Comprehensive Financial Analysis of Woolworths and Veterinary Services

This assignment provides a detailed financial analysis of Woolworths, a major Australian supermarket, and Veterinary Services. The Woolworths analysis examines the company's income statement, balance sheet, and key financial ratios, including return on equity, return on assets, and various turnover ratios. The analysis also discusses the implications of changes in receivables, prepaid expenses, retained earnings, and liabilities. Additionally, the assignment includes the balance sheet, income statement, and T-accounts for Veterinary Services, along with a general journal to record adjusting entries. Finally, the assignment provides an overview of financial performance, including reasons to invest in Woolworths based on ROIC and ROE.

Woolworths
Woolworths is one of the largest supermarkets in Australia and offers products such as
grocery, clothing, and food items.
The concept of reporting entity
One of the regulations is that reporting entities such as Woolworths have to comply with
accounting standards in Australia and also in interpretations as delivered by the Australian
Accounting Standards Board and where relevant must comply with the specifications of
Corporations Act 2001.
Compliance with IFRS
The fundamental of preparation note to the financial statements describes the reporting
framework, and the note asserts the importance of complying with the Australian Accounting
Standards facilitating that the financial statements and notes of the entity adhere to the
international Financial reporting standards (IFRS).
Part C
Profit and loss
Operating income, as seen in the income statement, increase with a margin of
1,057,400,000, and this means that Woolworths experienced a rise in its sales while controlling
its costs.
Receivables
The receivables increased by 9500000 and the implication of this that more people were
paying on credit in 2018 and this is a drain on Woolworths' cash as some of the revenues accrued
during the year raised the balance of accounts receivable rather than cash.
Prepaid expenses

The prepaid expenses increased by 46800000, and while this seems like a brilliant idea, it
is disastrous as it can affect monthly expenses and purchase of inventories. Such an increase in
prepayments means that there will be a decrease in the cash flow and working capital for
Woolworths.
Retained earnings
Retained earnings increased by a margin of 275800000 and this is a good sign for
Woolworths as it means that Woolworths received more revenues compared to the amount spent
in expenses. Also, this could be due to Woolworth earning its net income and deciding to hold on
to it.
Total liabilities
The total liabilities decreased by 330700000, and this is good for Woolworths as it means
that it has reduced the burden on company resources to pay debts, thus improving the working
capital.
Retained earnings
Woolworths retained earnings increased by 275800000, and this is crucial to such a
company as it means that Woolworths will continue being profitable.
Part D
Financial ratios
Return on equity
The return on equity increased by 2.55%, and this is good for Woolworths as it means
that it is expanding its capacity to generate profits without requiring much capital. It can also be
translated as Woolworths' management is utilizing the shareholders capital efficiently.
Return on assets

Woolworths' return on assets also experienced growth of about 7.10% is good for the company
as it demonstrates that the company can manage its assets and convert them into net income.
Thus, an increasing return on assets for Woolworths is a clear demonstration that the company is
profitable.
Return on invested capital
The ROIC of Woolworths' has increased by 4.05% though by a small margin, and this is
good for the business as it means `that Woolworths is creating value for its investors.
Invested capital turnover
Woolworths' invested capital turnover has increased by 8.16%, and this is good for the
business as it means that Woolworths is more efficient and also means that the company is better
positioned to generate more revenues.
Inventory turnover
Woolworths' inventory turnover has decreased by 1.77%, and this is bad for the business
as it is an indicator that Woolworths is not converting its stock into cash as fast as before and this
could make Woolworths have experience increase in the costs associated with storage and
maintenance.
Asset Turnover
Woolworths' asset turnover is also on the decline, and this is bad for the company as it
means that Woolworths is not efficient in converting its assets to yield the needed sales and this
may be due to the purchase of new assets or reducing the purchase of stock from its suppliers.
Current ratio
Generally, the acceptable working limits for a current ratio should be between 1 and 2.
However, Woolworths' current ratio is below this range as it stands at 0.78. The company's

current ratio has also declined by 1.48%, and this is not good for the business as it means that
Woolworths is unable to attend to its existing obligations on time and this lowers the trust
associated with the creditors, suppliers, and investors.
Quick ratio
Woolworths' quick ratio is declining and reduced by 2.91% and is a lousy indicator. It is
also below 1 and what this means is that Woolworths' balance sheet may be over-leveraged. Such
a quick declining ratio could also be translated as Woolworth's sales being on the decline or
maybe Woolworths is accruing its bills too fast.
Working capital turnover
Woolworths' working capital turnover is declining and reduced by 5.62%, and this is a
negative sign as it reveals that Woolworths is not able to produce sales from its working capital.
It means that Woolworths' net sales are declining using its amount of working capital. It could
also be translated as having an increased working capital while unable to maintain its sales.
Net profit margin
Woolworths' profit margin increased by 10.98%, and this is a positive indicator for the
company as it means that Woolworth was more efficient in transforming its sales into real profit.
Part E
Reason to invest in such a company
Looking at Woolworths' return on invested capital (ROIC), it increased by 4.05%, and
this is good for investors as it shows that Woolworths will create the value of money used by the
shareholders whenever they invest in such a company. Woolworths' return on equity is also on
the rise as it increased by 2.55% and this is good for the business as it means that the company
can generate more profits without demanding extra capital from the investors. It also translates to

Woolworths's utilizing the capital contributed by shareholders efficiently as no investor would
want to invest in a company that mismanages the capital contributed. In this case, Woolworths
shows excellent prospects as an investment hub as one will be sure that value for their money
will be guaranteed based on its increasing return on invested capital. Woolworths also shows that
it can use the available capital to generate more profits.
Balance sheet
Veterinary
services
Balance sheet
As at 30 June
2018
fixed assets Dr Cr
Surgery equipment 294,951
less accumulated
depreciation 137055
157,896
Current assets
cash 43074
Accounts Receivable 84190
Office supplies 19580
Prepaid insurance 9789
156633
total assets 314,529
Current liabilities
Accounts payable 19580
interest payable 588
Revenue received in advance 81929
salaries payable 5090
add net profit 134897
Long-term liabilties
bank loan 19580
Total liabilities 261664
261664
owners equity
share capital 78317
Retained Earnings 21537

less dividends -46989 52865
Totals 314529 314529
Statement of owner's equity
Retained earnings 21537
add net income 134897 156434
less dividends 46989
109445
Veterinary
services
Income
Statement
as at 30
June 2018
Dr Cr
Service revenue 240822
salaries expense 44249
insurance expense 3329
interest expense 1959
depreciation expense 27411
office supplies expense 13314
Rent expense 15663
totals 105925
net income 134897
240822 240822
T-accounts for liabilities
Liabilities
Dividends 46989 Accounts payable 19580
Interest payable 588
Revenue in advance 81929
salaries payable 5090
bank loan 19580

Add net Income 134897
bal c/d 314529 Owners equity 99854
361518
bal b/d 314529
BANK LOAN
bal b/d 19580
ACCOUNTS PAYABLE
bal b/d 19580
INTEREST PAYABLE
bal b/d 588
REVENUE IN ADVANCE
bal b/d 81929
SALES PAYABLE
bal b/d 5090
Owner's equity
Share capital 78317

Retained earnings 21537
T-accounts for assets
Surgery equipment
bal b/d 294951 accumulated depreciation 137055
Cash
bal b/d 43074
Accounts Receivable
bal b/d 84190
Office supplies
bal b/d 19580
total assets
Surgery equipment
294951 Accumulated depreciation 137055
Cash
43074
Accounts receivable
84190
Office supplies 19580
Prepaid Insurance
9789

bal c/d
314529
451584 451584
bal b/d 314529
General Journal
Veterinary Services
General Journal
Date Account(narration) Post ref debit Credit
30/06/2018 Interest expense payable 588
Interest expense 588
30/06/2018 Revenue received in advance 81929
Service revenue 81929
30/06/2018 Accounts Receivable 84190
Service revenues 84190
30/06/2018 office supplies expense 13314
Supplies 13314
30/06/2018 depreciation expense 27411
Accumulated
depreciation
27411

Statement of Owners’ equity
Statement of owner's equity
Retained earnings 21537
add net income 134897 156434
less dividends 46989
109445