Woolworths Supermarkets: Financial Performance Evaluation Report

This report presents a financial evaluation of Woolworths Supermarkets, examining both financial and non-financial factors. The analysis focuses on the company's profitability, which has been declining, impacting its return on assets and equity. The study highlights modifications in capital structure, including increased non-current debt, and assesses their viability in the current financial situation. Key fixed assets, such as plant, property, and equipment, are discussed, along with inventory reductions and impairments. Ratio analysis reveals a declining trend in profitability ratios, while operational efficiency remains stable. The report also addresses working capital management, noting the need for improvement. Despite financial challenges, the report suggests that Woolworths maintains a sustainable market position, and that it is an opportune time for investors to purchase equity shares due to the potential for improved financial performance.

Accounting and
financial management

The present study is based on a financial evaluation of Woolworths Supermarkets by
considering financial and nonfinancial factors of the company. Cited business is primarily
engaged in retailing of groceries along with other household items. At present, the company
is operating with more than 111,000 employees for delivering their vast product range
inclusive of different levels of generic brands (Gibson, Michayluk & Van de Venter, 2013).
The company prepares their financial statements by considering Australian Accounting
Standards to assist stakeholders in making rational decisions. Further, viable assumptions had
made regarding disclosure of their operational activities.
Financial analysis of the company shows that profitability of the company is significantly
reducing due to which their return on assets and return on equity is adversely affected.
Consequently, net worth has been reduced due to a reduction in worth of non-current assets.
To cope up with the current financial issues; the company had modified their capital structure
by increasing non-current debt and reducing debt (Gitman, Juchau & Flanagan, 2015).
However; considered strategy is not viable as per their current business situation as they are
facing losses. Thus the company is required to enhance equity to reduce their financial
obligations and pay the financial cost as per their profitability status.
Through the analysis it has been identified that Plant, property and equipment were the key
fixed assets of the company. Fixed Assets and investments worth $8371.3 million reduced,
$1,793 million driven by important items. Closing inventory worth $4,558.5 million also
reduced. Woolworths recognized impairment of plant, property and equipment of $201.3
million pertaining to significant items from continued operations, and $1431.8 million
pertaining to discontinued operations. Woolworths also recognized a liability toward benefits
that accrue to the employees regarding long service leave and annual leave (Woolworths
Group, 2016). Property and plant are valued at cost minus amortization/accumulated
depreciation and impairment losses. Inventories are measured at the lesser of net realizable
value and cost
A similar result has been shown by ratio analysis of the company. Profitability ratios are
showing declining trend which shows reducing profit earning capacity of the business.
However, operational efficiency has been maintained by a company which can be noticed
through receivable turnover and asset turnover ratio. The company had maintained stability in
this ratio along with attaining slow pace growth (Woolworths Annual report, 2016). Further,
presently company does not have appropriate working capital management strategies as their

current ratio, and quick ratio is continuously reducing, and they are lower than ideal ratios.
The company should improve their working capital strategies to improvise their liquidity
position (van Duijn & et al 2016). Due to reducing profit, the company had reducing
solvency ratios and had modified their capital structure.
The overall study shows that Woolworths is not financially performing well. However, this
does not indicate their downfall as the company had developed a sustainable position in the
market. Management of business entity is able to revive their business position with better
operational strategies. Further, this is the ideal time for investors to purchase equity shares as
same has been undervalued in comparison to their market worth. With this investment;
investors will be able to attain capital benefits as there is the existence of strong probability
regarding improvement in financial performance of the company.

REFERENCES
Gibson, R. J., Michayluk, D., & Van de Venter, G. (2013). Financial risk tolerance: An
analysis of unexplored factors. Financial Services Review.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
van Duijn, A. P., Beukers, R., Cowan, R. B., Judge, L. O., van der Pijl, W., Rö mgens, I., ...
& Steinweg, T. (2016). Financial value-chain analysis (No. 2016-028). LEI Wageningen
UR.
Woolworths Group. (2016). Annual Report. [Online]. Available through:
<https://wow2016ar.qreports.com.au/home/business-review/overheads-cash-flow-and-
balance-sheet.html>. [Accessed on 23rd August 2017].