SBM3108: Financial Performance Analysis of Wesfarmers Report

This report provides a comprehensive financial analysis of Wesfarmers, an Australian company operating globally. It examines various financial ratios, including liquidity (current, quick, and cash ratios), profitability (gross, net, and operating profit margins), leverage (debt, debt-equity, and interest coverage ratios), and efficiency (average collection period and stock turnover ratio). The analysis covers the years 2015-2017, providing insights into the company's financial health and performance. The report interprets the ratios, identifies trends, and offers recommendations to management for improvement. The student explores the company's financial position, market share, and diversification strategies, concluding with suggestions for enhancing financial performance and market competitiveness. The analysis highlights areas of concern, such as low liquidity ratios and declining stock turnover, and suggests strategies for improvement, including marketing adjustments, business expansion, and resource diversification.

Running head: FINANCE
FINANCE
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................3
Overview of the Company.........................................................................................................3
Financial Ratio of Company......................................................................................................3
Liquidity Ratio.......................................................................................................................4
Profitability Ratio...................................................................................................................6
Leverage Ratio.......................................................................................................................7
Efficiency Ratio.....................................................................................................................9
Recommendation to Management............................................................................................10
Conclusion................................................................................................................................11
Reference and Bibliography.....................................................................................................13

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Introduction
Financial Management is the process from which the organization is able to maintain
proper balance in the company capital that will help them to carry its activities more easily
and effectively (Burtonshaw-Gunn 2017). Company is able to maintain its finance structure
so that it can have a proper clarity about the goals in the business. This help the company to
monitor the financial activities and able comply the business requirement effectively. It is the
management of capital in the organization which will help the concern to gain advantage in
the market. The report show about Wesfarmers and able to show different financial activities
in the business. it also show the analysis of company financial position in the business.
Overview of the Company
Wesfarmers which is an Australian company which carry its business activities in
different part of world. The company was founded in 1914 and has its headquarter in Perth,
Western Australia and the area which are been served by the company are Australia, New
Zealand, India, Ireland and United Kingdom (Wesfarmers.com.au 2019). The company is
having supermarket business and able to deal with different types of consumer product in the
business. The company is the largest Australian company in terms of revenue in the market.
It have proper market share and also the company is been diversified in different resources so
it can earn more amount of revenue in the business. The company is able to have highest
number of employee in Australia as it hold more than 22000 work in business .
Financial Ratio of Company
These are the information which is taken from the company financial statement to
ascertain different information about the company financial position in the business. this help
the user to ascertain the financial position better and can have proper investment decision in

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the organization. This assist the concern financial user to get the detailed information of the
company performance in the company.
Liquidity Ratio
This ratio show about the company financial position in regards of the payment of
company short term liability with regards of current asset of concern. It show how much the
company can pay their debt in regards of current asset of the company. This ratio is been
divided into three parts as current ratio, quick ratio and cash ratio of the company.
Current Ratio – This ratio show about the company financial position in regards of the
payment of short-term liability in the business, as it compare the current asset and current
liability that signify that if the company is able to pay their current liability easily with the
help of its current asset of the business.
Interpretation – The above calculation show about the current ratio of company for three
years. Current ratio should always be more than 2 as it is an idle current ratio so the company
having less than 2 denotes that company is not having proper amount of current asset in the
company (Wesfarmers.com.au 2019). The above table it can see that the company having
same current ratio in all the three year but as it is 0.93 which is very low as the ideal ratio is 2
so this show company is not able to meet up with the financial part and able to have high
amount lack in regards of it current asset.
Quick Ratio – This ratio is an advanced version of current ratio as in these the company have
to take only the liquidity asset, the asset which can be easily convertible in cash. It does not

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take into consideration of inventory part as it is not able to get converted into cash easily so
this ratio does not take into consideration the factor in the business.
Interpretation – The above calculation show about the company quick ratio as quick ratio is
consider 2 to be good as this show the company is having enough cash asset to meet their
current liability obligation (Wesfarmers.com.au 2019). As per the company ratio is concern it
can see that it kept on reducing as in 2015 was 0.37 and in 2017 it is 0.30 this show company
is not able to maintain the ratio properly in the business which is not a good sign as it is not
able to have proper ideal ratio. The company should maintain its ratio so that the user can get
more confident in company financial statement.
Cash Ratio – This ratio show about the company cash which company can utilize for the
payment of short term liability in the business. This ratio take should take into consideration
the cash and cash equivalent in the company.
Interpretation – The above calculation show about the company cash ratio as the cash ratio
should be more than 1 so it can be considered as good, as per the above it can see that the
company is not having proper cash ratio in the business. The company is able to have an
increase in the cash ratio which is a good sign that it able to have some control in the
company cash ratio.

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Profitability Ratio
This ratio show about the different aspects of business profit, as it show how the
concern can carry its business activities in the market. The company which is earning good
amount of profit so this signify that the company is having proper amount of strategies in
regards of its business operation (Wesfarmers.com.au 2019). This ratio can be divided into
three parts as Gross Profit Margin, Net Profit Margin and Operating Profit Margin.
Gross Profit Margin – This show the initial profit which the company is able to earn by
carrying its business activities. The profit is the starting profit which business earn by selling
its product and service in the business.
Interpretation – The above calculation show about the company gross profit margin as it has
increase in 2017 so the ratio company can have proper marketing in the business which lead
them to gain more advantage in the market.
Net Profit Margin – This ratio show about the company overall profit which is been earned
by the company and distributed to the shareholder of the company, as this profit show the
actual profit which the company is able to earn and the amount of profit which is given to the
owner of the company.

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Interpretation – The above calculation show about the net profit margin as the company is
able having an increase but still the profit is very so company should change its marketing
strategies than only it will able to attract more amount of investor in the company.
Operating Profit Margin – This is the profit which the company is earning after deducting
the operating cost from the revenue of the business, as this show the amount of profit which
the company is earning before paying the interest and tax expense in the business.
Interpretation – The above calculation show about the company operating profit margin as
it has increase in 2017 as concern is able have proper amount of business in the company
industry and also show that the marketing strategies carried by company are working
effectively in the business.
Leverage Ratio
This ratio show about the composition of capital in the business as how the company
is able to maintain the debt and equity in the business. This ratio is divided into three parts as
Debt Ratio, Debt-Equity Ratio and Interest Coverage Ratio.
Debt Ratio – This ratio show about the external leverage of the company debt its asset in
regards of the total liability of the firm. This ratio help the company to know the financial
stability in the business.

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Interpretation – This calculation show about the company debt ratio which show that
company is maintaining its ratio properly (Wesfarmers.com.au 2019). This above case show
that there is an reduction in debt ratio which is a good sign as the company able to reduce the
debt or the able to increase in the total asset of the business.
Debt- Equity Ratio – This ratio show the composition of equity and debt, as if the company
is able to manage their composition of the debt and equity than only it can able to perform
well in the business activities. The company having good ratio signify that the company is
gaining more amount of financial support in their asset
Interpretation – This ratio show about the composition of capital structure as it can see that
there is an reduction in debt-equity ratio so this signify that the company is having an
increase in the total equity which will help them to get an proper financial position in the
business.
Interest Coverage Ratio – This ratio show how much the company is able to pay its debt in
the business as this will show whether the company is able to manage the finance cost easily
or not. The company having poor coverage ratio state that the company is not able to have
proper finance structure in the business

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Interpretation – This ratio show about the company interest coverage has been increase in
2017 so this show that the company is able to increase in the profit , it able to reduce the
interest expenses in the company.
Efficiency Ratio
These are the ratio which show how the company is able to utilize the asset to
generate sale in the business. The company having more amount of this ratio signify that the
company is able to have proper management in regards of its business activities as well as it
help the company to have optimum utilization of resources in the business. These ratios are
divided into two parts as Average Collection Period and Stock turnover Ratio.
Average Collection Period - This show how the company is able to credit policy in regards
of its debtor as if the company is having high amount of period that mean it able to have more
working cycle in the business. The company having good ratio show that it can have more
amount of working capital in the business.
Interpretation – This ratio show that the company is able to have reduction in the average
collection period which is not a good sign, the company is reducing the working capital cycle
which can result in overall the reduction in company business.
Stock Turnover Ratio – This ratio show how the business can utilize the inventory in the
business. Company should maintain a proper amount of inventory so that it can meet up the
business requirement easily in the business.

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Interpretation – This ratio show that there is reduction in the ratio which is not a good sign
as the company should able to maintain the same in their financial statement so that it can
have proper amount of ratio in the business.
Recommendation to Management
The above discussion show about different ratio which is having some kind of
financial problem which will affect the company financial position in the business. The
company can make change in the current strategies that will the company to have more
busienssin the market, it should have some kind of change in its marketing strategies as this
will help them to gain advantage in the market (Wesfarmers.com.au 2019). Company should
also focus upon the overall marketing and pricing strategies so that it can earn more amount
of revenue in the business.
It should expand its business operation so that it can earn more amount of revenue in
the market. Diversification of resources should be done by the company so this help the
company to gain more amount of advantage in the business (Wesfarmers.com.au 2019). It
should do acquisition of different small company that will help them to increase the overall
business in the market.
It should do the reduction in the debt usage as these will help them to reduce the
overall finance cost, that will help the company to gain some advantage in the business. The
company should focus upon the costing method as this will help them to control overall cost
of the company.

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It can increase its current ratio by investing more in the current asset and also by
paying more amount of small term liability in the business, it should also concern about the
usage of their asset as this help the company to gain more amount of business in the
company.
It can able to have an increase in the quick ratio as by having proper utilization of the
asset as well as it should increase more number of liquidity asset in the company. This ratio
will increase automatically when the company is able to have an increase in overall asset of
the company.
Company can have proper debt ratio if it able to have an proper increase in overall
asset as this will help the company to gain more advantage in the business as well as it will
increase the overall financial position.
Company can able to have an increase in gross profit if it able to have an reduction in
the overall costing method as this will help the company to gain proper amount of return in
the business. It should able to minimize the cost spend upon the product which help them to
gain more amount of profit in the company. It can also have change in the marketing
strategies so that the company is able to get more amount of customers in the market.
Company can have growth in overall net profit margin by reducing the selling and
distribution cost which is been spend by the company upon the product, it should also have
proper analysis of the market so that, it help the company to fulfil the customer need easily
and effectively in business.
Conclusion
On a conclusive note, financial management in the business, it show the proper
management of concern in their business. The report show about Wesfarmers which is an
Australian company and deal in supermarket business. The company can carry its business