Analysis of Financial Market and Institutions Report

This report provides a comprehensive analysis of the Australian retail industry, focusing on financial markets and institutions. It utilizes fundamental analysis techniques to evaluate investment opportunities, specifically examining Wesfarmers and Woolworths. The report employs both top-down and bottom-up analysis methodologies to assess market trends, industry performance, and company-specific financial data. Key macroeconomic factors such as GDP, inflation, and interest rates are considered, along with company financial statements and ratio analysis. The intrinsic value of both companies is determined using the P/E model. The analysis includes future projections for the Australian stock market and offers recommendations based on the findings. The report aims to provide investors with a detailed understanding of the retail sector and aid in making informed investment decisions within the Australian market. The report provides a detailed overview of the content.

Running head: Financial market and Institutions
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Financial market and institutions

Financial market and Institutions
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Executive summary
In this report paper, fundamental analysis’s techniques have been analyzed and it has
been found that how could these activities help an investor to make a better decision about
the investment into the stock market. It is quite requisite for every stockholder or investor to
make a decision about long term investment in the stocks of a company. For For conducting
this report, retail industry of Australia has been taken into the context and two companies of
retail industry has also been taken which are Wesfarmers and Woolworths limited for
performing this study n a well manner, top down analysis and bottom up analysis have been
done to make a better decision.

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Contents
Introduction.......................................................................................................................4
Industry overview.............................................................................................................4
Woolworth Limited..........................................................................................................4
Wesfarmers limited...........................................................................................................5
Top down analysis............................................................................................................5
Future projection on Australian stock market..............................................................8
Industry Viewpoint.......................................................................................................8
Industry data.............................................................................................................8
Future Outlook..............................................................................................................9
Current intrinsic value of companies............................................................................9
Wesfarmers limited:..................................................................................................9
Woolworths.............................................................................................................10
(Yahoo finance, 2017)....................................................................................................10
P/E model....................................................................................................................10
Wesfarmers limited:................................................................................................10
Woolworths.............................................................................................................11
Bottom up analysis.........................................................................................................11
Financial data:.............................................................................................................12
Wesfarmers.............................................................................................................12
(Morningstar, 2017)................................................................................................13
Woolworth..............................................................................................................13

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(Morningstar, 2017)....................................................................................................14
Ratio Analysis.............................................................................................................14
Wesfarmers.............................................................................................................14
Woolworth..............................................................................................................15
DU Pont analysis........................................................................................................16
Wesfarmers.............................................................................................................16
Woolworth..............................................................................................................17
Summary and Recommendation.....................................................................................19
References.......................................................................................................................20

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Introduction:
In this file, main concern has been put over the Fundamental analysis. It is quite
requisite for every stockholder or investor to make a decision about long term investment in
the stocks of a company. It has been observed that fundamental analysis method is crucial for
the investors as it offers the entire ups and downs information of the company of last few
years through analyzing the worth of the company. While conducting the study of
fundamental analysis, it has been observed that various information such as annual report,
financial statement, new changes in the company etc. For conducting this report, retail
industry of Australia has been taken into the context and two companies of retial industry
has also been taken which are Wesfarmers and Woolworths limited for performing this study
n a well manner (trading economy, 2017).
Industry overview:
Retail industry of Australian has been analyzed and it has been observed that this
industry of Australia offers the higher GDP of the country. It has been observed that due to
the global financial crisis the Australian retail industry has also been affected as well as it
hampered the performance of the entire companies of the industry. Still the Australian retail
company is performing very well and thus the companies of the industry had affected the less
in comparison of other industry’s firms. Further, Wesfarmers and Woolworths limited has
been observed as two of the biggest Australia retailing companies in the market of Australian.
Hence, for performing this report, these 2 companies have been taken into the context as the
growth of the industry hugely depends over these two companies.
Woolworth Limited:
Woolworth’s limited company is recognized as one of biggest Australian retailing
companies. Woolworth limited is operating its business from last 2 decades in the Australian
market. In 1997, it has registered itself in the Australian stock exchange to trade the business
of stocks. The head office of the company is situated at South Africa. This company has
operated its business functions into numerous sections such as Woolworths logistic segment
for handling the transportation, Woolworths clothing segment for producing and selling the
home ware items, beauty products and clothing, Woolworth food consists the food outlets,

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Woolworths financial services department offers various financial services to the clients,
further, various other departments are also there such as Country road group, witchery group,
David Jones etc. Currently, the company is operating its business in approx 14 companies
with the 43000 man power and it is operating its business through 1300 outlets. Australian
Retail Company and the annual report of the company depict that almost 40% of total
revenue is earned by the company from Australian market only (Morningstar, 2017).
Wesfarmers limited:
Wesfarmers limited company is recognized as one of biggest Australian retailing
companies. Wesfarmers limited is operating its business from last 10 decades in the
Australian market. In 1914, this company has come into existence and it has registered itself
in the Australian stock exchange to trade the business of stocks. The head office of the
company is situated at Perth in Australia. This company has operated its business functions
into numerous sections such as gas processing, retail industry, safety product distribution
industry, distribution industry, coal mining industry, production industry and many, chemical
industry, fertilizers manufacturing industry and lastly investment businesses in various
countries like UK, Australia, new Zealand and global. Presently, company has diversified its
business into various markets and industries to manage the performance and profitability of
the company (Nelson et al, 2012).
Top down analysis:
Fundamental analysis is one of the methods to manage the portfolio or stock of the
company. Top down analysis and bottom up analysis are the two methods of technical
analysis. In fundamental analysis, external factor and internal factor of a company has been
analyzed to monitor the performance and positioning of the company and the industry. Top
down analysis express its concern about various market changes and the economical factor of
the country. Basically, this analysis has been performed over the Australian retail industry of
to analyze the various macro economical aspect of the industry. It has been found through the
study that various issues are faced by the investors while making a decision about the
investment in a stock so various methods are available for them to make a better decision.
Top down analysis is one of them. For performing the study over the top down analysis of
Australian retail industry various macro economical factors have been analyzed such as,

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inflation rate of the country, GDP, interest rate etc (Krnatz, 2016). Through the study, it has
been found that in Australian retail market, various macro economical factor are there to
influence the operation of the industry.
Potential of the investors have been analyzed for conducting this report further. GDP
has been taken as the main indicator that helps the investors and analyst in evaluating the
health of economy, political condition, environmental factor and conditions of the country.
The global financial crisis has also been studied and found that due to that crisis, Australian
retail industry has also faced issued and because of that issues, the return of the company to
their investors have been lowered (Morote, García-Ybarra & Castillo, 2013). Still, the return
offered by the Australian retail industry is far better than other industries and other countries.
(Yahoo finance, 2017)
Through the above chart, it has been found that the Australia’s GDP per capital is
USD 1.205 trillion whereas the GDP of other companies such as India and Canada are quite
higher. But changes into last few years have been studied and found that the GDP of the
country is enhancing rapidly. Additionally, it has also been observed that the political
sustainability and exchange rate risk of Australian market is rather positive in contrast of
other states like UK and therefore it becomes simple for the stockholders to invest into this

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state and the Australian retail industry is also adopting many strategies to manage the risk
(Zaki et al, 2014).
(Analysis – Total retail, 2017)
The Australian retail industry has been analyzed and it has been found that the
performance of the retail industry in the Australia is enhancing its performance from last few
years. The retail industry of Australia is depicting an average rate of 8% of growth every year
and the growth rate of retail industry is quite higher in Australian market. Further, various
techniques and policies of the Australian market have been analyzed and it has been found
that the political changes are quite constant and thus they are not impacting over the
performance and profitability of the company. More, the fiscal policy of Australian market
has been analyzed and found that diverse changes have taken places into the Australian fiscal
plan which have impacted over the Australian retail industry and due to it, the foreign direct
investment of the company has also been enhanced (Lou et al, 2012). GDP chart of the
Australian market depict that the Australian GDP has been lowered from last 2 years still the
Australian market’s current condition depicts about an upward slope of GDP that express
about the investment which would be higher in the Australian market as Australian market’s
return capacity would be enhanced due to it. The Australian market’s inflation rate has also
been investigated and it has been found that the country’s inflation rate has been improved by
1.95% currently from last year.
The Australian retail industry and the firms under the Australian retail industry have
been evaluated and it has been found that various positive changes have been put into the
Australian retail industry. Woolworths and Wesfarmers limited which are the top companies

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of Australian retail market have been investigated and it has been found that the return to the
shareholders are enhancing in both the companies (Luo et al, 2014). And the operations and
the policies and strategies of the company has also been analyzed and it has been found that
both the companies are fairly competitive and it aids the industry to manage the return and
the risk of the Australian retail industry.
Future projection on Australian stock market:
The study of future projection has been done over Australian retail industry. The
study over the GDP of the Australian market depicts about an upward slope which would be
enjoyed by the company in near future. Additionally, the employment rate and inflation rate
of the Australian market has also been forecasted and according to the forecast, a future
growth is expecting in the market. Hence, through the prediction, it is said to the investors
that it is a good option to invest into the retail industry as the return would be higher and the
risk is quite less in future (Seng & Hancock, 2012).
Industry Viewpoint:
Australian Retail industry has been evaluated and it has been found that the total
revenue of the Australian retail industry has been superior from last few years. Further, it has
also been analyzed that the retail industry’s total turnover has been improved still various sub
parts of the Australian retail industry are expressing a negative figures. Further, the industry’s
growth has also been found and there are more chances of the industry to perform better in
near future.
Industry data:

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(Analysis – Retail industry, 2017)
Future Outlook:
Wesfarmers limited and Woolworths limited has been taken into the context and
through this analysis, it has been evaluated that the future profitability and the performance of
Wesfarmers limited and Woolworths limited are quite striking. Both companies have adopted
various new strategies to handle the profitability and company’s performance. The BOD of
Wesfarmers limited and Woolworths limited have announced about the new planning for
managing the functioning of the company and comeback into the market with strong
preparation.

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Current intrinsic value of companies:
The intrinsic value of Wesfarmers limited and Woolworths limited has been evaluated
according to the two models (Piotroski & So, 2012) which are P/E multiple model as well as
cash flow technique.
Wesfarmers limited:
Below are the Wesfarmers’s stock price movement in last 5 years.
(Yahoo finance, 2017)
The above graph depict that the stock price of the company has been fluctuated various
times in last 5 years.
Woolworths:
Below are the Woolworths’s stock price movement in last 5 years.
(Yahoo finance, 2017)
The above details depict that the stock price of the company has been fluctuated less in
last 5 years.
P/E model:

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Further, for analyzing the intrinsic value of the company, PE model has been taken
into the context. Wesfarmers limited and Woolworths limited’s performance has been
indicated through considering the Australian retail industry as well. In this model,
Wesfarmers and Woolworths’s EPS and PE have been calculated and after that by
multiplying the P/E and EPS, price of stock has been calculated. Through this report, it has
been investigated that whether the stocks are undervalued or overvalued shares.
Wesfarmers limited:
Intrinsic Value: PE Multiple approach
A. Industry PE 25.25
B. EPS
0.
52
C. Price per share 13.13
D. Actual Price 42.52
E. Over valued 29.39
(Morningstar, 2017)
While evaluating the share price of the company, it has been found that the Earnings
per share of the company are 0.52 whereas the PE ratio of the industry is quite higher. It has
been analyzed that the stock price of the Wesfarmers is highly overvalued. Thus it could be
said that the industry is not performing according to the rules and regulations of the industry.
Woolworths:
Intrinsic Value: PE Multiple approach
A. Industry PE 25.25
B. EPS 0.78
C. Price per share 19.695
D. Actual Price 17.08
E. Under valued 2.615
While evaluating the share price of the company, it has been found that the Earnings
per share of the company are 0.78 whereas the PE ratio of the industry is quite lesser. It has
been analyzed that the stock price of the Woolworths is highly undervalued. Thus it could be
said that the industry is not performing according to the rules and regulations of the industry
(Hajkowicz, Cook & Littleboy, 2012).