Project Report: Fundamental Analysis of Australian Retail Industry

This project report provides a comprehensive analysis of the Australian retail industry, focusing on fundamental concepts and financial performance. It explores both top-down and bottom-up analysis methodologies, examining macro-economic factors, industry trends, and the performance of key companies such as Wesfarmers and Woolworths. The report delves into the Australian market, retail industry dynamics, and the banking sector, offering insights into financial data, ratio analysis, and the application of tools like DU Pont analysis to assess return on equity. The project also presents future projections for the Australian stock market and the retail industry, along with findings, recommendations, and conclusions based on the research and analysis conducted. It provides a detailed overview of the financial health and investment potential within the Australian retail landscape, making it a valuable resource for finance students and professionals.

Running Head: Finance
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Project Report: finance

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Executive Summary
Fundamental concepts are the finest concept to recognize the best security in the
marketplace and it is moreover helpful to examine the various circumstances and state of the
corporation. In this report, diverse techniques of fundamental analysis like bottom up and top
down analysis have been studied to recognize and manage the company’s performance,
performance of the industry and companies. In this report paper, Australian market and the
retail industry has been investigated. In addition, the banking industry has been assessed and
finally the company’s performance has been analyzed and the two firms under the Australian
retail industry. More, different micro and macro aspects have been investigated for this
report. Finally, findings and recommendation has been given.

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Contents
Introduction.......................................................................................................................3
Industry and company overview.......................................................................................3
Top down analysis............................................................................................................3
Gross domestic product................................................................................................4
Fiscal policies...............................................................................................................5
Future projection on Australian stock market..............................................................5
Industry Viewpoint.......................................................................................................5
Industry data.............................................................................................................6
Future Outlook..............................................................................................................6
Bottom up analysis...........................................................................................................7
DU Pont analysis..........................................................................................................7
Wesfarmers...............................................................................................................8
Woolworth................................................................................................................9
Financial data:.............................................................................................................10
Wesfarmers.............................................................................................................10
(Morningstar, 2017)................................................................................................12
Woolworth..............................................................................................................12
Ratio Analysis.............................................................................................................13
Wesfarmers.............................................................................................................13
Woolworth..............................................................................................................14
Summary and Findings...................................................................................................15
Recommendation and Conclusion..................................................................................16
References.......................................................................................................................17

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Introduction:
Investment is a trending term now days. Everybody wants to invest the saving amount
into the market to manage the fund and enhance the return over the fund. There are two
options for the investor to invest into the market one is for short term and other one is for
long term. For long term investment, it is required for the investor to analyze the performance
of the company as well as worth of the company in terms of various micro and macro
economical factors. It has been analyzed that the fundamental analysis is a good choice to
analyze the micro and macro economical factors of the company as well as the industry under
which the firm operates its business functioning1.
Fundamental analysis helps the investors and analysts to identify the worth of the
business. In this report, it has been found that the mainly two options are there for conducting
the fundamental analysis which is top down analysis and bottom up analysis. Top down
analysis depict about the macro economical factors of an industry such as how the market is
performing what are the various factors which could affect the operations of the business etc.
whereas the bottom up analysis depict about the micro economical factors of companies such
as the worth of the business, performance of the business changes which have taken place
into the operations of the company etc. in this research paper, retail industry has been
invetsiagted and further, 2 companies which are performing under the Australian retail
industry has been chose which are Wesfarmers and Woolworths2.
Industry and company overview:
1 Damodaran, Aswath, (2016), Damodaran on valuation: security analysis for investment and
corporate finance. Vol. 324. John Wiley & Sons.
2 Cacuci, Dan Gabriel, ed., (2015), Handbook of Nuclear Engineering: Vol. 1: Nuclear
Engineering Fundamentals; Vol. 2: Reactor Design; Vol. 3: Reactor Analysis; Vol. 4:
Reactors of Generations III and IV; Vol. 5: Fuel Cycles, Decommissioning, Waste Disposal
and Safeguards. Vol. 2. Springer Science & Business Media,.

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Australian market has been analyzed and found that the performance of Australian
market has been enhanced from last few years which directly impacted over the Australian
retail industry. It has been found that the Australian retail industry falls into top 20 economies
globally3. Various issues have been faced by this industry but currency, the affect of that
issues have been lowered. In addition, Wesfarmers and Woolworths are the top best retail
companies in Australian market. Both the companies have registered their business into the
Australian stock exchange and both the companies are offering its products and services to
the global customers.
Top down analysis:
Top down analysis is an investigation over various macro factors of a company. In
this analysis, numerous factors have been investigated related to the external and internal
factor of an industry. This analysis depict the user about the performance of the industry in
terms of gross domestic product, inflation rate, fiscal policies of the country company in
terms of analyzing the performance of the industry. This part of fundamental analysis is
mainly conducted by the analyst and investors to identify the position of the industry in terms
of various aspects. Top down analysis is totally opposite to the bottom up analysis. In top
down analysis, entire firms of the industry are examined together by the investors and it is
identified that how the industry is performing. This study depict that it is required that if the
industry is enjoying the growth than firms would also enjoy the growth. This process depends
upon entre industry and the performance of that industry4.
3 Zhu, Qinghua, Yijie Dou, and Joseph Sarkis. "A portfolio-based analysis for green supplier
management using the analytical network process." Supply Chain Management: An
International Journal 15, no. 4 (2010): 306-319.
4 Lim, Sungmook, Kwang Wuk Oh, and Joe Zhu, (2014), "Use of DEA cross-efficiency
evaluation in portfolio selection: An application to Korean stock market." European Journal
of Operational Research 236, no. 1 :361-368.

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For conducting the study of top down analysis, Australian retail industry has been
chose. This study has been conducted over Australian retail industry to analyze that how the
industry is performing and how it is different from the other industry. There are various tools
which could be used by the analyst and the investors to analyze the performance of the
industry such as contribution of the industry in total GDP, FDI, PE ratio of the company,
inflation rate etc.
Top down analysis study express the point of view about the industry. In this analysis,
it is examined that whether the industry is in a condition that the higher return could be get
from the industry or the industry is in a critical condition that it could not pay the dividend
amount to its stakeholders5. This study has been performed over both the companies to
analyze that whether the industry is performing according to the performance of the company
or the performance of the company is totally opposite to the performance of the industry.
Gross domestic product:
It has been evaluated that the total GDP of Australia is around 1.205 trillion that is
quite smaller than the total GDP per capital of Canada and India but it has been analyzed that
this is quickly enhancing from last few years. Additionally, the risk of exchange rate and
political sustainability is quite convinced in contrast of other countries like UK and so it
becomes simple for the analyst and the investors to invest the money into Australia and in the
Australian retail industry to manage the return (Lou et al, 2012).
5 Kevin, S. Security analysis and portfolio management. PHI Learning Pvt. Ltd.,
DeFusco, Richard A., Dennis W. McLeavey, Mark JP Anson, Jerald E. Pinto, and David E.
Runkle, (2015), Quantitative investment analysis. John Wiley & Sons.

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Through the investigation over the Australia retail industry, it has been established
that the Australian retail industry is rising up quickly from last few years. The industry’s
growth rate has been analyzed 8% and thus it has been evaluated that Australian industry’s
return is quite higher.
Fiscal policies:
Further, the fiscal policy of Australian retail industry has been observed and various
changes have been found into the fiscal policy of Australia which has impacted directly over
the Australian retail industry. Due to changes into the fiscal policies, the FDI has been
enhanced. GDP is also one of the reasons behind enhancing the FDIs in the country7.
6 Analysis – total Retail, (2017), Retail Trade, Australia
<http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8501.0Main%20Features2Jun
%202017?opendocument&tabname=Summary&prodno=8501.0&issue=Jun
%202017&num=&view>
7 Shroff, Ronnie H., Christopher C. Deneen, and Eugenia MW Ng, (2011), "Analysis of the
technology acceptance model in examining students' behavioural intention to use an e-

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Future projection on Australian stock market:
Future projection study has been conducted over Australian retail industry and it has
been found that the GDP of the country is depicting an upward slope in near future. Further,
the inflation rate and employment rate of the country has also been predicted and a future
increment has been expected in it. Thus it is a good option for the investor to invest into the
Australian retail industry8.
Industry Viewpoint:
Australian retail industry depict that the various positive changes have taken pace into
the operations of the company from last few years. the turnover the retail industry has been
enhanced from last year (Krantz, 2016). Consequently, some issues have also been occurred
in front of the industry but currently, the new policies and strategies of the industry has
helped to reduce that issues and right now, the performance of the industry is stunning.
Industry data:
9
portfolio system, (2015), " Australasian Journal of Educational Technology 27, no. 4.
8 Trading Economy, (2017) Australian Inflation rate
<https://tradingeconomics.com/australia/inflation-cpi>
9 Australian retail index, (2017), Home <https://www.australianretailindex.com.au/>

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Future Outlook:
This depict about the future changes in the Australian retail industry which has been
estimated through analyzing over the market. It has been found that the industry is enhancing
rapidly and in near future, there are more chances for the company to enhance the market and
manage the performance of the company11. Though, it has also been found that the subparts
of the retail industry would help the company to enhance the performance of the company.
Thus through the top down analysis, it has been investigated that the Australian retail
industry’s performance in concern of finance and market is quite imposing and this industry
is quite able to offer a great return to its investors12.
10 Trading Economy, (2017) Australian Inflation rate
<https://tradingeconomics.com/australia/inflation-cpi>
11 Fasanghari, Mehdi, and Gholam Ali Montazer. (2010), "Design and implementation of
fuzzy expert system for Tehran Stock Exchange portfolio recommendation." Expert Systems
with Applications 37, no. 9: 6138-6147.
12 Gelman, Andrew, John B. Carlin, Hal S. Stern, David B. Dunson, Aki Vehtari, and Donald
B. Rubin, (2014), Bayesian data analysis. Vol. 2. Boca Raton, FL: CRC press,

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Bottom up analysis:
Bottom up analysis is an investigation over various micro factors of a company. In
this analysis, numerous factors have been investigated related to the internal factor of the
company. This analysis depict the user about the performance of the company in terms of
managing the funds, raising the funds, administering the financial performance, efficiency of
the company, operations of the company and the performance of the company in terms of
finance. This part of fundamental analysis is mainly conducted by the analyst and investors to
identify the position of the company in terms of various aspects. Bottom up analysis is totally
opposite to the fundamental analysis. In bottom up analysis, individual securities are
examined by the investors and it is identified that how the individual company is performing.
This study depict that it is not required that if the industry is enjoying the growth than
investors would also enjoy the growth. This process depends upon an individual security and
the performance of that security.
For conducting the study of bottom up analysis, two firms of Australian retail industry
has been chose. These two firms are Wesfarmers and Woolworths limited. This study has
been conducted over two firms to analyze that how the company is performing and how it is
different from the industry13. There are various tools which could be used by the analyst and
the investors to analyze the performance of the company such as analysis over the financial
statements of the company, liquidity ratio analysis, profitability ratio analysis, efficiency ratio
analysis, solvency ratio analysis, capital structure analysis, DU Pont analysis etc14.
13 Piotroski, Joseph D., and Eric C. So, (2012), "Identifying expectation errors in
value/glamour strategies: A fundamental analysis approach." The Review of Financial Studies
25, no. 9 2841-2875.
14 Brown, Reilly, (2012), "Analysis of investments & management of portfolios.".
Reilly, Frank K., and Keith C. Brown, (2011), Investment analysis and portfolio
management. Cengage Learning.

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Bottom up analysis study express the point of view about the individual company and
not about the entire firm. In this analysis, it is examined that whether the company is in a
condition that the higher return could be get from the company or the company is in a critical
condition that it could not pay the dividend amount to its stakeholders. This study has been
performed over both the company to analyze that whether the companies are performing
according to the performance of the company or the performance of the company is totally
opposite to the performance of the industry.
DU Pont analysis:
DU Pont analysis is a study which has been investigated over Wesfarmers and
Woolworths Company to identify the return on equity (ROE) of both the companies. Return
on equity is a measurement which calculates the profitability condition of a company by
considering the shareholder equity’s value which has been stated in the book. The book value
of shareholder equity could be calculated as assets minus liability. Return on equity is a tool
which depicts that how a company makes use of the investment to make more profits and
enhance the earnings growth.
Wesfarmers:
Wesfarmers falls into the list of top Australian retailing companies. Company is
performing greatly in the market and the profitability position of the company is also good.
Calculations have been done of ROE over the company which has been placed below. The
study of DU Pont analysis express that the return on equity of the company is 12% which
means that the 12% profit is earned by the company through the investment.
DuPont Model: What
If Analysis
Income
Statement
Sales
$68,
015
Expenses
(COGS/Oper.
Exp.)
$46,
359
Net Profit
After Taxes
$2,8
73
Interest Expense $264 divided by
Net
Profit
4.22
%
Income Taxes
$65,
658 Sales
$68,
015 Margi
n