Financial Analysis of Wesfarmers: Accounting for Corporation (CO5122)

This report analyzes the financial performance and accounting practices of Wesfarmers Ltd. It examines the company's nature of operations, capital structure, including equity and debt financing, and the impact on share price fluctuations. The report delves into key elements of fixed and intangible assets, providing insights into their valuation and accounting treatment. Furthermore, it explores the company's financial operations, including retained earnings and cash flow transactions, to assess its overall financial health. The analysis covers aspects like debt structure, composition of equity, and the impact of market dynamics on share prices, offering a comprehensive overview of Wesfarmers' financial position. The report concludes with a discussion of the company's financial performance and key takeaways.

Running head: ACCOUNTING FOR CORPORATION
Accounting for Corporation
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................3
Nature of Companies Activities...................................................................................................3
Composition of Equity of the business........................................................................................3
Share Price of the Business..........................................................................................................4
Fluctuation in Share price............................................................................................................4
Debt Structure of the Business....................................................................................................5
Key Elements of Fixed Assets.....................................................................................................6
Intangible assets of the Business.................................................................................................7
Financial Operations of the Business..........................................................................................8
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................10

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Introduction
The main purpose of the assessment is to analyse the business of Wesfarmers Ltd and the
nature of operations which is conducted by the business. The assessment would be analysing the
capital structure which is used by the business for the purpose of financing the activities of the
business and also for conducting the activities of the business (Wesfarmers.com.au., 2019). The
business of Wesfarmers is engaged in numerous activities such as supermarkets retail business,
mining, hotels and other types of activities. The assessment would be going into details regarding
the equity capital and debt capital which is used by the business for financing the activities of the
business.
Discussion
Nature of Companies Activities
The business of Wesfarmers was established in 1914 as a Western Australian farmers’
cooperative. The company slowly achieved growth and further diversified the operations of the
business into hotels business, retail business, mining and cover operations. The company also has
divisions in production of fertilizers, chemicals and also has convivence stores which helps the
business to generate appropriate amount of revenue from operations of the business (Zeitun &
Tian, 2014). The company is regarded to be one of the Australia largest listed companies and
wide operations also in New Zealand. In addition to this, the business of Wesfarmers is also
recognised as Australia’s largest private employer contributing to the employment needs of the
country. Therefore, the above discussion appropriately shows that the management of
Wesfarmers depends on diversified line of operations for the purpose of generating appropriate
revenue from operations of the business.

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Composition of Equity of the business
The annual report of the company for the year 2018 shows that the management of the
company depends on both equity and debt capital for the purpose of financing the operations of
the business. The balance sheet of the company shows that the total shareholders equity for the
business has declined to $ 22,754 million in 2018 which was shown to be $ 23,941 million in
2017. The components which makes the total shareholder equity are Issued capital, reserved
shares, retained earnings and reserves. The issued capital of the business refers to the total shares
which are issued by the business for raising the capital which is required by the business (Robb
& Robinson, 2014). The retained earnings which is shown in the balance sheet of the business
reflects a part of the profits which is maintained by the business for future use. The same can be
used by the management of the company for any purpose which it sees fit. The business has also
reserves which are also made of profits accumulated by the business and can be used by the
management of the company for any purpose they want. The reserves can be used by the
business for some specific purposes or even or a general purpose as per the decision of the
management of the company (Kurshev & Strebulaev, 2015).
Share Price of the Business
The share price of the business reflects the market valuation of the business and shows
how well the business is placed in the market. As per the annual report of Wesfarmers for the
year 2018 is shown to be $ 49.36 which is shown on the closing date of the financial year for the
business which is 30th June 2018. The share value for the business is shown in the balance sheet
of the company and the same appropriately shows the equity capital which is used by the
business for financing the activities of the business. In addition to this, the closing value of the
shares are also used for presenting the total value of issued capital which is represented in the

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financial statements of the business (Danis, Rettl & Whited, 2014). The annual report for the
company also states that the share value has significantly fluctuated during the year and
therefore, the closing share value for the business is considered on the closing date. The market
value of the share also shows the whether the company has been focusing on enhancing the
wealth of the business or not.
Fluctuation in Share price
The fluctuation in share prices of the business is shown one month after the closing date
of the financial year of the business. The share price of the business has fallen to $ 33.75 in
comparison to $ $ 49.36 in a month’s tine. This is the main reason due to which the market is
considered to be dynamic and can be respond to the smallest of factors which can have an impact
on the share prices of the business (Au.finance.yahoo.com, 2019). Therefore, it can be said that
the shares of Wesfarmers are sensitive to small changes in other factors and thereby the same
affects the prices of the share in a short period of time. Therefore, it can be said that the
fluctuation in the share prices of the business can be done with the smallest of the news or factors
which cannot be predicted accurately by the management of the company.
The reasons for the fall in the prices of the share for the business can be attributed to
numerous factors such increase in competition or governmental regulations which has been
introduced by the government. The annual report off the business for the year 2018 shows that
there is a significant decrease in the profitability of the business which might also be the reason
for the fall in the share price of the business.
Debt Structure of the Business
The capital structure which is used by the business for the purpose of financing the
operations of the business are made up of both debt capital and equity capital. The management

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of the company needs to obtain an optimal balance between debt and equity capital so that the
business is able to minimize the risks of the business and make full utilization of resources of the
business (Elsas, Flannery & Garfinkel, 2014). The annual report of Wesfarmers for the year 2018
shows that the business has utilized debt capital in the capital mix of the business. The debt and
long-term borrowings off the business is shown to be $ 2,965 for the year 2018 and the same is
shown to have significantly reduced in comparison to previous year. This signifies that the
management of the company is taking steps for reducing the risks and leverage of the business.
This can have an impact on the profits of the business and also on the operational process of the
business (Acaravci, 2015). The analysis of the debts of the previous year shows that the
management of the company was relying more on usage of debt capital for meeting the financing
requirements of the business. However, in 2018, the management has repaid a significant part of
the debt capital of the business so that an optimal capital structure can be achieved mixing both
debt and equity capital of the business.
The other sources of external financing which can be opted by the management of the
company which are non-equity are listed below in details:
 Debentures: This is one of the popular sources which is used by a business for securing
appropriate amount of capital for financing the operations of the business. This is also
considered to be part of debt capitals.
 Venture capital: This is another popular source of raising capital for a business from an
external source. The venture capitalists are individuals who invests lumpsum of money in
a company for the purpose of its development and once the company is developed
enough the business would have to give a certain percentage of shares holding in the
company to venture capitalists.

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 Family and Friends: This is another non-equity source of raising funds for the business
as the directors of the business can themselves contribute or ask their family or friends
for providing appropriate capital for financing the operations of the business.
Key Elements of Fixed Assets
The fixed assets of the business are showing the balance sheet of the company and are
used by the business for generating revenue from the operations of the business. In the case of
Wesfarmers, the balance sheet of the company shows the fixed assets of the business and the
same are plant and equipment and property. The plant and equipment are used by the business
for the activities of the business and also for the purpose of generating revenue from operations
of the business (Edwards, 2013). The annul report shows that the value for plant and equipment
for the year 2018 is shown to be $ 6,488 million and the same is shown to have significantly
reduced from the previous year analysis. In addition to this, there is also property which is also
covered in the list of fixed assets of the business and the value for the same as represented in the
financial statement is shown to be $ 1,920 million which has also reduced from previous year
analysis. The fixed assets which are shown in the financial statement of the business are shown
after deducting depreciation and impairment charges on the assets. In addition to this, the
business also uses intangible assets which forms part of the non-current assets of the business
and the same is appropriately represented in the financial statement of the business.
Intangible assets of the Business
The intangible assets of the business forms part of the non-current assets and the same is
appropriately shown in the financial statement of the business. The value for the intangible assets
which is represented in the balance sheet of the company is shown to be $ 4,369 million and the
same has reduced significantly from previous year figures which shows that there has been a

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reduction in intellectual property of the business. In the case of Wesfarmers, the management of
the company has appropriately presented the intangible assets of the business in the notes to
accounts section with proper segregation for each. The intangible assets which are owned by the
business includes contractual relations, goodwill, brand, software and gaming and liquor license.
The note to account section shows computation of net carrying value of the assets and
appropriate shows the impairment charges which are applicable to the intangible assets of the
business.
The above table shows the useful life of the intangible assets which are considered for
computation of impairment charges which is associated with the intangible asset which is
represented in the annual report of the business. Intangible assets acquired separately are
measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. In an overall estimate, it can be said that
the management of Wesfarmers has appropriately followed accounting standards for reporting of
key transactions which related to intangible assets (Grossi, Biondi & Lapsley, 2014). In addition
to this, the management of the company has provided appropriate disclosures in the notes to
account section of the annual reports of the business.

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Financial Operations of the Business
The business has experienced a significant downfall in the profitability estimate in 2018
as represented in the financial statement of the business. The cash which is incurred in financial
transactions are appropriately presented in the cash flow statement which is also included in the
financial statements which is prepared by the business. As per the annual report of Wesfarmers
for the year 2018, the following financial transactions are undertaken by the business during the
period:
 Retained Earnings: The retained earnings of the business represent a part of the profits
which is kept aside by the management of the company for future application. The
retained earnings of a business can be used in any manner possible by the business. The
balance sheet of the company shows that the business has managed to keep aside a sum
of $ 176 million in the retained earnings balance at the end of the period. However, it is
to be noted that the same has decreased from the analysis of previous year. The
management of the company has also provided appropriate notes to accounts for the
treatment of retained earnings as shown in the annual reports of the business.
 Dividends: The management of Wesfarmers considers that one of the better ways to show
appreciation to the shareholders of the business is to offer appropriate dividends to the
shareholders. The Board has declared a fully-franked final ordinary dividend of 120 cents
per share. This takes the full-year ordinary dividend to 223 cents per share. This shows a
significant increase in the dividends which is offered by the business during the period.
The dividends paid by the business are shown in the financing activities of the business
which is shown in the cash flow statement of the business. This shows that the
management of the company has emphasized more on the dividend which would be paid

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by the management relating to the period. This also shows that the management of the
company is dedicated to meet the needs of the shareholders of the company.
 Changes in Capital Structure of the Business: The analysis of the financial position of
the business reveals that the management of Wesfarmers has made changes in the capital
structure of the business during the period. In 2017, the management of the company
relied more on debt capital for meeting the financing requirement of the business in
comparison to equity capital. However, changes can be seen in 2018 as the management
has repaid majority of debts so that an appropriate balance can be established between
equity and debt capital of the business. This helps the business in maintaining appropriate
records for the business and also helps to reduce the risks which are associated with the
capital structure of the business.
Conclusion
The above discussion shows the detailed analysis of the business of Wesfarmers ltd for
the year 2018 and also shows the capital structure which is used by the business for the period.
The assessment goes into detail regarding the usefulness of maintaining a balanced capital
structure which comprises of both equity capital and debt capital in a business. The discussion
further shows the assets which is used by the business for the purpose of generating appropriate
revenue for the business. The analysis also shows the financial changes which has taken place in
the organisation during the period.

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Reference
Acaravci, S. K. (2015). The determinants of capital structure: Evidence from the Turkish
manufacturing sector. International Journal of Economics and Financial Issues, 5(1),
158-171.
Danis, A., Rettl, D. A., & Whited, T. M. (2014). Refinancing, profitability, and capital
structure. Journal of Financial Economics, 114(3), 424-443.
Edwards, J. R. (2013). A History of Financial Accounting (RLE Accounting). Routledge.
Elsas, R., Flannery, M. J., & Garfinkel, J. A. (2014). Financing major investments: Information
about capital structure decisions. Review of Finance, 18(4), 1341-1386.
Grossi, G., Biondi, L., & Lapsley, I. (2014). Accounting, transparency and governance: the
heritage assets problem. Qualitative Research in Accounting & Management.
Kurshev, A., & Strebulaev, I. A. (2015). Firm size and capital structure. Quarterly Journal of
Finance, 5(03), 1550008.
Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), 153-179.
Wesfarmers.com.au. (2019). [online] Available at: https://www.wesfarmers.com.au/docs/default-
source/asx-announcements/2018-annual-report.pdf?sfvrsn=0 [Accessed 30 Aug. 2019].
Yahoo is now a part of Oath. (2019). Au.finance.yahoo.com. Retrieved 30 August 2019, from
https://au.finance.yahoo.com/quote/WES.AX/history?
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1mo

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Zeitun, R., & Tian, G. G. (2014). Capital structure and corporate performance: evidence from
Jordan. Australasian Accounting Business & Finance Journal, Forthcoming.