Financial Performance of Woolworths: An Accounting Theory Analysis

This report provides a critical analysis of Woolworths' financial performance based on accounting theory. It begins with an introduction to the conceptual framework and its application to business analysis. The report outlines Woolworths' company profile, including its market position and operations. A key component is the critical analysis of Woolworths' financial statements, including compliance with the Australian Accounting Standards Board (AASB) framework. The report compares Woolworths' performance with Coles, utilizing ratio analysis to evaluate revenue, net profit, and net worth. A financial analysis section examines key metrics like earnings per share (EPS) and the price-earnings ratio over a five-year period. The report concludes with investment recommendations based on the company's performance and future prospects, emphasizing its growth trajectory and potential for investors. The analysis is based on the annual reports of the company and its competitors.

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Accounting heoryT

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Table of Contents
Introduction................................................................................................................................2
Outline of the company..............................................................................................................2
Critical Analysis of the Company..............................................................................................2
Analysis of Woolworths with Coles..........................................................................................4
Financial analysis.......................................................................................................................5
Recommendation and Conclusion..............................................................................................7
References..................................................................................................................................8

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Introduction
The conceptual framework is an analytical tool with wide range of variations and contexts. It
can be applied in different categories. This helps to manage and organise the ideas throughout
the time the business is going to run. The accounting and conceptual framework of the
organisation helps to report the business and the transactions in the business. The
Woolworths have maintained a confident position and reduced the debt in the business. It
can be analysed form the report that the company is having an improvement in the market
share and the market price. Apart from this the company is also improving the profitability of
the business and therefore the shareholders and the investors shall invest in the market and
the jump in the performance will assist the shareholders to create a better value of the
investment (Ehiedu, 2014). Therefore it can be observed from the annual report that the
company is in compliance with the regulations and framework of the AASB.
Outline of the company
Woolworths Supermarket which is commonly known as Woolies is an Australian based
market, owned by the Woolworths Limited. The company was founded in the year 1924. The
company specialises mostly in the sales of the vegetables, fruit meat, and packaged foods.
Apart from this they are also engaged in the business of selling magazines, health and the
beauty products as well as the household products (Nimtrakoon, 2015). The current revenue
of the company is $42.132 billion and the company is operating with the 111000 number of
employees. The Woolworths is spread across the 995 locations. The company’s headquarters
are situated in the Bella Vista, New South Wales and Australia (Wesfarmers, 2018).

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Critical Analysis of the Company
As per the analysis of the annual report of the financial year 2017, the company, according to
the independent auditor’s report presented to the members of the Woolworths Limited.
According to the critical analysis of the audit report the, company is in accordance with the
Corporations Act 2001, including a true and fair value of the Group’s financial position and
the financial performance as presented is truly in alignment with the AASB framework. Also
it can be observed from the annual report that the company is complying with the Australian
Accounting Standards. According to the AASB, there were certain areas which are identified
and communicated to the government. On the part of the AASB workshop, the main motive
of the regulatory body is to depict the issues relating to the profit and they are referred to
IASB for the purpose of the consideration and interpretation of the drafts (Flannery, 2016).
In addition to this, the company also have a compilation with the Australian Accounting
Standard AASB134 interim financial reporting and the corporation’s regulation 2001. After
evaluating the performance of the company over the period of five years, Woolworths
maintained a recovering position. The recognition of the revenue is as per the AASB 15 and
the new standards that been effective from the 1st January 2017 are recognition of the
deferred Tax Assets, under AASB 112, Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture, AASB 10 and AASB 128. The amendments in the AASB
16, Leases will be effective from the 1st January 2019 (Mwangi and Murigu, 2015). These
standards were not issued and the interpretations were not adopted earlier.
There was no significant item reported in the FY2017 (Plott, Roll, Seo and Zhao, 2018).
Apart from this the company has kept a cash balance of $909 million and which decreased as
compared to the previous year of $948.1. The company’s main focus is on the sustainable
performance in the food and the sales have increased by 4.5% (Woolworths, 2018). From the
analysis of the annual report the key recent projects that have been undertaken by the

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Woolworths are Rothwell, Ashgrove, Cardiff, Leura. Among these major project includes the
Rothwell which comprises of the 950sqm of shops and 400 car parks. The company invested
45 million and paid an income tax of $105million, this reflects the company is trying to
maintain its cash flows in the effective manner.
Analysis of Woolworths with Coles
There are several methods through which the performance of the company can be analysed
yet the ratio analysis is the significant method that provides the detailed analysis of the
company individually. After evaluating the data of the Woolworths from the annual report it
is found that though both the company’s such as Coles and Woolworth are selling the same
products yet the difference is the Woolworths stocks the smaller products and ultimately
makes the customer pay the same price but in gets a low return as compared to the Coles.
The revenue of the Coles supermarkets is $33 billion with the operating income of $1.9
billion (Woolworths, 2018). On the other hand the revenue of the Woolworths is 42.13 billion
which is more than Coles Supermarkets as can be observed from the below graph depicts the
revenue, net profit and the net worth of the Woolworths and the Coles. It has been observed
that though the net profit of the Woolworths is more in comparison to Coles Market yet the
net worth is low (Zeitun and Tian, 2014). The net profit of the Woolworths is 12% more than
that of the Coles Supermarket. As compared to the Woolworths the Coles market has
manages its assets and liabilities well and it can be analysed from the annual reports of both
the companies that the business has been managed effectively. On the part of the AASB
workshop, the main motive of the regulatory body is to depict the issues relating to the profit
and they are referred to IASB for the purpose of the consideration and interpretation of the
drafts.

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The Woolworths have faced negative operations in the year 2016 due to increase in the cost
of the capital. The debt to equity component of the Coles Supermarket is 0.13 and that of the
Woolworths is 0.12 (Tayeh, Al-Jarrah and Tarhini, 2015). After analysing all the details the
annual report of both the companies it can be concluded that the Coles had a greater
advantage on the net worth side and has maintained good amount of the capital and the
greater returns available if the shareholders invest in Woolworths Company (Woolworths,
2018).
Coles oolworthsW
0
200
400
600
800
1000
1200
1400
1600
1800
Revenue
et profitN
et worthN
(Source: By Author)
Financial analysis
As per the analysis of the five year period the company is performing on the stagnant mode in
terms of the sales volume. From the year 2013 the profit of the company has been decreasing
continuously from 2259.4 to 2146.0 due to increase in the operational costs and decrease in
the volume of the sales (LI, FENG, and XU, 2007). The cost of doing business has also
accelerated from 12108 to 12718 in the year 2061. This ultimately resulted into the negative
profits of 1234.8 over the last year. However, the company improved and came out of the

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negative profits to the positive ones. The net profit margin of the company rose from 27% to
29% which is not a major jump yet the start to reach more than the potential (Bond, Govendir
and Wells, 2016). As compared to the Woolworths the Coles market has manages its assets
and liabilities well and it can be analysed from the annual reports of both the companies that
the business has been managed effectively.
Talking about whether the investors shall invest in the company or not can be analysed
through the EPS and Price earnings ratio. The market performance can be evaluated on the
basis of the EPS and the market share. The EPS and the Price earnings ratio of the
Woolworths can be observed from the table below.
Market
Performance 2014 2015 2016 2017 2018
Earnings per share
Net profit after tax 2.39 1.98 -1.46 1.61 1.64
No of shares outstanding
Price earnings ratio
Price per share 31.10
25.0
2 24.1 27.5 28.7
Price per share 2.39 1.98 -1.46 1.61 1.64
EPS
13.01
12.6
3 -16.53 17.08 17.45

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2014 2015 2016 2017 2018
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
arnings per shareE
rice earning ratioP
(Source: By Author)
Recommendation and Conclusion
The Woolworths Limited came back on the track and returned to a growth trajectory, which
can be observed from the graph above as the shares went up by 10%. In fact since June 2017
the share price of the company has been improving and reached to 27.50. Due to substantial
growth in the performance of the business, Woolworths is still a company in which the
investor shall invest. Wollies are also hoping to sell the petrol to the BP Company. The
company has also increased the investment in the capital as well purchased fixed assets to
generate more revenue through the sales (Jessen, 2014). Therefore if I was given $10000, I
would invest in the company due to the momentum of the company in different segments is
high and therefore the investors can wait for the surge in the prices. The analysis is based on
the period of five years and in comparison to the competitors such as Coles, xyz, the
company needs to buck up and bring some innovative ideas and the strategies to develop the
market share of the company. Therefore it is recommended to the investors to wait for the
right time and invest (Sheppes, 2014).

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References
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Nimtrakoon, S., (2015) The relationship between intellectual capital, firms’ market value and
financial performance: Empirical evidence from the ASEAN. Journal of Intellectual
Capital, 16(3), pp.587-618.
Plott, C.R., Roll, R., Seo, H. and Zhao, H., (2018) Tick Size, Price Grids and Market
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Wesfarmers, (2018) Annual Report [Online] Available from
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0 [Accessed on 30th August 2018]
Woolworths, (2018) Annual Report [Online] Available from
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed
on 30th August 2018]
Zeitun, R. and Tian, G., (2014) Capital structure and corporate performance: evidence from
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