Financial Performance Evaluation of Woolworths Supermarket: A Report

This report provides a comprehensive financial analysis of Woolworths Supermarket. It begins by outlining the company's industry sector and key financial statement characteristics, focusing on the balance sheet (inventories, trade payables) and income statement (revenues, financing costs). The report then evaluates these statements, calculating and interpreting key financial ratios such as current ratio, acid test ratio, accounts receivable turnover, gross profit margin, return on assets, return on owner's equity, and debt ratio. The analysis compares data from June 30, 2016, and June 30, 2017, to assess trends in liquidity, profitability, and financial flexibility. The report concludes with a summary of the company's financial prospects, highlighting improvements in revenue and EPS, while also acknowledging a decrease in liquidity, and emphasizing the attractiveness for investors.

Running head: MANAGEMENT ACCOUNTING
Management accounting
Name of the student
Name of the university
Author note

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Table of Contents
1. The business........................................................................................................................2
1. Industry sector and the characteristics of the financial statement......................................2
a. Balance sheet...................................................................................................................2
b. Income statement............................................................................................................3
2. Evaluation of balance sheet and income statement............................................................4
3. Financial prospects.............................................................................................................5
4. Summary.............................................................................................................................6
References..................................................................................................................................7

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1. The business
The Woolworths Supermarket is the grocery and supermarket store owned by the
Woolworths Limited. The company is made up of the most trusted and recognisable brands in
the retailing sector that serves millions customers daily with wide range of choice. As per the
report of the Chairman of the company for the year ended on 30th June 2017 the company has
improved the trading performance during the 2nd half of the year with strong generation of
cash through significant reduction in the total debt. Further, the board is committed to the
solid credit rating grade for investment. It can be confirmed from their media release that
states that as the group, the company is committed towards listening the customers and are
doing the appropriate things for environment and the company feel that this is a serious issues
that needs to be taken into consideration (Woolworths.Com.Au 2017)
1. Industry sector and the characteristics of the financial statement
a. Balance sheet
1. Two major elements from the balance sheet that are crucial for the company are –
trade and other payables and inventories.
2. Inventories are selected as an item of interest as for the year ended 30th June 2017, the
inventories of the company went down to $ 4080.40 million from $ 4558.50 million.
On the other hand, the trade and other payables of the company went up to $ 6684.7
million from $ 6266.10 million over the years from 2016 to 2017 (Schaltegger, Stefan
and Marcus Wagner 2017). Though there were no changes found regarding the
inventory valuation in the industry, the inventory of the company has been reduced
may be due to selling of inventories or reduction in the market value of the
inventories (Isaksson, Olov HD and Ralf W. Seifert 2014). On the other hand, as per

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the annual statement of the company as the payables has been increased, the reasons
behind the fact must be found out.
3. From the balance sheet of the company no special event has been identified for the
increasing in payables and decreasing in the value of inventories. However, the
payables may be increased due to reduction in the company’s ability to pay-off the
liabilities or the inventories may be reduced due to reduction in the market value,
changes in the method of valuation or selling-off the inventories.
4. Inventories are significant item in the balance sheet as it needs to be monitored
closely on regular basis. Large amount of inventories can cause problems of cash
flows, create additional expenses and also increase the loss if any item is obsolete. For
Woolworths, out of total assets of the company inventories are comprised of 17.18%
which is considered to be significant item (Moatti et al. 2015). On the other hand,
trade and other payables of the company represent the liability position of the
company that is required to assess the solvency of the company. For Woolworths, out
of total liabilities of the company trade and other payables are comprised of 51.26%
which is considered to be significantly material item.
b. Income statement
1. Two major elements from the balance sheet that are crucial for the company are –
revenues and financing cost.
2. Revenues are selected as an item of interest as for the year ended 30th June 2017, the
revenues of the company went up to $ 55,475 million from $ 53,473.9 million. On the
other hand, the financing cost of the company reduced to $ 193.6 million from $ 245.6
million over the years from 2016 to 2017. The main reason behind the increase in
inventory of Woolworths is that the company falls under the retail sector of Australia
and the retail sector of Australia is growing well over the last few years (Saeidi et al.

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2015). Further, the main reason behind the reduction of finance cost may be owing to
the reason that RBI cut the rate of interest to the new low of 1.5% and the interest rate
on borrowed funds for the company reduced to 6.77% from 6.75% in 2016.
3. From the income statement of the company no special event has been identified for
the reduction in financing cost and increasing in revenue income. However, the
revenues may be increased due to growth in the Australian retail industry and the
financing cost may be reduced due to reduction in the RBI interest rate and the
borrowing cost of the company.
4. Revenues is the most important item in the income statement of the any company as it
plays important role in determining whether the company is able to cover up the
expenses and earn the profit out of the revenue incomes. On the other hand, finance
cost of the company reveals the liability of the company. Woolworths finance cost is
8.32% of the operating profit of the company which is a material item in the income
statement.
2. Evaluation of balance sheet and income statement
Ratio calculation
Ratio Formula 30th June 2016 30th June 2017
Amount Result Amount Result
Liquidity and efficiency
Current ratio
Current assets 7427
0.83
6994.2
0.79current
liabilities 8992.7 8824.2
Acid test ratio
Current assets
less inventories 2,868.5 0.32 2,913.8 0.33
Current
liabilities 8,992.7 8,824.2
Accounts receivable
turnover
Net sales 53,473.90 70.00 55,475 73.55
Average 763.90 754.30

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accounts
receivable
Profitability
Gross profit margin Gross margin 15,125.10 28.29 15,929 28.71
Sales 53,473.90 55,475
Return on Assets Net income -2347.9 -0.10 1593.4 0.07
Total assets 23502.2 22915.8
Return on owner's equity
Net income -2,348
-0.27
1,593
0.16Shareholder's
equity 8781.9 9,867
Market performance
analysis
Basic earnings per share
(given) (cents) 57.50 110.80
Financial flexibility
ratio
Debt ratio total liabilities 14,720.30 0.63 13,039.70 0.57
total assets 23,502 22,916
3. Financial prospects
It can be identified from the ratios calculated from the balance sheet and income
statement of the company for the year closed on 30th June 2017 as compared to 30th June 2016
that the liquidity ratios of the company is in decreasing trend that indicates that the paying
capability of the company for the current obligation is reducing (Methner et al. 2015).
Further, the gross profit margin of the company for both the year is moving around 28%.
However, as the company was not able to generate any positive earnings during 2016, the
return on assets as well as owner’s equity is in negative figure. Nonetheless, the company
was able to recover from the position and earned positive income during 2017. Further, the

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debt ratio of 0.57 is indicating that the company is lower leveraged and is a good opportunity
for the investors for investing their fund1.
4. Summary
From the above analysis it can be said that the due to the growth in the Australian
retail industry there is an increase in the revenue of the company. Despite of the industry
growth, the company was not able to earn positive income during 2016, but the company was
able to recover from the position and earned positive income during 2017. Further, the
company shall take into consideration the fact that the liquidity position of the company has
been deteriorated during 2017 as compared to that of 2016. However, the leverage position
and EPS of the company has been improved in 2017 as compared to 2o16 that will attract the
investors to invest their fund in Woolworths.
1 Joubert, Lorindi. "The relationship between corporate social investment and entity financial performance."
PhD diss., University of Johannesburg, 2014.

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References
Isaksson, Olov HD, and Ralf W. Seifert. "Inventory leanness and the financial performance
of firms." Production Planning & Control25, no. 12 (2014): 999-1014.
Joubert, Lorindi. "The relationship between corporate social investment and entity financial
performance." PhD diss., University of Johannesburg, 2014.
Methner, Nadine, Ralph Hamann, and Warren Nilsson. "The Evolution of a Sustainability
Leader: The Development of Strategic and Boundary Spanning Organizational Innovation
Capabilities in Woolworths." In The Business of Social and Environmental Innovation, pp.
87-104. Springer International Publishing, 2015.
Moatti, Valérie, Charlotte R. Ren, Jaideep Anand, and Pierre Dussauge. "Disentangling the
performance effects of efficiency and bargaining power in horizontal growth strategies: An
empirical investigation in the global retail industry." Strategic Management Journal 36, no. 5
(2015): 745-757.
Saeidi, Sayedeh Parastoo, Saudah Sofian, Parvaneh Saeidi, Sayyedeh Parisa Saeidi, and
Seyyed Alireza Saaeidi. "How does corporate social responsibility contribute to firm
financial performance? The mediating role of competitive advantage, reputation, and
customer satisfaction." Journal of Business Research 68, no. 2 (2015): 341-350.
Schaltegger, Stefan, and Marcus Wagner, eds. Managing the business case for sustainability:
The integration of social, environmental and economic performance. Routledge, 2017.
Woolworths.Com.Au. 2017. Woolworths.Com.Au. https://www.woolworths.com.au/.