Corporate Finance Analysis: Wealth Maximization and Company Objectives

This report provides a comprehensive analysis of corporate finance principles, with a specific focus on wealth maximization and its implications for company objectives. The report examines the financial performance of Woolworths and Wesfarmers, comparing their approaches to wealth maximization versus profit maximization. It delves into the companies' initiatives regarding environmental issues, ethical supplier relationships, employee development, gender equality, and social responsibility. Furthermore, the report analyzes the present value and future value of cash flows, demonstrating the time value of money and its impact on investment decisions. The analysis highlights the importance of shareholder wealth as a primary goal, while also considering other crucial factors that influence a company's overall success. The report concludes by comparing the objectives of the two companies and their approaches to achieving financial sustainability and growth.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
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Table of Contents
Part A...............................................................................................................................................2
Overview..........................................................................................................................................2
Analysis of Company Objectives....................................................................................................2
Wealth Maximisation...................................................................................................................2
Profit Maximisation.....................................................................................................................4
Environmental Issues...................................................................................................................5
Ethical Suppliers..........................................................................................................................5
Employees....................................................................................................................................6
Gender Equality...........................................................................................................................6
Social Responsibility...................................................................................................................7
Profit vs. Wealth Maximisation.......................................................................................................7
Part B...............................................................................................................................................7
References......................................................................................................................................10

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Part A
Overview
The financial analysis of the Woolworths and Wesfarmers Company was done thereby
including the various aspects of shareholder’s wealth maximisation approach and profit
maximisation approach that is followed by the company (Annual Report, 2019). In the due
course of operations of the company the concerns and steps followed by these company in
concern to environmental issues was also introspected. It is essential that companies do have a
support from the suppliers the company in terms of delivery of goods and services. Programmes
and Initiatives taken by the company for training the employees and similar initiatives taken by
company in recognition of their efforts were also analysed via the sustainability report presented
by these companies. Diversity and Equal Opportunity is an important factor and companies
indeed need to take actions and beliefs in response to the same. Social Responsibilities taken by
these companies in the field of Human Rights Assessment, Public Policy and Customer Healthy
and Safety were some of the crucial social activities outlined. It is well important that the
activities and actions undertaken by the company in the field of social activities which was also
analyzed (Ioannou & Serafeim, 2017).
Analysis of Company Objectives
Wealth Maximisation
Wealth Maximisation is an important concept that needs to be well considered for the
purpose of analysis of the firm. The companies analysed Woolworths and Wesfarmers have

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taken several steps in order to create wealth for the shareholders of the company and the same
can be well observed with the help of diversified business operations and increased profitability
in the financial report presented by the company. Wealth Maximisation is an important concept
for the Equity Shareholders of the company in return for the desired risk taken by the company
in the due course of investment period. The wealth created by the Wesfarmers Company in the
year 2018 was around $69.9 billion and the same was created by the company in the form of
payment to suppliers, employees, shareholders, government and lenders that are directly
associated with the company.

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On the other hand the wealth created by the Woolworths Company near about $50.1
billion of wealth during the financial year which was created by the company in the form of
payment to suppliers, employees, shareholders, government and lenders that are directly
associated with the company.
Profit Maximisation
In terms of Profit Maximisation created for the financial period analysed the Woolworths
Company has created a wealth of $1,724 million of profitability, which was considerably much
higher than the last year profitability of $1,534 million that in form or another was distributed to
the various stakeholders of the company. On the other hand, the Wesfarmers Company reported
a profitability of $2,604 million in the year 2018 that was slightly down from the last year
reported profit of around $2,760 in the year 2017 (Stacchezzini, Melloni & Lai, 2016). The
profitability of the company plays an important when compared from the profit maximisation
and financial performance of a company. The profitability of the Woolworths Company has
increased considerably for the company whereby ion creased revenue and decreased costs
associated with the production has helped the company report a higher profitability for the
financial year 2018 which was up by 12.68% from the year 2017-18. On the other hand for the
Wesfarmers Company the profitability declined by about 5% for the trend period analysed and
the same can be well attributed to the increased costs of operations of the company and falling
revenue base for the company (Heminway, 2017).
Change in Profitability
Particulars
201
8
201
7 Change (%)
Woolworths
179
5
159
3 12.68%
Wesfarmers
260
4
276
0 -5.65%

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Environmental Issues
Policies and actions taken by companies in these filed should be aiming at creating a
stable and a better environment for everyone to live in by not impacting the climate and
environment with the business activities carried on. The key actions taken by the two companies
are as follows:
Wesfarmers: The Company has taken several efforts in response to environment sustainability
by acting on climate change actions such as reduction in the global green-house emissions.
Climate Resilience is what the company is striving the emissions for reducing the same. On the
other the policy of the company is such that it strives to reduce the waste to landfill and water
usage when and where possible (Bayne, Purchase & Tarca, 2019).
Woolworths: The efforts taken as a part of environmental concern that is selling the waste items,
generation of electricity with solar power, reducing carbon emission by around 13% and stores
with upgraded HFC free refrigeration system (Ferreira et al., 2018).
Ethical Suppliers
Companies have taken several initiatives in the field of fostering long-term commitments
and sustainable relationship with suppliers the efforts taken can be well outlined:
Wesfarmers: The Company has a strong commitment for strong and respectful relationship with
the suppliers. The Company has a strong commitment with the 18,000 suppliers it has in creating
value together by improving social and environmental practices (Queen, 2015).
Woolworths: In order to better understand the working with suppliers apply a long-term
relationship and partnership that the company encourage to open for communication and trust

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between both the parties. The Advantage Group build by the company in a type of forum is of
one such example.
Employees
Companies take several steps in retaining, growth and development of the employees and
organizations as a whole.
Woolworths: The Company has an Enterprise Agreement whereby 80% of the workforce
employed are covered in this agreement. Program for upgrading the skills of employee and to
Wesfarmers: The Company has taken several initiatives for the purpose of ensuring safety and
better development by maintaining a relentless focus on providing safe workplace. Proving the
employees with an opportunity for improving the job performance and developing their long-
term carriers. Gender diversity and the inclusion of Aboriginal and Torres Strait Islander peoples
are some of the key attention of company.
Gender Equality
It is important that the policies and actions of the company so that it gives an opportunity
for all gender of people to work and grow.
Wesfarmers: Gender Balance has been the focus of company where it saw a 5% increase in the
women workforce in the management roles and a 5.5% increase in the senior management roles.
54% of the workforce is comprised of female workforce for the company where the company has
around 35% in senior management roles which would be increased in the due course of
operations (Wesfarmers, 2019).
Woolworths: The culture followed by the company is such that allows the team members to
enjoy equal opportunity, rewards and resources irrespective of their gender. Around 50% of the

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workforce deployed are female and around 60% of the female members hold the senior
management position (Woolworths, 2019).
Social Responsibility
The social responsibility efforts taken by both the organizations are such that guides the
company in following the ethical framework and suggest how an organization or individual
should be it is an obligation to act for the benefit of the society at a large. The Woolworths
Group has adopted the Global Social Compliance Program for following the social responsibility
duty. On the other hand, the Wesfarmers Company has followed the Association of Professional
Social Compliance Auditors (APSCA) for compliance with the social responsibilities (Annual
Report, 2019).
Vision and Objectives
The vision of the both the Wesfarmers and Woolworths company is to achieve consistent
growth in the field of revenue growth and customer satisfaction that the company is aiming to
achieve with the help of the better operations management and improved customer satisfaction.
On the other hand, the key objective of the company is to financial sustainability with the help of
better financial management of resources. The key objective of the Woolworths Company is to
achieve sustainable growth and development in the retail food store On the other hand, the
objective of the Wesfarmers Company is to achieve sustainable in the various departments and
operations that is undertaken by the company.

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Profit vs. Wealth Maximisation
The primary goal of a business should be to enhance the wealth of the shareholders which
in simple words means to ensure that the value of the share price of the business is enhanced.
The management of the company needs to take steps for enhancing the future returns which the
shareholders of the company is entitled in the long run (Jones & Felps, 2013). The objective of
wealth maximization is for the main benefit for the shareholders and a business following such
an objective show that the business considers the needs of the shareholders more than earning
profits (Sharfman, 2014). The case examines the business of Wesfarmers and Woolworths and
the objective which is followed by the business in respect to profit or wealth maximization
policies. The business of Wesfarmers primary objective is to provide appropriate returns to the
shareholders and the same shows that the business is trying to enhance the value of the
shareholders. The objectives of the shareholders are to maximize his value and gain appropriate
returns from the investment which is made in the business (Krüger, 2015). Therefore, it can be
confirmed that the business of Wesfarmers is dedicated to ensure that the wealth of the
shareholders is maximised.
In the case of Woolworths ltd, the management of the company aimed to expand the
operations of the business by enhancing the scale of operations of the business. This would help
the business to enhance the profitability of the business which is generally stored by the business
as reserves or retained earnings for future application (Windsor, 2013). Therefore, it can be
ascertained from the case which is shown above, the management of the company is trying to
enhance the profits of the business and not focusing on enhancing the wealth of the shareholders.
Here the objective of the shareholders is not reconciled with that of the business which is mainly

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due to the fact that the business is trying to expand the operations of the business and thereby
also enhance the efficiency of the business.
Part B
1) The present value for Investment A was considered to be around $12,092.13 and the
present value for Investment B was considered to be around $10,652.13.
Investment A 0 1 2 3 4 5
Cash Flows 5000 4000 3000 2000 1000
Present Value individual
years =SUM(G6:K6)
$12,092.1
3 4545 3306 2254 1366 621
Present Value =NPV($F$2,G5:K5)
$12,092.1
3
Future Value =FV(F2,K4,,F7)
$21,421.9
5 $8,052.55 5856.4 3993 2420 1100
Equivalent Annual Cost
(annuity) =PMT(F2,K4,F7) -$3,189.87
2) The future value of the Cash flow for Investment A was around $21,421.95 and for
Investment B it was around $18,871.71.
3) The present value of the cash flows for Investment A was considerably much greater than
Investment B because of the Cash flow pattern that is associated with the Investment A.
In the case of Investment A higher amount of cash flow is received by the investor in the
initial year which can be then used by him to invest at the prevailing interest rate of 10%
allowing him to generate more wealth than in the case of Investment B. The above cash
flow timing and pattern can be well understood with the application of time value of
money where money received today is worth more than in the next year.
Investment B 0 1 2 3 4 5
Cash Flows 1000 2000 3000 4000 5000
Present Value individual =SUM(G16:K16) $10,652.59 909 1653 2254 2732 3105

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years
Present Value =NPV(F12,G15:K15) $10,652.59
Future Value =SUM(G18:K18) $18,871.71 1610.51 2928.2 3993 4840 5500
Equivalent Annual Cost
(annuity) =PMT(F12,K14,F17,0,0) -$2,810.13
4) The Present Value of Cash flow could be well converted into Equivalent Annual Amount
with the help of the Annuity Formula whereby the annuity amount for Investment A
would be around $3,189.87 and for Investment B it would be around $2,810.13.
5) The investment plan can be well analyzed with the help of 10% interest rate investment
that would be done with the help of present value of cash flows that would be received by
the investor. The present value of the cash flows can be well re-invested into a bank
account earning 10% of interest rate in order to get the desired cash flows from
investment as shown below.
Proof of PV Meaning for Investment A 1 2 3 4 5
Opening Balance (PV G7) $4,545.45 $3,305.79 $2,253.94 $1,366.03 $620.92
Interest at 10% $454.55 $694.21 $746.06 $633.97 $379.08
Available Balance $5,000.00 $4,000.00 $3,000.00 $2,000.00 $1,000.00
Withdrawal -5000 -4000 -3000 -2000 -1000
Closing Balance $0.00 $0.00 $0.00 $0.00 $0.00
6) The required rate of interest is an important concept when determining the financial
viability and sustainability of the project in accordance with the proposed investment
plan. The required rate of return shows the minimum set of investment return that is
required by the investors for the amount of risk taken by the investors and in order to get
a minimum set of investment returns from the project investment done. The desired
required rate of return also allows the investor asses the financial viability of the project

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whether the same can be accepted or not whether the same generates significant amount
of cash flows in order to compensate the risk taken.

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References
Annual Report (2019). Wesfarmers.com.au. Retrieved 18 August 2019, from
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-annual-
report.pdf?sfvrsn=0
Annual Report (2019). Woolworthsgroup.com.au. Retrieved 18 August 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf
Bayne, L., Purchase, S., & Tarca, A. (2019). Power and environmental reporting-practice in
business networks. Accounting, Auditing & Accountability Journal, 32(2), 632-657.
Ferreira, A., Pinheiro, M. D., de Brito, J., & Mateus, R. (2018). Carbon (CI) and energy intensity
(EI) dataset for retail stores. Data in brief, 21, 1329-1333.
Heminway, J. M. (2017). Shareholder wealth maximization as a function of statutes, decisional
law, and organic documents. Wash. & Lee L. Rev., 74, 939.
Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability
reporting. Harvard Business School research working paper, (11-100).
Jones, T. M., & Felps, W. (2013). Shareholder wealth maximization and social welfare: A
utilitarian critique. Business Ethics Quarterly, 23(2), 207-238.
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of financial
economics, 115(2), 304-329.
Queen, P. E. (2015). Enlightened shareholder maximization: is this strategy achievable?. Journal
of Business Ethics, 127(3), 683-694.

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Sharfman, B. S. (2014). Shareholder wealth maximization and its implementation under
corporate law. Fla. L. Rev., 66, 389.
Stacchezzini, R., Melloni, G., & Lai, A. (2016). Sustainability management and reporting: the
role of integrated reporting for communicating corporate sustainability
management. Journal of Cleaner Production, 136, 102-110.
Wesfarmers (2019). Sustainability.wesfarmers.com.au. Retrieved 18 August 2019, from
https://sustainability.wesfarmers.com.au/m
Windsor, D., (2013). Corporate social responsibility and irresponsibility: A positive theory
approach. Journal of Business Research, 66(10), pp.1937-1944.
Woolworths (2019). Woolworthsgroup.com.au. Retrieved 18 August 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195398_2018-sustainability-report.pdf