this time. This can be because of few more new local stores opening up in the vicinity.
Strategy wise, acquisitions with brands might help in this case. The Return on assets has risen
from the previous year. This shows the company was able to generate more surplus from more or

less the same amount of asset or possessions that is, capital equipment. Similarly the return on
equity has also increased this year, which reflects a similar observation as the ROA.
Balance Sheet Ratios
2017 2016
Current ratio 0.79 0.83
Current Assets/Current Liabilities
Quick Ratio 0.33 0.32
(Current Assets-Inventory)/Current Liabilities
Debt/Equity 0.28 0.44
From the above calculated ratios we can see that the current ratio has decreased from the past
year whereas the quick ratio has increased slightly from the previous year. This shows the impact
of inventory on our current assets and overall policy and strategy. This shows that Inventory for
2017 might have reduced over the last year. The reason could be due to sale of raw material. The
debt by equity ratio shows the extent to which the capital includes debt and to what percentage of
debt there is equity funding. This shows that the percentage of debt with respect to equity has
reduced for this year.
Common size financial statements
Balance Sheet Items 2017 2016
Cash and cash equivalents 0.04 0.04
Trade and other receivables 0.03 0.03
Inventories 0.18 0.19
Other financial assets 0.00 0.00
Assets held for sale 0.05 0.05
Total current assets 0.31 0.32
Non-current assets 0.00 0.00
Trade and other receivables 0.00 0.00
Other financial assets 0.02 0.03

Property, plant and equipment 0.37 0.35
Intangible assets 0.29 0.28
Deferred tax assets 0.02 0.02
Total non-current assets 0.69 0.68
Total assets 1.00 1.00
Current liabilities 0.00 0.00
Trade and other payables 0.29 0.27
Borrowings 0.01 0.02
Current tax payable 0.00 0.00
Other financial liabilities 0.01 0.01
Provisions 0.06 0.08
Liabilities directly associated with assets held for
sale 0.00 0.01
Total current liabilities 0.39 0.38
Non-current liabilities 0.00 0.00
Borrowings 0.12 0.16
Other financial liabilities 0.01 0.01
Provisions 0.04 0.06
Other non-current liabilities 0.01 0.01
Total non-current liabilities 0.18 0.24
Total liabilities 0.57 0.63
Net assets 0.43 0.37
Equity 0.00 0.00
Contributed equity 0.25 0.22
Reserves 0.00 0.00
Retained earnings 0.17 0.13
Equity attributable to equity holders of the parent
entity 0.42 0.36
Non-controlling interests 0.02 0.01
Total equity 0.43 0.37

Income Statement Items 2017 2016
Revenue from the sale of goods and services 1.00 1.00
Other operating revenue 0.00 0.00
Total operating revenue 1.00 1.00
Cost of sales -0.72 -0.72
Gross profit 0.29 0.28
Other revenue 0.00 0.01
Branch expenses -0.19 -0.20
Administration expenses -0.06 -0.06
Earnings before interest and tax 0.04 0.03
Financing costs 0.00 0.00
Profit before income tax 0.04 0.02
Income tax expense -0.01 -0.01
Profit for the period from continuing operations 0.03 0.01
Discontinued Operations 0.00 0.00
Profit or(Loss) from discontinued operations, after
tax 0.00 -0.06
Profit or(Loss) for the period 0.03 -0.04
Profit or (Loss) attributable to: 0.00 0.00
Equity holders of the parent entity 0.03 -0.02
Non-controlling interests 0.00 -0.02
Profit from continuing operations 0.03 0.01
Profit or (Loss) from discontinued operations 0.00 -0.04
From these common size statements we can see that despite of any increase in profit compared to
previous year, the value of cost of sales remained the same for both years. Also the company
achieved a more balanced debt and equity structure. This year the value of equity increased
significantly and the value of debt also reduced significantly, suggested several amounts were
cleared today.

Audit risk and recommendations
Any changes in policy for depreciation amortization may be modified to ensure longer tenure of
the office or store equipment’s. Also the company might have overlooked to mention some
external factors that were affecting it severely. The primary risk could be that of expiry, in super
markets especially such the products to be bought would need a lot of space and time. Another
regulator for Woolworths functioning are the management and government bodies that need to
ensure that no loopholes can be put in.

References
Sajadi, H., & Avesta, S. (2005). The application of analytical methods in audit. Journal of social
and humanistic sciences, 22(2), serial 43:90-102.
Soleimani Amiri, Gh. (2003). The financial ratios and prediction of financial crisis of the
companies in TSE. Journal of accounting and audit, 15, 21-136.
Namazi, M., & Rostami, N. (2006). The study of the relation between financial ratios and stock
return rate of the companies listed on TSE. Journal of accounting and audit, 44 (summer):
105127.
Pasiouras, F. et al (2007). Multi-criteria decision support methodologies for auditing decisions:
The case of qualified audit reports in the UK. European Journal of Operational Research, 180,
1317-1330.
Rahimian, Nezamoldin (2008). The application of analytical methods in audit of financial
statements. Journal of audit and accounting, 53, 53-66. Sajadi, H., & Avest