Comprehensive Wesfarmers Company Report - BUS103 Accounting

This report provides a comprehensive financial analysis of Wesfarmers, focusing on key aspects such as revenue recognition policies, valuation of property, plant, and equipment, the role of the auditing firm (Ernst & Young), and sustainability initiatives. It examines efficiency ratios like inventory turnover and asset turnover, revealing improvements in asset turnover for 2018. The report also analyzes profitability ratios, highlighting a decrease in net profit margin due to losses in Bunnings UK and Ireland. Furthermore, it assesses Wesfarmers' debt position, noting a reduction in debt compared to the previous year and an improved interest coverage ratio. The analysis uses data from Wesfarmers' 2018 annual report to provide a detailed overview of the company's financial health and performance.

Running head: WESFARMERS ANALYSIS 0
Analysis of the Wesfarmers

WESFARMERS ANALYSIS 1
Table of Contents
Part I......................................................................................................................................................2
Answer 1...............................................................................................................................................2
Answer 2...............................................................................................................................................2
Answer 3...............................................................................................................................................2
Answer 4...............................................................................................................................................2
Answer 5...............................................................................................................................................3
Part II.....................................................................................................................................................4
Efficiency ratios.................................................................................................................................4
Profitability Position..........................................................................................................................4
Debt Position.....................................................................................................................................5
References.............................................................................................................................................6

WESFARMERS ANALYSIS 2
Part I
Answer 1
The principle activities of the Wesfarmers company are dealing in the chemicals, fertilisers,
coal mining, industry and safety of the products (Campbell, 2017).
Answer 2
The company is following the revenue recognition policy of recording the revenue at fair
value. The revenue is recognised if it meets the different criteria’s as listed
The sale value of the goods, the amount of interest, dividends and the revenue from operating
lease rental revenue are the core items that will affect the (Wesfarmers, 2018).
The policy is denoted on page number 56 of the annual report (Wesfarmers, 2018).
Answer 3
The valuation of the property plant and equipment is calculated at the cost of the asset and the
value of the impairment and depreciation will be deducted from the cost of the plant, property
and the equipment. Also the items of the plant property and equipment are depreciated on
straight-line method over their useful life of assets. Also expenditure on the mining such as
interest is amortised. The same is presented on the page number 58 of the annual report of the
Wesfarmers (Tepalagul and Lin, 2015)
Answer 4
The Ernst and young is the auditing firm which is responsible for the audit of the financial
statements of Wesfarmers Limited.
The core purpose of the audit is the display the true and the fair value of the company and
also provides the independent opinion on the same. Independence is the key component that
describes the ability of the auditor to perform in a better manner. The auditor must declare
their auditor independence as it is mandatory for the company to have its financial statement
audited by the auditors. The auditor’s opinion shall be independent so that it not influenced
by any relationship. There are certain doubts which are raised regarding the independence of

WESFARMERS ANALYSIS 3
the auditor and the arguments suggests that the suitable corporate governance measures if, are
not in place, a firm of auditors may reach the auditors about the opinions and judgements
(Tepalagul and Lin, 2015).
The external audits are carried out in order to ensure that the financial position disclosed is of
the accurate nature and the financial statements are carried on along with the compliance of
the sets and the laws. The external auditor is the third party professional auditor who will
prove the impartial biasness towards the review of the financial statements. Hence the
statements must be audited by external party to get the review of overall opinions (Chen, Lin
and Siregar, 2018).
Answer 5
The business is concerned about the sustainability as the sustainability is the core value for
any business and the initiatives towards the sustainability is the key advantage in the terms of
the goodwill. The initiatives taken by the company are to maintain a relentless focus on
providing the safe workplaces and provide the opportunities to employees to develop their
careers. The company also strives to keep a suitable environment and the gives full attention
to the gender diversity (Jie, and Gengatharen, 2018).
The proof of the same is outlined below

WESFARMERS ANALYSIS 4
The company is engaged with the diversified employees with 54% women working in the
company. Apart from this in terms of the quality the Wesfarmers in the financial year 2018
produced the 96% of the fresh produces and the 100% of the fresh lamb, pork and the chicken
beef. The company also focused on the reduction of the carbon emission by 6% as compared
to the intensity of the last year (Wesfarmers, 2018).
Part II
Efficiency ratios
Efficiency Ratios 2017 2018 2017 2018
Inventory Ratio
Cost of goods
sold 44633 45718 6.84 7.61
Average Inventory 6530 6011
Asset turnover
ratio
Net Sales 64913 66883 1.62 1.81
Assets 40115 36933
The efficiency ratios of the company reflect that the company’s asset turnover ratio has
improved for the year 2018 and apart from this the inventory turnover ratio is the ratio which
determines the inventory held for a particular period and cash realised form the same. Hence
the performance of the company has the improved the position (Wesfarmers, 2018).
Profitability Position
Calculation of
ratios
2017 2018 2017 2018
Profitability
Ratios
Return on total assets
EBIT 4177 4061 17.45% 17.85%
Total Assets 23941 22754
Net profit margin

WESFARMERS ANALYSIS 5
Net profit 2873 1197 4.43% 1.79%
Sales 64913 66883
The ratio tells us that the company has resulted in low profits as compared to the previous
year and the major difference occurred because of the loss reported after tax for Bunnings
UK and Ireland. Therefore the net profit margin reduced from 4.43% to 1.79% in the year
2018. The profitability of the company has deteriorated in comparison to the previous year
(Wesfarmers, 2018).
Debt Position
Leverage Ratios 2017 2018 2017 2018
Interest coverage ratio
EBIT 4177 4061 16.84 19.25
Interest Expense 248 211
Debt to Equity
ratio
Debt 16174 14179 0.68 0.62
Equity 22268 22277
From the calculation of the debt position it can be identified that the company has reduced the
debt in comparison to the previous year 2017. The debt was $16174 in the year 2017,
whereas the debts were cleared and further remaining are still in progress. The interest
coverage ratio however improved as the finance costs are also low and the payment capacity
improved. Hence the debt position improved (Wesfarmers, 2018).

WESFARMERS ANALYSIS 6
References
Campbell, J., 2017. Insights from the company monitor: Wesfarmers. Equity, 31(8), p.16.
Chen, K., Lin, A. and Siregar, D., 2018. Auditor Reputation, Auditor Independence and the
Underpricing of IPOs. Journal of Applied Business & Economics, 20(6).
Jie, F. and Gengatharen, D., 2018. Australian food retail supply chain analysis. Business
Process Management Journal.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.
Wesfarmers, (2018) Annual report [Online] Available from
https://www.wesfarmers.com.au/docs/default-source/reports/wes18-044-2018-annual-
report.pdf?sfvrsn=4 [Accessed on 21st January 2019]
Wesfarmers, (2018) Sustainability [Online] Available from
https://sustainability.wesfarmers.com.au/media/2467/sustainability_website_2018.pdf
[Accessed on 21st January 2019]