Financial Analysis Report on Wesfarmers: Performance Evaluation

This financial analysis report examines the performance of Wesfarmers, an Australian supermarket chain listed on the ASX. The report analyzes key financial ratios from the company's 2018 and 2019 annual reports, including profitability (net profit margin, gross profit margin, return on equity), solvency (debt-to-assets, debt-to-equity, interest coverage), efficiency (days debtors, days creditors), and liquidity (current ratio, quick ratio). Interpretation of these ratios indicates improvements in net profit and the company's ability to meet short-term obligations. Non-financial aspects such as employee numbers, shareholders, and business strategies are also discussed. The report concludes that Wesfarmers' financial position has improved, with recommendations provided for investment and management strategies. It also includes information on competitors, management practices, and employee training programs.

Financial Analysis

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Contents
Resource A..................................................................................................................................................2
Executive Summary.................................................................................................................................2
Analysis...................................................................................................................................................2
Interpretation...........................................................................................................................................4
Non-financial analysis.............................................................................................................................4
Conclusion...............................................................................................................................................5
Resources B.................................................................................................................................................6
Bibliography............................................................................................................................................9

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Resource A
Executive Summary
The main aim of this paper is to discuss the financial performance of the company. Apart from it,
the non-financial position of the company will be done. Wesfarmers has been taken into
consideration to determine the market position by evaluating its financial and non-financial
position. Wesfarmers is an Australian supermarket chain that offers the wide range of products to
consumers such as household goods, beauty product and many others.
Analysis
Ratio's Analysis of
Wesfarmers
AUD in Million 2018 2019
Profitability Ratio
(Net) Profit margin (a/b) Net Profit 1197 5510
Net Sales 66594 27818
2% 20%
Gross Profit Margin Gross Profit 20876.00 10578.00
Net Sales 66594.00 27818.00
31% 38%
Return on Equity
Net income after preference
dividends 1197 5510
Average common stock holder's
equity 22238 18981
5% 29%
Solvency Ratio

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Debt (to assets) ratio (a/b) Total Liabilities (a) 14179 8362
Total Assets (b) 36,933 18333
38% 46%
Debt to Equity Total Debt 4154 3146
Total equity 22754 9971
18% 32%
Interest Coverage Ratio EBIT 3813 2404
Finance costs 211 175
18.07 13.74
Efficiency Ratio
Days Debtors (a/b) Receivables (a) 1657 948
sales *365 (b) 66594 27818
9.08 12.44
Days Creditors (a/b) Payables (a) 6541 3620
Sales*365 (b) 66594 27818
35.85 47.50
Liquidity Ratio
Current ratio (a/b) Current assets (a) 8706 6350
Current liabilities (b) 10025 5216
0.87 1.22
Quick ratio (a/b) Quick assets (a) 2340 5989
Current liabilities (b) 10025 5216
0.23 1.15
Solvency Ratio
Debt to Equity Total Debt 4154 3146
Total equity 22754 9971
18% 32%
Interest Coverage Ratio EBIT 3813 2404
Finance costs 211 175
18.07 13.74
Cash Flow Ratio

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Operating Cash Flow Margin Cash Flow from operating activities 4080 2718
Sales 66594 27818
6% 10%
Cash Return on owners’ equity Operating cash flow 4080 2718
Equity 22754 9971
18% 27%
Interpretation
It has been estimated that the financial position of Wesfarmers is not too strong as its get
improve in terms of net profit. It has been estimated that the net profit of Wesfarmers has been
increases from the last years such as 2% to 20% in 2018 to 2019 (Wesfarmers, 2019a).
According to the liquidity ratio of the organization, it has been calculated that it has high amount
of current assets as compare to current liabilities. It depicts that the company has the ability to
pay all short term obligations. As per the solvency ratio, it is observed that the company has high
amount of equity as compare to total debt which states that the company issues the shares for
financing the operating activities (Schroeder, Clark, and Cathey, 2019).
Non-financial analysis
It has been determined that Wesfarmers is one of the leading supermarket chains across
Australia (Musallam, 2018). It is observed that, Wesfarmers is the biggest company in the terms
of employees such as it has 223000 numbers of employees those is highly talented in providing
the services. There are 484000 numbers of shareholders that invest in Wesfarmers to operate
effectively (Wesfarmers, 2019c).

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Conclusion
At the end, it is concluded that the financial position of Wesfarmers is not too good but its
current position has been improved from the last years.

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Resources B
Answers
I. Wesfarmers operates the business in Australia in supermarket industry. It offers beauty
product, household products, pet’s food and many others. It offers the services in
Australia and New Zealand, United Kingdom (Wesfarmers, 2019c).
II. The financial situation of Wesfarmers getting improve in terms of generating profit or
revenue. The financial position of the company has been fluctuated which does not helps
to estimate its future financial situation (Yahoo Finance, 2019).
III. Yes, there is also other websites apart from company websites that helps to determine the
trends of supermarket industry such as Australia Industry Report (IBIS World, 2019).
IV. Acquisition is the current business strategy of Wesfarmers. The CEO of Wesfarmers
wants to acquire the high growth companies of Australia (Sky News, 2019). The
acquisition strategy of Wesfarmers is different from the other companies as those are
considered as the competitors such as Aldi and Woolworths. The company targets all age
of customers but now its current strategy is to target the companies in order to grow in
the market. There are two main skills those are required for employees of the company
such as able to take rational decision according to situation and passionate (Wesfarmers,
2019d).
V. It is observed that the current situation of Wesfarmers depicts that it can grow in
Australian market by grasping the high market share of supermarket industry. It is
measured that the firm get the opportunity to enlarge the business at the international

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level. Acquisition strategy of Wesfarmers and adopting the new target helps the company
to grow in the market (Wesfarmers, 2019a).
VI. Management team of Wesfarmers has highly passionate for their work that helps to gain
the competitive advantage in the competitive market (Wesfarmers, 2019d). The
management team of Wesfarmers is highly committed towards the good amount of return
to shareholders. The main practices of management to offers the good amount of return
that encourages the investors to invest in it which helps the company to operate the
business effectively and smoothly without any financial crisis. (Wesfarmers, 2019c).
VII. Wesfarmers develop new policies in order to review and make recommendation for
Board in relation to fixed and variable remuneration of the Group managing Directors.
The policy of the company to pay the remuneration has been changes in terms of
measurement but the principle of remuneration such as KEEEP does not change in 2019.
In terms of measurement, remuneration has been measured according to the scorecard of
employees which is based in different points. It has been seen that the scorecard has been
evaluated at the end of each year in terms of strategic targets and financial. The scorecard
has been fluctuated from 33.3 percent to 89.6 per cent for the maximum opportunity. It is
beneficial for high earners to collect the high remuneration (Wesfarmers, 2019a).
VIII. There are various companies that give competition to Wesfarmers. The main competitors
of Wesfarmers are Woolworths and Aldi. From the evaluation of financial position
Woolworths, it has been measured that the company offers $ 18.97 per hour average
wage rate to employees and the average wage per hour rate of Wesfarmers is $9 to $11. It
states that the staff members of the Wesfarmers can work with the other companies in
order to earn the high amount of income. It is observed that employees of Wesfarmers

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does not work with the other companies due to high loyalty or to get the advantages of
other facilities (Financial Review, 2019). It is recommended that Wesfarmers pay the
large amount to staff members in order to retain the employees for long time in the
organization.
IX. From the annual report of Wesfarmers, it is observed that the board of the company
contains 10 directors, in which 9 are non-executive. The independent directors of the
company are also recognized as the owners of the company. The main chairman of the
company is Michael Chaney AO who can determine or supervise all the activities. Mike
Roche is also the main director of Wesfarmers. Apart from it, there are 12 members in
leadership team and at the end of the structure, experts who perform the activities under
leaders (Wesfarmers, 2019a).
X. Wesfarmers organize the training programs for employee development. It organizes the
training according to the roles and responsibilities of employees such as product
knowledge for sales department employees, technical skills for IT department, customer
service and leadership. Apart from, it offers the jobs to women in order to promote
gender equality in society (Wesfarmers, 2019a).

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Bibliography
Books
Schroeder, R. G., Clark, M. W. and Cathey, J. M. (2019). Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Websites
IBIS World. (2019). Supermarkets and Grocery Stores industry trends (2014-2019). Available
From: https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-
retailing/supermarkets-grocery-stores.html [Accessed 9/2/2020].
Sky News. (2019). Wesfarmers business strategy to centre on acquisition. Available From:
https://www.skynews.com.au/details/_5794619715001 [Accessed 9/2/2020].
Wesfarmers. (2019a). 2019 Wesfarmers Annual Report. Available From:
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2019-annual-
report.pdf?sfvrsn=0 [Accessed 9/2/2020].
Wesfarmers. (2019b). Working at Wesfarmers. Available From:
https://www.wesfarmers.com.au/util/careers/working-at-wesfarmers [Accessed 9/2/2020].
Wesfarmers. (2019c). The Board of Wesfarmers Limited and the role and responsibilities of
Board and management. Available From: https://sustainability.wesfarmers.com.au/our-
principles/governance/robust-governance/the-board-of-wesfarmers-limited-and-the-role-and-
responsibilities-of-board-and-management/ [Accessed 9/2/2020].

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Yahoo Finance. (2019). Wesfarmers Limited (WES.AX). Available From:
https://au.finance.yahoo.com/quote/WES.AX/financials?p=WES.AX [Accessed 9/2/2020].
Journals
Musallam, S. R. (2018). Exploring the relationship between financial ratios and market stock
returns. Eurasian Journal of Business and Economics, 11(21), 101-116.