Analysis of Organizational Performance of Woolworths Limited

The report evaluates the financial standing of Woolworths Limited by analyzing its profitability position, cash flow statement, and balance sheet. It also examines the ethical standards implemented by the management for carrying out business operations. The report includes financial ratios such as return on assets, inventory turnover, quick ratio, and price-earnings ratio. The selected company is Woolworths Limited, a supermarket giant in Australia.

Accounting for Business
1

Executive Summary
The report has been carried out for depicting an analysis of the organizational
performance of Woolworths Limited. This has been carried out by examination of its cash flow
statement, balance sheet and performance ratios. The analysis of the ethical standards maintained
by the company is evaluated on the basis of examination of its corporate governance statement.
2

Contents
Introduction......................................................................................................................................4
Section 1: Evaluation of the financial standing of the company.....................................................4
Profitability of Woolworth in current year (2017) as compared to previous year (2016)...........4
Comparison of profitability performance of Woolworth with its competitor Wesfarmers.........6
Analysis of cash flow statement of Woolworth Group................................................................6
Analyses of financial position of the company (Balance Sheet).................................................7
Section 2: Analyzing the firm performance using the financial ratios..........................................10
Return on Assets........................................................................................................................11
Inventory Turnover ratio............................................................................................................12
Quick Ratio:...............................................................................................................................13
Section 3: Corporate Governance Statements & the Practice of Integrity Policy.........................14
Management Approach for:.......................................................................................................14
Management of Business Risks..............................................................................................14
Attitudes & Actions towards Financial Reporting.................................................................15
Attitudes toward information processing and accounting functions and personnel...............15
Business Operations...................................................................................................................15
Investment and Investment Activities........................................................................................16
Financing and Financing Activities...........................................................................................16
Industry Size..............................................................................................................................16
Major Players/Competitors........................................................................................................16
Market Shares of Industry Players.............................................................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
3

4

Introduction
The report is developed to provide an analysis of the organizational performance of a
selected company listed on ASX. It provides an evaluation of the financial performance of the
selected company with analyzing its profitability position. This is carried out by providing
comparison of the current year financial figure of the company against the previous years and
also from its competitors taken from the same industry. In addition to this, the evaluation of the
cash flow and balance sheet of the company is undertaken to examine its financial position. This
is followed by calculation of the financial ratios of the company for the last three years on the
basis of information provided in the annual report. The financial performance of the selected
company is mainly analyzed on the basis of the performance ratios of rerun on assets, inventory
turnover, quick ratio, and price-earnings ratio. Also, the ethical standards implemented by the
management for carrying out the business operations are analyzed in the report by examining its
corporate governance framework. The selected company in this context is Woolworths Limited,
a supermarket giant in Australia that is regarded as one of the top most retail company within the
country.
Section 1: Evaluation of the financial standing of the company
In order to evaluate the financial standing of the company there is need to evaluate the
financial strength through use of financial ratios, trends in the financial statements and through
analyzing the variances in the financial items (Papadopoulos, 2011). In this segment of the report
there is need to evaluate the financial standing of Woolworth for last two years and its
performance has been compared with the financial performance of Wesfarmers. Wesfarmers also
belong to the same industry and it is the main competitor of Woolworth.
Profitability of Woolworth in current year (2017) as compared to previous year (2016)
Income Statement
Woolworth Group
AUD in millions except per share data.
Financial Items 2016 2017 Increase/Decrease
In amount in %
5

Revenue $ 58,276.00 $ 55,669.00 $ (2,607.00) -4.47%
Cost of revenue $ 42,677.00 $ 39,740.00 $ (2,937.00) -6.88%
Gross profit $ 15,599.00 $ 15,929.00 $ 330.00 2.12%
Operating expenses
Sales, General and administrative $ 12,964.00 $ 13,134.00 $ 170.00 1.31%
Other operating expenses $ 12,033.00 $ 11,686.00 $ (347.00) -2.88%
Total operating expenses $ 24,997.00 $ 24,820.00 $ (177.00) -0.71%
Operating income $ (9,398.00) $ (8,891.00) $ 507.00 -5.39%
Interest Expense $ 246.00 $ 194.00 $ (52.00) -21.14%
Other income (expense) $ 11,004.00 $ 11,217.00 $ 213.00 1.94%
Income before income taxes $ 1,360.00 $ 2,132.00 $ 772.00 56.76%
Provision for income taxes $ 520.00 $ 650.00 $ 130.00 25.00%
Minority interest $ (1,113.00) $ 60.00 $ 1,173.00
-
105.39%
Other income $ (1,113.00) $ 60.00 $ 1,173.00
-
105.39%
Net income from continuing
operations $ 840.00 $ 1,482.00 $ 642.00 76.43%
Net income from discontinuing
ops $ (3,188.00) $ 111.00 $ 3,299.00 103.48%
Other $ 1,113.00 $ (60.00) $ (1,173.00)
-
105.39%
Net income $ (1,235.00) $ 1,534.00 $ 2,769.00 224.21%
Net income available to
common shareholders $ (1,235.00) $ 1,534.00 $ 2,769.00 224.21%
Earnings per share
Basic $ (0.98) $ 1.19 $ 2.17 221.43%
The profitability performance of Woolworth has been much better in year 2017 as
compared to year 2016. It can be said because in year 2016 Woolworth has suffered a loss of
$1235.00 million and in year 2017 it has net profit of $1534 million dollars, reflecting a rise in
profits by 224.21%. It has been noted that there is decrease in revenue in year 2017 by 4.47% as
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compared to previous year 2016. The decrease in revenue has been marked with decrease in cost
of goods sold by 6.88%. The actual rise in gross profit of company was 2.12% in year 2017 as
compared to year 2016. It has been noted that there was major leap in the income before income
taxes by 56.76% that has increase to the EBT to $2132 dollars in year 2017 as compared to
$1360 dollars in year 2016. With the rise in income before taxes, the taxes have also increased
by 25%. The EPS of the Woolworth was negative $ 0.98 in year 2016 and it was increased by
221.43% to $1.19. So, overall profitability of the Woolworth was much better in year 2017 as
compared to 2016 (Woolworths Limited: Annual Report, 2017).
Comparison of profitability performance of Woolworth with its competitor Wesfarmers
Income Statement
Woolworth Group
AUD in millions except per share data.
Financial Items 2016 2017 Increase/Decrease
In amount
Revenue $ 58,276.00 $ 55,669.00 $ (2,607.00)
Cost of revenue $ 42,677.00 $ 39,740.00 $ (2,937.00)
Gross profit $ 15,599.00 $ 15,929.00 $ 330.00
Income Statement
Woolworth Group
AUD in millions except per share data.
Financial Items 2016 2017 Increase/Decrease
In amount
Revenue $ 58,276.00 $ 55,669.00 $ (2,607.00)
(Wesfarmers Pty Ltd: Annual Report, 2017) & (Woolworths Limited: Annual Report, 2017).
Analysis of cash flow statement of Woolworth Group
Financial Items of Cash flow statement
Cash Flow Activities 2017 2016 Change % Change
Cash Flow/(Used) in operating
activity 3,122.00 2,357.50 $ 764.50 32.43%
Cash Flow/(Used) in investment
activity -1,431.40 -1,266.70 $ (164.70) 13.00%
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Cash Flow/(Used) in financing
activity -1,729.30 -1,474.90 $ (254.40) 17.25%
Net increase/(decrease) in cash and
cash equivalents -38.7 -384.1 $ 345.40 89.92%
Cash flow statement provides the information of cash inflow or outflow from three main
activities that are carried out in company. These three main activities are operating activity,
investing activity and financing activity. The cash generated from the operations are utilized for
investing activities and to repay the financial cost of funds raised under financing activity. In this
part of report cash flow position of Woolworth has been analyzed to report on cash flow
position. On the basis of above chart it can be said that overall cash flow position of Woolworth
in year is much better than the cash flow position in year 2016. The possible reason for such
change can be increase in sales volume, increase in efficiency level of management to collect the
debts, reduction in cash expenses and control on cash used under investing and financing
activity. The cash flow operating activity has been increased by $764.50 million in year 2017
indicating a total rise of 32.43% as compared with previous year. The cash expenditure in
investing activity and financing activity has also increased by 13% and 17.25% respectively. The
main reason for such increase could be increased investment in assets and repayment of
borrowings. The net change in cash and cash equivalents was positive 89.92% that shows in year
2017, management has improved the cash flow policies so that cash can be used in much better
way (Woolworths Limited: Annual Report, 2017).
Analyses of financial position of the company (Balance Sheet)
Balance Sheet
Woolworth Group
AUD in millions
Financial Items 2016 2017 Increase/Decrease
In amount in %
Cash and Cash Equivalents
$
948.10
$
909.40
$
(38.70) -4.08%
Inventories $
4,558.50
$
4,080.40
$
(478.10)
-
10.49
8

%
Total Currents Assets
$
7,427.00
$
6,994.20
$
(432.80) -5.83%
Property, plant and equipment
$
8,262.80
$
8,437.50
$
174.70 2.11%
Total non-current assets
$
16,075.20
$
15,921.60
$
(153.60) -0.96%
Total Assets
$
23,502.20
$
22,915.80
$
(586.40) -2.50%
Total Current Liabilities
$
8,992.70
$
8,824.20
$
(168.50) -1.87%
Total non-current liabilities
$
5,727.60
$
4,215.50
$
(1,512.10)
-
26.40
%
Borrowings (Long term
Borrowings)
$
3,870.90
$
2,777.00
$
(1,093.90)
-
28.26
%
Total equity
$
8,781.90
$
9,876.10
$
1,094.20
12.46
%
The above chart reflects the changes in main financial items of Balance sheet over the
year (2016 to 2017) (Woolworths Limited: Annual Report, 2017). But in order to analyse the
cash flow position in much better way there is need to calculate some of balance sheet ratios
such debt equity ratio, debt ratio, current ratio, times interest earned and asset utilization ratio.
9

Total Current Liabilities
Total non-current liabilities
Borrowings (Long term Borrowings)
Total equity
Financial Items
Total non-current liabilities
Short term Interest-bearing loans and
borrowings
Total Current Liabilities
Total non-current liabilities
Borrowings (Long term Borrowings)
Total equity
 Debt ratio: This ratio provides proportion of debt used to finance the assets of the
company. This ratio has been decrease in year 2017 as compared to year 2016. That
indicates that Woolworth has improved its leverage position in current year and has make
use maximum use of equity capital to finance the assets.
 Debt to equity ratio: This ratio provides proportion of debt and equity used to finance the
company assets. This ratio has been decreased from 0.71 times in year 2016 to 0.45 times
in year 2017. It clearly indicates great improvement in the capital structure of the
company.
 Times interest earned ratio: This ratio provides number of times entity can bear the
interest expenses for the particular period. This ratio has been increased to 12.01 times in
year 2017 as compared to 6.09 times in year 2016. This shows company has increased its
ability to pay interest on the debt capital.
 Asset turnover ratio: This ratio represents how company utilizes its assets to earn the
revenue. The ratio of 2.43 times in year 2017 clearly signifies that company uses its
assets in most prominent manner. This ratio has also been increased in year 2017 as
compared to year 2016 (Tracy, 2012).
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Section 2: Analyzing the firm performance using the financial ratios
Financial ratios help to evaluate the firm performance as it compares the performance in
current year with performance of previous year. In this segment some financial ratios in context
to Woolworth will be calculated for last three years. Results of financial ratios are presented
below:
Financial Data of Woolworth for last three years
Financial Items 2015 2016 2017
Amount in $ millions
Net Profit after tax
$
2,137.40
$
(1,234.80)
$
1,533.50
Total assets
$
25,336.80 $ 23,502.20
$
22,915.80
Cost of Goods Sold
$
44,345.00 $ 42,677.00
$
39,740.00
Inventory
$
4,872.20 $ 4,558.50
$
4,080.40
Average inventory
$
4,782.70 $ 4,715.35
$
4,319.45
Current Assets
$
7,660.90 $ 7,427.00
$
6,994.20
Quick Assets
$
2,788.70 $ 2,868.50
$
2,913.80
Current Liabilities
$
9,168.60 $ 8,992.70
$
8,824.20
Market price per share (MPS) (June, 20__)
$
20.50
$
15.53
$
19.51
Earnings per share (EPS)
$
1.71
$
(0.98)
$
1.19
Ratios Formula 2015 2016 2017
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Profitability Ratio
Return on Assets
Net Profit after tax/Total
Assets 8.44% -5.25% 6.69%
Efficiency Ratios
Inventory Turnover
Ratio
Cost of Goods Sold/Average
Inventory 9.27 9.05 9.20
Liquidity Ratios
Quick Ratio
Quick Assets/Current
Liabilities 0.30 0.32 0.33
Market Ratios
Price Earnings Ratio
Market price per
share/Earnings per share 11.99 -15.85 16.39
(Woolworths Limited: Annual Report, 2015) & (Woolworths Limited: Annual Report, 2017)
Return on Assets: Return on assets is described as financial ratio that is used for depicting the
percentage of profit realized by a company with the use of the overall resources. The ratio is
calculated by dividing the net income by total assets. The return on assets ratio is largely
effective in determining the profitability position of Woolworths as it helps in gaining an
analysis of the net profit that it is realizing with the use of its asset base. It can be stated on the
basis of financial results from the year 2015-2017 for return on assets ratio that the capability of
Woolworths to realize profits from its asset base is declining. The ratio was negative in the year
2016 indicating that it has a financial loss in comparison to the investment incurred over its asset
base (Fabozzi and Peterson, 2008).
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2015 2016 2017
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Return on Assets
Percentage
Inventory Turnover ratio: The inventory turnover ratio is described as an efficiency ratio that
is used for demonstrating the effectiveness of an entity in managing its inventory. The ratio is
evaluated by dividing the sales by the average inventory. Woolworths has maintained a good
inventory turnover ratio indicating that it is largely effective in realizing sales from its inventory
base. Also, it has maintained a constant inventory turnover ratio which depicts that the company
ability to manage inventory is good and is also expected to remain same in the coming period of
time (Palepu and Healy, 2007).
2015 2016 2017
8.90
8.95
9.00
9.05
9.10
9.15
9.20
9.25
9.30
Inventory Turnover Ratio
In times
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Quick Ratio: The quick ratio depicts the ability of a company to meet its financial obligations
from the use of its liquid asset resources such as cash equivalents. The quick ratio of Woolworths
over the period 2015-2017 is less than 0.5 indicating that it is having higher current liabilities as
compared to its liquid asset base. The quick ratio has however improved over the year 2015-2017
indicating that it is improving its liquid resources for meeting its financial obligations arising in
the short-term (Fabozzi and Peterson, 2008).
2015 2016 2017
0.29
0.30
0.31
0.32
0.33
0.34
Quick Ratio
In times
Price earnings ratio: The ratio depicts the current share price of the company in relation to its
earnings per share. It is market efficiency ratio and is used for depicting the market value of a
company (Palepu and Healy, 2007). Woolworth has obtained negative price earnings ratio in the
year 2016 depicting that it has incurred financial loss due to loss in its earning capacity.
However, it has significantly improves its price earnings in the year 2017 depicting that its
earning capacity has improved (Woolworths Group Ltd, 2018).
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2015 2016 2017
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
Price Earnings Ratio
Section 3: Corporate Governance Statements & the Practice of Integrity Policy
Woolworths Limited develops and publishes its corporate governance statement as per
the ASX listed corporate governance principles. The corporate governance practices are
disclosed in the governance documents that are published on a continuous basis in the corporate
governance report of the company. The governing statements have provided relevant information
in relation to the standard ethical policies and procedures adopted by the company for carrying
out its daily business activities. Woolworths Group has maintained an integrity policy that seeks
to promote the confidence of investors in the performance of its securities. For this, the Group
has also established a continuous disclosure policy that is aimed at providing continuous
information to the investors regarding its financial and non-financial performance (Woolworths
Group: Corporate Governance Statement, 2017).
Management Approach for:
Management of Business Risks
The business activities of Woolworths Group are exposed to different types of material
risk that can impact their successful completion in the long-term. The Group is exposed to
different type of strategic, financial, operational and compliance related risks that can negatively
impact its business outcomes as it operates in a highly competitive retail and online market. It
has adopted an enterprise risk management framework for the development of effective policies
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and procedures for identification and mitigation of the material business risks. The risk
management framework is developed in relation to the standards and guidelines of the ASX
corporate governance principles. The risk management framework of the Group consists of the
risk management policies and procedures developed as per its overall values and philosophy. The
risk management framework of the Group has adequately defined the key responsibilities of the
management personnel at different level for monitoring and controlling the business risks
(Woolworths Group: Corporate Governance Statement, 2017).
Attitudes & Actions towards Financial Reporting
The Group as per the AASB standards and Corporate Governance Act is developing and
presenting its financial reports to the end-users. The continuous disclosure policy of the Group is
aimed at providing continuous financial information to the investors and its other external
stakeholders for decision-making.
Attitudes toward information processing and accounting functions and personnel
The Group as per its integrity and ethical principles has maintained ethical policies and
procedures for marinating a proper flow of communication within the organization and outside.
There is a presence of solid organizational structure having different levels of management
responsible for carrying out different roles and responsibilities. Also, all the essential information
required for decision-making is disclosed to the stakeholders by making ASX announcements,
media releases and publishing annual reports. The Group has hired and maintained a competent
accounting team for carrying out different accounting roles and responsibilities. The Chief
Financial Officer is responsible for maintaining a competent accounting team by examination of
their skills and capabilities with the use of efficient compensation and performance evaluation
programs (Woolworths Group: Corporate Governance Statement, 2017).
Business Operations
Woolworths Limited is recognized as a leading retail company within Australia. The
principal activities of the Group consist of retailing of food, liquor, petrol, general merchandise,
electronic goods, and gaming, hotel and entertainment operations. On the basis of the different
business operations of the Group, its principal business segments are categorized as
supermarkets, general merchandise, consumer electronics, hotels and wholesale operations
(Woolworths Limited: Annual Report, 2017).
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Investment and Investment Activities
The principal investment activities of the Group consist of cash outflow incurred for
realization of property, plant and equipment, intangible assets and purchasing of businesses. The
investment activities are stated in the cash flow statement of the Group that reflects the aggregate
change in its cash position due to gains or losses realized from investment in the financial
markets.
Financing and Financing Activities
The cash flows from the financing activities of the Group consist of proceeds from issue
of shares, equity securities, proceeds and repayment of borrowings and dividend paid. As
reflected from the cash flow statement of the Group, there is a net cash outflow from the
financing activities (Woolworths Limited: Annual Report, 2017).
Industry Size
The overall size of retail market of Australia is estimated to be about $122 USD and is
expected to growth further on account of increase in the purchasing power of consumers in
Australia with the rise in disposable income of the consumers (Retail Trade, Australia, 2018).
Major Players/Competitors
The retail market of Australia is dominated by the presence of large number of competing
companies such as Wesfarmers, Billabong, JB Hi-Fi, Myer and many others. These companies
are also the major competitor of Woolworth’s and are competing with each other on the basis of
similar target consumers and products or services. The main competing company of Woolworths
is Wesfarmers as both have approximately same market share and are similar in size (Retail
Industry in Australia - Major trends, Growth and Opportunities, 2017).
Market Shares of Industry Players
The market shares of industry players in the retail market of Australia can be depicted as
follows (Taking Stock in Retail—The 2017 Midyear Wrapup, 2017).:
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(Source: https://www.fungglobalretailtech.com/research/taking-stock-retail-2017-midyear-
wrapup/)
Conclusion
The report has concluded that Woolworths has maintained a leading position in the retail
market of Australia on the basis of its good financial performance over the years. This has been
sustained by the company by the adopting of highest standards of ethics and integrity. However,
its financial position is not good in the year 2016 but the company has taken significant actions
for improving it as reflected from the positive financial results achieved by it in the year 2017.
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References
Fabozzi, F. and Peterson, P. 2008. The Complete CFO Handbook: From Accounting to
Accountability. John Wiley & Sons.
Palepu, K. and Healy, P. 2007. Business Analysis and Valuation. Cengage Learning EMEA.
Papadopoulos, P. 2011. Investment Report - Fundamental Analysis/ Ratio Analysis: Comparative
Approach between two FTSE 100 corporations Vodafone plc and British Telecom Group. GRIN
Verlag.
Retail Industry in Australia - Major trends, Growth and Opportunities. 2017. [Online]. Available
at: https://www.mordorintelligence.com/industry-reports/retail-industry-in-australia [Accessed
On: 24 May 2018].
Retail Trade, Australia. 2018. Australian Bureau of Statistics. [Online]. Available at:
http://www.abs.gov.au/ausstats/abs@.nsf/mf/8501.0 [Accessed On: 24 May 2018].
Taking Stock in Retail—The 2017 Midyear Wrapup. 2017. [Online]. Available at:
https://www.fungglobalretailtech.com/research/taking-stock-retail-2017-midyear-wrapup/
[Accessed On: 24 May 2018].
Tracy, A. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to
Analyse Any Business on the Planet. RatioAnalysis.net.
Wesfarmers Pty Ltd. 2017. Annual Report. [Online]. Available at:
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0 [Accessed On: 24 May 2018].
Woolworths Group Ltd. 2018. [Online]. Available at: http://financials.morningstar.com/income-
statement/is.html?t=WOLWF&region=usa&culture=en-US [Accessed On: 24 May 2018].
Woolworths Group. 2017. Corporate Governance Statement. [Online]. Available at:
https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-
%20Corporate%20Governance%20Statement.pdf [Accessed On: 24 May 2018].
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Woolworths Limited. 2015. Annual Report. [Online]. Available at:
https://www.woolworthsgroup.com.au/icms_docs/182381_Annual_Report_2015.pdf [Accessed
On: 24 May 2018].
Woolworths Limited. 2017. Annual Report. [Online]. Available at:
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed
On: 24 May 2018].
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