HI5002 Finance for Business: Financial Report on Woolworths Group

This report provides a financial analysis of Woolworths Group, an Australian retail chain, utilizing its annual reports. It assesses whether the company is family-owned based on shareholding data and calculates performance ratios over four years to analyze its financial health. The report compares Woolworths' share price with the All Ordinaries Index, interpreting the relationship and identifying announcements that influenced the share price. Furthermore, it calculates the Weighted Average Cost of Capital (WACC) and determines the required return on equity to satisfy debt and equity components. The report also provides insights into the company's capital structure and dividend policy, culminating in a letter of recommendation based on the analysis.

HI5002: Finance for business
1

Table of Contents
Introduction....................................................................................................................................3
Portfolio..........................................................................................................................................4
1...................................................................................................................................................4
2...................................................................................................................................................5
3...................................................................................................................................................6
4...................................................................................................................................................8
5.................................................................................................................................................11
6.................................................................................................................................................13
7.................................................................................................................................................14
8.................................................................................................................................................16
9.................................................................................................................................................17
10...............................................................................................................................................18
Conclusion....................................................................................................................................19
References.....................................................................................................................................20
2

Introduction
The assignment consists of the Woolworths group and the Annual reports of the company. There
is brief about the company and its shareholding based on which it is justified as a family or non-
family company. There is the calculation of the performance ratio of 4 years to determine and
analyse the performance of the company. The assignment includes the comparison of the share
price of the company along with the All Ords Index along with the interpretation of the same.
The Announcements that affected the share price of the company are also stated in the
assignment. There is the calculation of the WACC cost in the assignment and the return on
equity that the company must provide in order to satisfy the Debt and equity component. There is
also brief about the capital structure and dividend policy of the company. The letter of
recommendation is also provided depending upon the various analysis that carried out.
3

Portfolio
1.
The Woolworths Limited is a retail chain company which is established in Australia and New
Zealand having headquartered in Bella Vista, Australia founded in 1924. It is engaged in various
businesses and segment such as liquor and food retail chains. The company is currently having
three brands Woolworth Food Group, Endeavour Drink and portfolio businesses (Woolworths
Group, 2018). The company focuses on making the life of the customer easy as the business is a
customer-led business. The company has followed many steps for maintaining the relationship
and trust among the stakeholders. They have also followed the corporate governance for the
transparency in the operation of the company (Woolworths Group, 2018).
The Woolworths Food group consist of Woolworth rewards, Woolworth Supermarkets,
Countdown, Petrol and Financial Services. The Endeavour drinks consist of Dan Murphy’s,
BWS, Cellarmasters, and Langtons. The Portfolio Businesses Consist of Big W and ALH Group
Hotels. The company P/E Ratio is 24.34 with a 1-year return of 11.88% providing EPS of 1.11
(Woolworths Group, 2018). The last dividend provided by the company was 0.5. The company
though incurred a loss in the financial year 2016 but the share price of the company has
increased and earned a Net profit after tax of $1593.400Million.
(Figure – Company Logo)
(Source – Woolworths Group, 2018)
4

2.
i)
The company does not consist of any shareholder having more than 20% of share.
There are only two companies that are having more than 5% shareholding in the WOW Group
Name Share Holding Percentage Number of shares
Perpetual Limited and
subsidiaries
5.05% 64,217,336
BlackRock Group 5% 64,766,473
ii)
The chairman of the company is Gordon Cairns.
The CEO of the Company is Mr. Bradford Leon Banducci
The board of directors of the company is (Woolworths Group, 2018):-
Name Designation
Gordon Cairns Chairman
Brad Banducci MD and CEO
Jillian Broadbent AO
Holly Kramer Non-Executive Director
Siobhan Mckenna Non-Executive Director
Scott Perkins Non-Executive Director
Kathee Tesija Non-Executive Director
Michael Ullmer Non-Executive Director
Richard Dammery Chief Legal Officer, Company Secretary
Since the company is not having any shareholding more than 20% and also shareholding of more
than 5% are of two companies and they don’t have any link or family relation with the directors
of WOW therefore it can be stated that the company is a non-family company and does not have
any involvement in the firm governance.
5

3.
i)
Profitability Ratios for 4 Years of Company
Sr.
No. Particular
Year 2017
($
Million)
Year 2016
($
Million)
Year 2015
($
Million)
Year 2014
($
Million)
1 Total Asset 22915.80
0
23502.20
0
25336.80
0
24136.50
0
2 Total Liability 13039.70
0
14720.30
0
14204.80
0
13611.10
0
3 Ordinary Equity 9876.100 8781.900 11132.00
0
10525.40
0
4 Net profit After Tax
(NPAT) 1593.400 -2347.900 2137.400 2458.400
5 EBIT 2326.000 1494.900 3322.500 3775.200
Return on Assets (ROA) = (NPAT /
Total Assets) 0.07 -0.10 0.08 0.10
Return on Equity (ROE) = (Net
Profit After Tax / Ordinary
Equity)
0.16 -0.27 0.19 0.23
Total Assets / Ordinary Equity 2.32 2.68 2.28 2.29
Debt Ratio = Total Liabilities /
Total Assets 0.57 0.63 0.56 0.56
EBIT x NPAT x TA = NPAT
TA EBIT OE OE
2626 x 1593.400 x 22915.800 = 1593.400
22915.800 2326.00 9876.100 9876.100
1593.400 = 1593.400
9876.100 9876.100
Hence proved
6

7

ii) The Asset Equity ratio is calculated by the phenomenon captured by the TA/ OE. The return
on the asset can be calculated NPAT/ Total Asset whereas the Return on Owner Equity can be
calculated by NPAT/ Ordinary Equity. The numerator in case of both the ROE and ROA remains
same the difference that is there is due to the NPAT. It can be analysed with the help of the Asset
Equity ratio that if the ratio is greater than 1 than the asset are more than the equity and vice
versa. The implication of the ratio can be understood that if the Asset equity ratio is greater than
1 than the ROE will be greater whereas ROA will be less but if the Asset Equity ratio is less than
1 than the ROE Will be lesser than the ROA.
iii) The ROE will be greater than the ROA in case of a healthy company. The Asset of the
company constitutes the total of Shareholders Equity and Liabilities which can be expressed as
Asset = Shareholders Equity + Liabilities. It can be seen that the Asset will be higher than the
Shareholders Equity and be the numerator of both the ratio is same the ROE will be greater
(Duff, 2018). There are exceptions when ROA will be greater than the ROE in case the
Liabilities and debt cross the Assets of the company. The ROA and ROE will be same in case
there are no liabilities.
8

4.
Share price of the Company for 2 Years (Reuters, 2018)
S.n
o Date Share
Price A$
1 2/1/2016 24.45
2 3/1/2016 23.00
3 4/1/2016 21.86
4 5/1/2016 22.03
5 6/1/2016 21.91
6 7/1/2016 20.75
7 8/1/2016 23.41
8 9/1/2016 23.60
9
10/1/201
6 23.27
10
11/1/201
6 23.26
11
12/1/201
6 22.80
12 1/1/2017 24.40
13 2/1/2017 25.00
14 3/1/2017 25.69
15 4/1/2017 26.55
16 5/1/2017 26.88
17 6/1/2017 26.01
18 7/1/2017 25.37
19 8/1/2017 26.70
20 9/1/2017 26.00
21
10/1/201
7 25.25
22
11/1/201
7 26.00
23
12/1/201
7 26.89
24 1/1/2018 27.18
9

2/1/2016
4/1/2016
6/1/2016
8/1/2016
10/1/2016
12/1/2016
2/1/2017
4/1/2017
6/1/2017
8/1/2017
10/1/2017
12/1/2017
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Share Price A$
Share Price A$
Comparison of the share price with All Ords Index
10

(Figure – Share price comparison of Company with All Ords Index)
(Source – Market index, 2018)
Introduction
The Report consists of the comparison between the share price of the company Woolworth and
the All Ords index. The relation of the share price of the company in relation to the All Ords
Index is stated.
Content
The All Ords Index is based on the 500 biggest Companies which are listed on the Australian
Security Exchange. It is the oldest index which was established in January 1980. The share price
of the company and the Ords Index is huge. It can be seen that there is a relation between the All
Ords index and company share price. There was an increase in the All Ords index at the starting
of 2015 and same was seen in the share price of the company and with a decrease in the All Ords
index, the share price also fell. The All Ords index is in the very good situation but the Share
price of the company fell quickly and was downward sloping at the start of 2016 and kept on
declining until the middle of 2016. There was increase after that along with an increase in All
Ords Index.
Conclusion
11

It can be concluded that the All Ords index line is correlated to the line of the share price of the
company. It can also be stated that the share price is volatile and there was increase and decrease
with the change in All Ords Index.
12