Financial Statement Analysis of Retailing Companies: A 2016 Report

This report provides a detailed comparative analysis of the 2016 financial statements of three major Australian retailing companies: Wesfarmers, Metcash, and Woolworths. The study focuses on the concepts of accruals and deferrals, examining their significance in business operations and their practical application within each company's financial reports. The report discusses specific financial parameters related to accruals and deferrals, including prepaid rent, depreciation expense, salaries and interest payable, and unearned fees. It also examines the revenue generation, depreciation expenses, and cash flow statements of each company. The analysis includes figures from the 2016 reports, providing insights into each company's financial performance, and concludes with a review of the current conditions of the organizations. The report utilizes financial data to provide a comprehensive understanding of the financial health and performance of these major Australian retailers.

FINANCIAL STATEMENT DETAIL COMPARISON OF
COMPANIES
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Table of Contents
Introduction......................................................................................................................................3
Overviews of Considered organizations..........................................................................................3
Wesfarmers..................................................................................................................................3
Metcash........................................................................................................................................4
Woolworths..................................................................................................................................4
Concept and Significance of Accruals and Deferrals in business...................................................4
Accruals.......................................................................................................................................5
Deferrals.......................................................................................................................................5
Yearly Financial Report Description of Wesfarmers......................................................................5
Yearly Financial Report Description of Metcash............................................................................8
Yearly Financial Report Description of Woolworths....................................................................10
Review for Current Conditions of the organizations.....................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
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Introduction
In the modern world of business, it is very important to carry out the transactions in a calculated
manner so that the accounting can be done in a precise manner. Accounting, which is considered
as one of the most important aspects of business is usually the sole of financial operations of a
company. This keeps a record of all the transactions that has happened in any particular
company. It is also important for companies to take and even deliver credits to other firms or
clients in order to sustain in their respective markets. The following study is about three different
organizations belonging to retailing domain that have been performing significantly well in this
sector. The assignment has taken in the financial reports of 2016 of three companies and
discussed the key aspects of Accruals and Deferrals that have happened in these organizations.
Along with this, the certain other parameters associated to Accruals and Deferrals like Prepaid
Rent, Depreciation Expense, Salaries & Interests Payable and Unearned Fees have been
discussed and their respective figures have been mentioned.
Overviews of Considered organizations
The companies that have been considered for the following study are from retails business
sectors that have a strong hold and grip on Australian Retail market of groceries as well as other
food and beverages. They have been actively involved in accruals and deferrals related
operations in their business with their respective clients so that the scope of business keeps
increasing. Following are the details of the three companies and their work structure.
Wesfarmers
The Wesfarmers Incorporation is a leading business organization in Australia that operates in
multiple domains of business including Grocery Stores, Supermarkets, Auto Services, Liquor
Retailing and many more. The organization was established in 1914 and is currently
headquartered at the city of Perth in Western part of Australia. The Wesfarmers is presently
chaired by Michael Chaney who happens to be the Chairman of this firm and the operations of
this organization is controlled and guided by its chief executive officer, Mr. Richard Goyder. As
per the latest reports, there are over 200,000 employees working with the organization that
contribute for almost AUD 67 billion revenue every year. Apart from Australia, the operations of
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Wesfarmers are spread in countries like Ireland, United Kingdom, Bangladesh and New Zealand
(Wesfarmers.com.au, 2017).
Metcash
Metcash is an Australian based public company that deals with wholesale distribution of liquor,
fast food, groceries and even hardware. The company was founded in May, 1927 by Joe David at
Surry Hills in New South Wales, Australia. Starting with a simple Food Store, the company
expanded to become a giant in Australian Wholesale market and currently owns multiple firms
related to liquor and groceries. This mainly includes the C-Store Distribution, Campbells
Wholesale that are associated with groceries and food stores as well as Independent Brands
Australia and Australian Liquor Marketers that are mainly associated with liquor marketing and
supply. All the subsidiaries perform under the guidance of Julie Hutton who is the CEO of
Metcash public limited company. The organization generated revenue of AUD 13.5 billion in its
business year that ended in the mid of 2016 (Metcash.com, 2017).
Woolworths
Woolworths is considered as a giant in Australian Retail market as it deals with supply and
processing of food in the Australian Food Markets. Founded in December 1924, Woolworths
currently operates in wholesale food distribution and also runs a chain of Supermarkets in
different parts of Australian continent. The company is currently headed by its Director, Mr.
Brad Banducci and has over 100,000 employees working with it. The turnover of this
organization came out to be more than AUD 72 billion in the financial report of 2016 with its
operations located at countries like Africa, United Kingdom and New Zealand apart from
Australia. The net profit earned by this company in the year 2016 is AUD 4.35 billion
(Woolworths.com.au, 2017).
Concept and Significance of Accruals and Deferrals in business
It is very difficult for any organization to initiate its operation on a full-scale basis totally based
on its own capability. According to Peng et al. (2016, p.94), it becomes very important for
certain companies, especially the startup firms to take loans and debts from established firms or
from their business partners in order to carry out their business. Similarly, the established firms
are sometimes required to lend their business partners with some loans in order to help them
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establish their respective businesses. The process of lending and borrowing of debts and credits
give rise to the concepts of Accruals and Deferrals (Penman, 2016, p.119). Following are the
detailed explanation of Accruals and Deferrals in business along with their significances.
Accruals
In a layman’s term, “Accruals” can be termed as those number of monetary units that are to be
received by any organization. According to Kanodia and Sapra (2016, p.658), there is a certain
amount for all the companies that are to be obtained after a certain period. This amount is
calculated under the category of Accruals in every financial report of an organization. The
strategists and financial experts of many organizations are very much sure of the fact that they
are going to receive the accrued amount in the near future. The amount that is to be received by
an organization after a certain period is known as the accrued profit. On the other hand, the
amount that is to be paid by an organization is known as Accrued Expense. As per Meyering et
al. (2017, p.24), the accrual amounts are to be paid and delivered after the completion of terms
and conditions and after all the products and services are successfully delivered.
Deferrals
The term “Deferrals” stand for the amounts that are paid earlier before the delivery of any
products or services. As stated by Iotti and Bonazzi (2016, p.716), the calculations related to
deferrals as done especially in those areas that include prepaid services and insurances. The
company that receives the payment for insurance purposes has to deliver the services for the
specified period that has been mentioned in the bond or contract of business deal. The amount
that is received by service provider is known as Deferral profit for the service provider.
However, the same amount that has been paid by a merchant or insurance receiver is known as
Deferral expense for the service receiver. In addition to this, Omonuk and Dodor (2016, p.104)
have mentioned that the time that is involved in completion of contract is called tenure.
Yearly Financial Report Description of Wesfarmers
As per the financial reports of Wesfarmers in 2016, the revenue generated in 2016 was AUD 185
billion, which is significantly greater than the revenue of 2015 that is AUD 1.74 billion. Byzalov
and Basu (2016, p.867) have talked about this increase in their journal and have mentioned that
the introduction of new products in the retails stores and markets have led to increase in
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investments from outside and has further resulted into increase in revenue. In addition, the
earning before paying the taxes and interests to investors has increased from AUD 118 million to
AUD 134 million.
Figure 1: Revenue Generation of Wesfarmers in 2016
(Source: Wesfarmers.com.au, 2017)
Depreciation Expense: The expenses caused to company due to depreciation and amortization
has been AUD 1.296 billion which is slightly higher than the statistical figure of the same
expense in 2015 that is AUD 1.219 billion. According to Sutton et al. (2016, p.66), the increases
in depreciation expense of any firm signifies that the management has focused more on spending
higher amount on supporting services like transportation apart from quality. This has been
accompanied by impartment and other expenses that have been AUD 2.17 billion and AUD 3.1
billion respectively in the year 2016.
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Prepaid Rent: The prepaid rent has been paid in the form of charges for plants, properties,
intangibles and other equipments by Wesfarmers (Andries et al. 2017, p. 547). In 2016, this
payment has been about AUD 1.9 billion, which is approximately AUD 300 million less than
that in 2015, which is AUD 2.2 billion. Decrease in prepaid rent can signify many things like
reduction in prices of commodities and fewer investments in assets by a company (Trejo‐Pech et
al. 2016, p. 106).
Unearned Fees: The earned fee has been mentioned in the financial report of Wesfarmers as
borrowing repayments, which is AUD 1.4 billion. This figure is almost double than that in
previous year, which was AUD 722 billion.
Salaries Payable: The salaries payable to the workers in the form of Employee benefits expense
has been approximately AUD 8.85 billion in 2016, which is about AUD 6.5 million higher than
the 2015 figure of AUD 8.2 billion. As per Kim and Zhang (2016, p.428), the increase in payable
salaries figures shows the company has taken care of the human resources primarily. In addition
to this, the trade and other payables have been AUD 6.4 billion.
Interest Payable: In the current liabilities, the interest payable due to trade and other entities has
been AUD 5.7 billion in 2016, which has been slightly more than the 2015 figure of AUD 5.5
billion.
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Figure 2: Cash Flow Statement for Wesfarmers in 2016
(Source: Wesfarmers.com.au, 2017)
Overheads of the group findings of Wesfarmers Limited for the year ended 30 June 2018
Wesfarmers Limited
Estimated income statement for the year ended 30 June 2018
Particulars 2018
$m
Comment
Sales revenue 60984 Recognition is done on cash receipt
basis
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Inventory
expenses
-
42245
Freight and carriage expenses -1057
Impairment expenses -2000
Gross profit 15682
Other finance and trading cost -865 Accrual basis
Income tax expenses -26
Net profit for the year ended 14791
Wesfarmers Limited
Estimated balance sheet for the year ended 30 June 2018
Particulars 2018
$m
Comment
ASSET
S
Current assets:
Cash and cash equivalents 600
Current stock or inventories 5900 Purchase of stock in credit
Derivatives 50
Accounts receivables 1700 Deferral basis
Receivables (loans and advances) 800 Deferral basis
Total current assets 9050
Non-current assets:
Property and buildings 250 Depreciation is done on
SLM
Plant and
equipment
7200 Depreciation is done on
SLM
Intangible assets 4879
Goodwi
ll
14500
Investments 650 Accrual basis
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Total non-current assets 27479
TOTAL ASSETS 36529
LIABILITIES
Current
liabilities:
Provisions 1912
Fixed cost bearing credits 1700 Deferral basis
Income tax
payable
30
Accounts payables 6500 Accrual basis
Total current liabilities 10142
Non-current liabilities:
long-term
provisions
1654
Other long-term liabilities 5780
Derivative and other financial instruments 281
Total non-current liabilities 7715
TOTAL LIABILITIES 17857
NET ASSETS 18672
SHAREHOLDERS FUND
Issued capital 18200
Retained earnings 285
General reserves 187
TOTAL
EQUITY
18672
Wesfarmers Limited
Estimated cash flow statement for the year ended 30 June 2018
Particulars 2018
$m
Comment
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CASH FLOWS FROM OPERATING
ACTIVITIES
Receipts from debtors 72107
Payments to creditors -
65682
Dividend received 75
Interest received 130
Income tax paid -1900
Net cash generated from operating
activities
4730
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sales of assets 600
Payments for purchase of assets -1780
Investment in
loans
-50
Acquisition of subsidiaries -738
Net cash used in investing activities -1968
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of borrowings -1450
Payment of dividends -2300
Proceeds from borrowings 2402
Net cash used in financing activities -1348
Decrease in cash and cash equivalents 1414
Cash and cash equivalent at the end of
the year
1414
Yearly Financial Report Description of Metcash
The revenue generated by Metcash Public Limited has been AUD 13.54 billion. This has been
slightly greater than that in 2015, which was AUD 13.37 billion. The variance in revenue
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generation has been just 1.3%, which is not considered as a considerable or significant growth
for a leading giant. After doing a review of this performance, Andries et al. (2016, p.542) has
stated that slightly increase in revenue is usually seen in public companies in almost every
nation. Moreover, there are many factors that have underperformed compared to previous year.
The main reason for not showing a desirable performance is the tough competition given by
private sectors that has deviated customers from Metcash (Trejo‐Pech et al. 2016, p. 97).
Figure 3: Revenue Generation for Metcash in 2016
(Source: Metcash.com, 2017)
Depreciation Expense: The Company has spent AUD 3.3 million as depreciation expense for
plants, equipment and properties associated with its business operations.
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