Financial Analysis of Woolworths: Compliance with Accounting Standards and Financial Ratios

Woolworths
Woolworths is one of the largest supermarkets in Australia and offers products such as
grocery, clothing, and food items.
The concept of reporting entity
One of the regulations is that reporting entities such as Woolworths have to comply with
accounting standards in Australia and also in interpretations as delivered by the Australian
Accounting Standards Board and where relevant must comply with the specifications of
Corporations Act 2001.
Compliance with IFRS
The fundamental of preparation note to the financial statements describes the reporting
framework, and the note asserts the importance of complying with the Australian Accounting
Standards facilitating that the financial statements and notes of the entity adhere to the
international Financial reporting standards (IFRS).
Part C
Profit and loss
Operating income, as seen in the income statement, increase with a margin of
1,057,400,000, and this means that Woolworths experienced a rise in its sales while controlling
its costs.
Receivables
The receivables increased by 9500000 and the implication of this that more people were
paying on credit in 2018 and this is a drain on Woolworths' cash as some of the revenues accrued
during the year raised the balance of accounts receivable rather than cash.
Prepaid expenses

The prepaid expenses increased by 46800000, and while this seems like a brilliant idea, it
is disastrous as it can affect monthly expenses and purchase of inventories. Such an increase in
prepayments means that there will be a decrease in the cash flow and working capital for
Woolworths.
Retained earnings
Retained earnings increased by a margin of 275800000 and this is a good sign for
Woolworths as it means that Woolworths received more revenues compared to the amount spent
in expenses. Also, this could be due to Woolworth earning its net income and deciding to hold on
to it.
Total liabilities
The total liabilities decreased by 330700000, and this is good for Woolworths as it means
that it has reduced the burden on company resources to pay debts, thus improving the working
capital.
Retained earnings
Woolworths retained earnings increased by 275800000, and this is crucial to such a
company as it means that Woolworths will continue being profitable.
Part D
Financial ratios
Return on equity
The return on equity increased by 2.55%, and this is good for Woolworths as it means
that it is expanding its capacity to generate profits without requiring much capital. It can also be
translated as Woolworths' management is utilizing the shareholders capital efficiently.
Return on assets

Woolworths' return on assets also experienced growth of about 7.10% is good for the company
as it demonstrates that the company can manage its assets and convert them into net income.
Thus, an increasing return on assets for Woolworths is a clear demonstration that the company is
profitable.
Return on invested capital
The ROIC of Woolworths' has increased by 4.05% though by a small margin, and this is
good for the business as it means `that Woolworths is creating value for its investors.
Invested capital turnover
Woolworths' invested capital turnover has increased by 8.16%, and this is good for the
business as it means that Woolworths is more efficient and also means that the company is better
positioned to generate more revenues.
Inventory turnover
Woolworths' inventory turnover has decreased by 1.77%, and this is bad for the business
as it is an indicator that Woolworths is not converting its stock into cash as fast as before and this
could make Woolworths have experience increase in the costs associated with storage and
maintenance.
Asset Turnover
Woolworths' asset turnover is also on the decline, and this is bad for the company as it
means that Woolworths is not efficient in converting its assets to yield the needed sales and this
may be due to the purchase of new assets or reducing the purchase of stock from its suppliers.
Current ratio
Generally, the acceptable working limits for a current ratio should be between 1 and 2.
However, Woolworths' current ratio is below this range as it stands at 0.78. The company's