Business Analysis and Valuation: Woolworths Company Financial Report

This report provides a comprehensive financial analysis of Woolworths, a major retailer. It begins with a background of the company, tracing its history and mission. The core of the report involves a detailed examination of Woolworths' financial health, employing horizontal and vertical analysis to assess trends in financial statement items, and profitability analysis using ratios like gross profit and net profit margins. Capital structure analysis evaluates the company's debt levels and operating cash flow. Furthermore, the report includes a prospective analysis, forecasting future growth rates and return on equity. The analysis draws upon annual reports and financial data, offering insights into Woolworths' performance and future potential, concluding that the company is efficiently running and is in a healthy position with a good future outlook.

Running Head: COMPANY ANALYSIS
COMPANY ANALYSIS
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHOR NOTE

Running Head: COMPANY ANALYSIS
Executive Summary
The study will revolve around the company analysis and for which the company
Woolworth has been selected. The study will focus upon to bring the background of the
company and to comment on its financial health. All this part will be partly covered in this
assignment.

Running Head: COMPANY ANALYSIS
Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
Company Background and Mission...........................................................................................4
Horizontal and vertical analysis.................................................................................................4
Income Analysis.........................................................................................................................5
Capital Structure Analysis..........................................................................................................6
Prospective Analysis..................................................................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

Running Head: COMPANY ANALYSIS
Introduction
The report is the analysis of the company. The company chosen for the analysis is the
woolsworth (Australia). Therefore the report will cover the part of background of the
company and its financial health there will be different analysis that will be done and proper
results of the analysis will be conveyed in order to analyse the financial health of the
company.
Company Background and Mission
The beginning of the Woolworth marked on the day of 5th December 1924 in Sydney.
Percy Christmas who was the founder has said that every country need a Woolworth and
Sydney has is now. Even after 92 years this words still have the significance and woolworth
is now one of the largest retailer in the southern hemisphere. In the year 2013, wools worth
has become the part of the Australian stock exchange (Christ, Rao and Burritt 2019). The
mission of the company from the very start has been to provide the best in convenience,
deliver better quality and value to the customers and this is what they are still carrying
forward with. Their vision is to be the world’s most responsible retailers
(Woolworthsholdings.co.za, 2020). Woolworth serves nearly 29 million customers and are
partners with thousands of farmers and manufacturers.
Horizontal and vertical analysis
Horizontal analysis is used for the evaluation of the data series over the period of time
and to find out whether there has been any percentage change in the financial statement
items, it’s basically the analyzing of the trends of the business activities. It helps in
comparing with the other financial year and providing the results related to the increase or
decrease trend. The following can be ascertained by the below analysis:-

Running Head: COMPANY ANALYSIS
Source: Annual report for the year 2019 –Woolworth.
EBIT for the financial year 2019 has accounted to be $2724 million, which is 5% increase
from the financial year 2018. Sales has been recorded as the $59984 million, which is 3.4%
increase than the previous year. Intangibles assets has accounted for the amount $6526
million, which has seen an increase in the valuation of the goodwill and the increase in brand
names in the New Zealand. This occurred due to the dollar of the New Zealand got
strengthened and there were acquisition of the businesses as well. Fixed assets has been
shown to be of $ 2040 million, which was related to the stores refurbishments, It
infrastructure and also related to the chain of supplies. It has been notes that there has been an
increase in the plant and equipment and in the tangibles assets of above 7.7% from the
previous year. The net amount related to PPE is $1991 million. The reason cited was the
increase development of the property compared to the previous year (Woolworthsgroup.com.au,
2020).
Income Analysis
Profitability analysis includes analysis that is done with the help of the ratios.
Generally in order to do the income analysis of the company, one of the safest method is to

Running Head: COMPANY ANALYSIS
go for ratios, since the result out of that can be comparable and it becomes easy to
understand. It provides clear vision about the statement of accounts. Generally, gross profit
ratio and the gross margin ratio and the net profit ratio are computed to get the idea of the
profit and overall income of the company.
Gross profit ratio is the ratio that we get after dividing the gross profit from the sales
of the period. This ratio specify as to how much the company is efficient in utilizing the
resources like labor and material. Here there is an increase of in the gross profit from the
previous years which shows that the company is efficient enough with higher rate of gross
profit margin.
Net margin analysis is the EBIT of the company, which is done in order to find the
company’s internal system. From the above financial statement, we can see there is no major
change in the EBIT section of the company from the financial year 2018 and 2019 and
therefore it can be concluded that there is a balanced performance going on by the company.
Capital Structure Analysis
Woolworth group limited, one of the largest retailer of the southern hemisphere has a
large capital amounting to $40 billion (Gale, 2019). Whenever the name of the Woolworth
arrives, investors can rely upon their stock for the investment purpose. They have a high
market liquidity and a very strong stock due to which people gets reliability to invest in their
shares for trading purposes. Since this company is quiet tough in times of low liquidity period
and therefore does not get so much affected by the interest rates hikes as compared to the
companies that are in lot of debts. It has been noted that the Woolworth has been able to
sustained its debt level with $2.9 billion in a year, which is the sum total of the long-term
debt. They have a operating cash to debt ratio of 103%, which represent that the Woolworth
operating capital is more enough to cover its debt. With the total debt counting to be 25% of

Running Head: COMPANY ANALYSIS
the equity, which can be considered to be appropriately levered. This range can be termed as
the safe region as the company is not involved in too many debts obligation and therefore, it
does not make it risky for the shareholders. It has to be noted that the net interest is required
to be covered thrice by the interest in order to mark itself safe. Therefore, the ratio of 17.92
suggest that the interest is totally covered. (Simply Wall St, 2020)
Prospective Analysis
Source: possible cash flows, revenue, earnings and growth rate analysis and forecast till
2025(Simply Wall St, 2020)
The growth rate of the Woolworth is said to be 9% for the 1 to 3 years. The growth
rate of the Woolworth is considered to be much higher than its competitors. Therefore, it has
to be noted that the Woolworth group has better chances and are enjoying the higher growth
as compared to its peer group. (Analytics, 2020)

Running Head: COMPANY ANALYSIS
Future ROE Source: (Simply Wall St, 2020)
The growth rate of the company is said to be in the positive light. However, the past
performance is said to have been in the negative point. The shares of the company is said to
be in high demand and therefore, it has to be noted that the chances of attracting investors are
higher and due to increase equipment of the company, it can be assured that there will be
more expansion of retailers in the upcoming years( Jie and Gengatharen 2019).
Net sales chart. source: (Analytics, 2020)

Running Head: COMPANY ANALYSIS
Net sales calculation has been done on the weighted average of the historical growth
of the net sales. This focusses in the ability of the company to grow its net sales and is done
historically. Calculation are done by taking the data from the five years net sales. (Analytics,
2020)
After the announcement about the earnings of the Woolworth has been done by the
ASX in june 2018. It has been noted that there are forecasts that are done by the analyst are
fairly optimistic and it predicts a positive increase in profit by almost 17% in the upcoming
year, realization of which came after the last five year average growth rate of -13%. The
earning from the $1.9 billion is supposed to get increased by the $2 billion by 2022. It
can be noted that the trend of growth of the Woolworth is seemed to have a positive trend and
therefore the analyst of the Woolworth group are more into positive element. Forecassting for
a long period of time gets difficult and therefore brokers generally specify three to five year
plan which has been stated at the starting of this study of prospective analysis of Woolworth.
Conclusion
The above report has done an analysis over the company’s background its mission
and its financial health. From the above, it can be concluded that the company Woolworth is
efficiently running and is in a healthy position. The shares of the company are in demand,
there are abundant of investors available. The income level shows a significant growth, even
one can foresee profit related to the company. However, the EBIT did not showed much of a
change in the positive manner, therefore if the company look into this , then maybe there can
be fruitful results forward.

Running Head: COMPANY ANALYSIS
References
Brown, S., 2019. What an asset impairment really means-company
financials. finweek, 2019(29 August), pp.19-19.
Christ, K.L., Rao, K.K. and Burritt, R.L., 2019. Accounting for modern slavery: an analysis
of Australian listed company disclosures. Accounting, Auditing & Accountability Journal.
Gale, F., 2019. The Circular Economy in (Corporate) Australia: a Preliminary Analysis.
In 4th Edition of the International Conference on Public Policy (ICPP4) (pp. 1-3).
Habersang, S., Küberling‐Jost, J., Reihlen, M. and Seckler, C., 2019. A process perspective
on organizational failure: A qualitative meta‐analysis. Journal of Management Studies, 56(1),
pp.19-56.
Jie, F. and Gengatharen, D., 2019. Australian food retail supply chain analysis. Business
Process Management Journal.
Simply Wall St. (2020). Woolworths Group (ASX:WOW) - Share price, News & Analysis -
Simply Wall St. [online] Available at: https://simplywall.st/stocks/au/consumer-retailing/asx-
wow/woolworths-group-shares?
utm_medium=finance_user&utm_source=post&utm_campaign=Conc_ticker&blueprint=279
282#future [Accessed 27 Jan. 2020].
Woolworthsgroup.com.au. (2020). [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/195582_annual-report-2019.pdf [Accessed
27 Jan. 2020].

Running Head: COMPANY ANALYSIS
Woolworthsholdings.co.za. (2020). Our purpose, Vision and values – Woolworths Holdings
Limited. [online] Available at: https://www.woolworthsholdings.co.za/overview/our-purpose-
vision-and-values/ [Accessed 27 Jan. 2020].
Analytics, I. (2020). WOOLWORTHS GROUP LIMITED: Growth analysis (WOW | AUS | Food
Retailers & Wholesalers) - Infront Analytics. [online] Infrontanalytics.com. Available at:
https://www.infrontanalytics.com/fe-EN/00097AA/Woolworths-Ltd/gprv-growth [Accessed 28 Jan.
2020].