Report on the Analysis of Wesfarmers Limited's Annual Report

This report provides an in-depth analysis of the annual report of M/s Wesfarmers Limited for the years 2016 and 2017. It begins by identifying the users and purpose of the annual report, including stakeholders like investors, lenders, and regulatory authorities. The report then details the contents of the annual report and the procedures for its analysis, focusing on asset and liability valuations, discrepancies, and the recording of income and expenditure. It evaluates the company's financial status, offers suggestions for future improvements, and assesses the clarity and compliance of the report with relevant regulations. Part 2 of the report describes the financial statements, including the profit and loss statement, statement of retained earnings, balance sheet, and cash flow statement. The report concludes with recommendations for providing more detailed expense information for investors.

EXECUTIVE SUMMARY
The title of the report is the understanding of annual report. As the title suggests, the main aim of
the report is to analyze the annual report of the company. The analysis includes the beginning
from the detail of the users of the annual report and compliance related issues of the company.
The second main aim is to describe the meaning and content of the financial statements. It
includes statement of retained earnings, profit and loss statement, balance sheet and cash flow
statement. With these aims, the report has been prepared.
Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
PART 1.........................................................................................................................................................3
USERS......................................................................................................................................................3
PURPOSE..................................................................................................................................................3
CONTENTS...............................................................................................................................................4
PROCEDURES TO ANALYSE......................................................................................................................4
ASSET OR LIABILITY VALUATIONS............................................................................................................4
DISCREPANCIES........................................................................................................................................4
AVAILABLE BENEFITS AND ALLOWANCES................................................................................................5
RECORDING OF INCOME AND EXPENDITURE..........................................................................................5
FINANCIAL STATUS..................................................................................................................................5
SUGGESTIONS FOR FUTURE.....................................................................................................................5
CLEAR AND LOGICAL................................................................................................................................5
COMPLIANCE...........................................................................................................................................6
COMPARISON..........................................................................................................................................6
RECOMMENDED CHANGES.....................................................................................................................6
PART 2.........................................................................................................................................................6
DESCRIPTION OF FINANCIAL STATEMENTS..............................................................................................6
CONCLUSION AND RECOMMENDATION.....................................................................................................7
REFERENCES................................................................................................................................................7
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INTRODUCTION
Annual report plays a very important role in the decision making of the stakeholders and
management of the companies. Without the correct and accurate annual report, neither
stakeholder can have meaningful decision nor can the management have the better projects and
actions. In this report, the annual report of the company – M/s Wesfarmers Limited has been
considered for the year ending 2016 and 2017. Through the annual report of the company, all the
questions have been answered and the report has been ended with the appropriate conclusion and
recommendation.
PART 1
USERS
The report is disseminated to the stakeholders and shareholders of the company. In the given
case, the stakeholders includes the investors, banks, financial institutions, trade payables, persons
from whom the loan has been obtained including capital market funds other than banks or
financial institutions, regulating authorities like income tax and goods and service tax and lastly
the employees.
It is disseminated through website or publication after the accounts are audited by the auditors
and board directors and the members approve the financial statements in the annual general
meeting.
PURPOSE
The aforesaid recipient’s needs the information contained in the annual report of the company
because of the following reasons:
- Employee needs the information to ascertain whether they are employed with the
developed and reputed organization.
- Investor needs the information to ascertain whether it is profitable to invest in the
company.
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- Lender needs the information to judge the creditworthiness of the company and to
ascertain whether the company would be able to repay its obligations in time.
- Regulatory authorities need the information to ascertain whether the company is in
compliance with all the relevant laws and regulations.
CONTENTS
At first the review of the operations and activities of the company of the concerned whole year is
described in detail and along with that the change in line of the activity of the business of the
company is detailed and projections are made for the next financial years. It includes the
sustainability report, director report, and financial statements of the company. Also the
independent auditors report is also annexed which acts as the helping hand for the government
authorities to know if any fraud or non compliance done by the company.
PROCEDURES TO ANALYSE
There is evidence where the company has adopted the consolidation procedures. The evidence is
the consolidated financial statements of the company where the whole of the group of the
company across the world has been consolidated and has been presented for the purpose of
analysis. Through this only the directors would have been able to provide the significant changes
in the state of affairs as mentioned in the director’s report being part of the annual report.
ASSET OR LIABILITY VALUATIONS
Yes, the organization has disclosed the asset valuation. As per Note number six of the financial
statements of the company, the company has disclosed the valuation of the Inventories
(Wesfarmers Limited official website, 2017). As per the note number six, the inventories have
been valued at lower of cost or net realizable value whichever is lower and also the net realizable
value has been valued at the estimated selling prices less the cost estimated to sell the product
(Alvarez and Fridson, 2005).
DISCREPANCIES
One discrepancy has been observed in the Statement of Income for the year ending 30th of June
2017. The company has incurred the freight and other related expenses amounting to $1096
million against the revenue of $68444 million in the year 2017 against the expenditure of $1078
million in relation to revenue of $65981 million in the year 2016 (Wesfarmers Limited official
website, 2017). No specific note has been given as to explain why there has been decreasing
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trend in the level of expenditure and what type of expenditures are incurred under this head and
how the same is recognized (Brwon, Dutton and Rietz,2014).
AVAILABLE BENEFITS AND ALLOWANCES
Yes, it is probable from the annual report of the company that the company has availed all the
benefits and allowances that are available with the company. For instance the company has
reported the earnings per share amounting to $254.72 which will make all the potential investors
to invest in the company (Bajkowski, 2011). The second benefit will be of the lenders as they
will have the fact of the creditworthiness of the company.
RECORDING OF INCOME AND EXPENDITURE
Yes, the company has recorded the details of all the income and expenditure except one
expenditure item which is referred to as the Freight and Other related expenses. All the income
and expenditure has been mentioned in the Income Statement and accordingly the notes to
income statement has been given which details the nature of the income or expense and how the
same has been valued, measured and recognized in the financial statements of the company. The
same has been evidenced from the notes to the financial statements of the company.
FINANCIAL STATUS
The financial status of every company is represented by the statement of affairs of the company
and financial status is observed at the particular point of time. The company has paid $2.23
dividend per share to the shareholders, $2.1 billion as government taxes and royalties, $46.4
billion to the creditors and suppliers of the company. Yes, the company has earned the net profit
of $2873 million for the year ending 30th of June 2017.
SUGGESTIONS FOR FUTURE
Although in the director’s report it has mentioned that the company has undergone tremendous
changes in last thirty three years and has went through 600 fold success from $80 million to $48
billion as market valuation of the company, but still the company needs to focus on capturing
more and more business activities and shall diversify its business into different lines of activity
as that of its leading competitor – Woolworths Limited (Lan, 2012). Also the company in the
Coles segment shall take endeavor to reduce the expenditure in relation to the revenue earned
from that segment.
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CLEAR AND LOGICAL
Yes, the annual report of the company is very clear and logical. The report has laid down all the
reviews relating to operational or financial performance and has provided all the figures in
comparison to the earlier year which has provided the useful information to the company. The
audit report has also detailed the clear view of the financial statements of the company along
with the operations of the company.
COMPLIANCE
Yes, the company has complied with all the statutory requirements as envisaged by the
Accounting Standard Board of Australia, Corporations Act, 2001, Australian Stock Exchange
Listing Requirements and other related regulatory bodies. The company has mentioned in the
annual report wherever necessary the accounting policies adopted by the company and that too
with reference to the relevant provision of the Australian Accounting Standards. Secondly the
company has also published the Sustainability report which exhibits that the statutory
requirements have been duly met (Anastasia, 2015).
COMPARISON
For the annual report of the year ending 30th of June 2016, it has been mentioned that the
company has presented poor trading results only because of the fact of the impairment of Target
and Curragh division. In the current year annual report the impairment of the same has been
reduced due to which the trading results have been reflected as correct and fair. Although the
cash flows have not been affected but still it has made more investment opportunities for the
company and this is the one of the basic objective of the company. Projections have therefore
been met as the net profit has been considerably increased from $407 million to $2873 million.
RECOMMENDED CHANGES
Yes, it has been made and the greater impact on the next year report will be that the company
will have more profits in the future year and higher dividend per share will be distributed to the
shareholders of the company.
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PART 2
DESCRIPTION OF FINANCIAL STATEMENTS
- Profit and Loss Statement - This statement records the income and expenditure incurred
by the company during the year and represents the financial performance of the company.
- Statement of Retained Earnings – This statement records the accumulated balance of the
profit and loss statement which can be used in future years for other purposes.
- Balance Sheet – It records the assets and liabilities of the company for the particular date
and represents the financial health of the company.
- Cash Flow Statement – It records the detail of cash inflows and cash outflows made
during the year in three activities namely operating, investing and financing and at the
end discloses the net increase or decrease in cash or cash equivalents.
CONCLUSION AND RECOMMENDATION
In order to conclude the report, the annual report of the company is exhaustive and has detailed
all the material facts and other facts which have helped the stakeholders and shareholders of the
company to make an appropriate and effective decision.
It is recommended to provide detail of each expense so as to give the investors more clear view
of the spending details of the company.
REFERENCES
1. Alvarez F and Fridson M, (2005), “Financial Statement Analysis – A Practitioner’s
Guide”, available on http://www.up.m-e-c.biz/up/Mohcine/Pictures%20BOOK/Wiley
%20Finance,.Financial%20Statement%20Analysis%20-%20A%20Practitioner's
%20Guide,%203rd%20Edition.pdf accessed on 04/01/2018.
2. Anastasia, (2015), “Financial Statement Analysis: An Introduction” available on
https://www.cleverism.com/financial-statement-analysis-introduction/ accessed on
04/01/2018.
3. Bajkowski, (2011), “Financial Accounting Ratios: Putting the Numbers to Work”, AAII
Journal, August 2011 issue, Pages 1-7. Accessed on 04/01/2018
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4. Brwon C, Dutton M and Rietz T,(2014), “Financial Statement Analysis”, available on
https://tippie.uiowa.edu/iem/modules/finstatement.ppt accessed on 04/01/2018.
5. Lan J., (2012), “16 Financial Ratios for Analysing a Company’s Strengths and
Weaknesses”, AAII Journal, September 2012 issue available on
http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-
strengths-and-weaknesses.touch accessed on 04/01/2018.
6. Wesfarmers Limited official website, (2017), “Annual Report”, available on
http://www.wesfarmers.com.au/investors/reports-results-presentations.html accessed on
04/01/2018.
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