Finance Management Report - Analysis of Wesfarmers Finances

This report provides a comprehensive analysis of financial management practices, focusing on the Australian company Wesfarmers. It delves into the importance of examining previous financial data for informed decision-making and understanding the reasons behind profit and loss. The report highlights the significance of critical dates and cash flow trends in financial planning, along with an overview of tax liabilities. It also explores the role of financial management software, resource allocation strategies, and the estimation of costs for potential new items. Furthermore, the report discusses budget preparation aligned with organizational policies, emphasizing the need for managers to be well-versed in budget details. Finally, it provides examples of how a company's funds might be misappropriated, offering valuable insights into financial controls and risk management. The analysis covers various aspects of financial planning and management within the context of Wesfarmers, providing a practical and informative overview of the subject.

Manage Finances

Table of Contents
INTRODUCTION...........................................................................................................................1
Overview about company:...............................................................................................................1
Questions.........................................................................................................................................1
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................11

INTRODUCTION
In present scenario, it is very crucial to manage money and finance related objects that
help to survive in dynamic environment and sustain for long. Managing finance is a systematic
approach that support in tracking expenses (Archer, 2012). Investing, budgeting, banking and
evaluating taxes of money so that meaning full decision are taken for improvement. Finance
management is a important method to form money produce the advanced interest output worth
for any amount spent within specific time frame. To better understand the context the managing
finance Wesfarmers has been selected. It is an Australian company that is engaged in various
business operations so there it is essential to manage finance for manager.
In this topic, review and analysis of previous financial data, reasons for previous profit
and loss, various resources, requirement for compliance and liabilities foe tax, review about
existing software is discussed. Report also shows allocation for resources, estimates of new items
for inclusion in budgets, prepare budget for requirement and statutory needs, circulate budgets
and ensure managers to take decision, manage risk by checking opportunities for misappropriate
of funds, review of profit and loss statements. Apart this, proper structure and reports, significant
issues in statements, prepare recommendations have been discussed.
Overview about company:
Wesfarmers Limited is Australian company which has its headquarter in Perth, Western
Australia and it also cooperate business in New Zealand (About Wesfarmers, 2018). Company
deals in retail, fertilisers, chemicals, coal mining and industrial and safety products. Respective
firm was established in 1914 as a cooperative company by the Farmers' and other settler
association of Western Australia. It has different business operation such as home improvement,
outdoor living, general and apparel merchandise, office equipments and also industrial sections
fertilisers and energy product, chemicals and safety products.
Questions
1. Examining previous financial data important for managing current and future finances.
Financial informations are the essential need of any organisation it helps to run a business
effectively by generating profits. Its main object is to increase profit margins and establish areas
to generate profitability. It is very important for every organisation to compare present financial
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data with past data because it helps to take better decision to run a business by comparison. This
information helps to decide whether a department is making profit or loss and also give ideas
what steps should be taken to reduce the loss. Previous data of any firm defines business area
that gives suggestion to organisation in which area can expand the business to earn more profits.
Each enterprises need to have past year financial statements such as income statement and
balance that can be helpful to compare and further business decision activity (Cavenaghi, 2014).
2 Need to understand the reasons for profit and loss.
Profit and loss statement is a document of measuring and reporting company's expenses
and revenues during a certain period of time. It helps to show firm's progress and its financial
status while surveyed time. Any industry can get an opportunity to make improvement in
financial position after analysing previous profit and loss. As above discussion, previous
financial statements shows whether company is in profit or loss and give suggestion to get solve
the problems which is occurring in business. For knowing profit and loss a company should
research and analysis the previous profit and loss and need to make further finance budgets that
helps to give suggestion in which department a firm should invest in order to make profits. If
firm is in loss situation then it should find the reasons and information to get the solution.
3 Examples of your business critical dates and describe how they can be used to increase profit.
Critical dates defines the planning in financial year that allow a organisation to make
most busy and slow period in order to manage the finances as well as resources. It includes black
Friday, end of financial year sales, boxing day etc. For instance, Wesfarmers is a retailer
company which deals in chemicals, fertilisers, coal mining and industrial safety products. This
company is planning to increase sales by providing online and expected busy period. For
establish this plan manager need to make solid strategy which will attract to customer such as
black Friday and boxing day. By providing black Friday strategy customer will purchase
products in huge number at less prices than other day and boxing strategy will offer customers
flock to purchase discounted products after Christmas. This strategy will help Wesfarmers to
increase in number of sale and increase financial position of the company. Company need to use
proper resources such as human resource, raw material, cash management etc. that helps to
generate cash and profits for the organisation. All the financial information company will need to
present in general meeting and annual meeting that would define whether company in profit or
loss (Cronqvist, Makhija and Yonker, 2012).
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4 Need to analyse cash flow trends.
In financial term cash flow is also termed as statements of cash inflows and outflows that
help to display the alterations in balance sheet accounts and revenues that affects the cash
equivalents. Basically a cash flow is divided into three activity operating, investing and
financing. It is observed that proper analyses of cash flow trends support an organisation to track
actual status and health of businesses within a specific time frame. By performing proper ratio
analysis for every month it give a detail information about the happing of business and how well
company uses and manager its cash. Cash flow analysis simply help to measure the manner by
which actually cash is generated and spent by Wesfarmers within a specific time period as it is
the best way to measure the overall performance and makes suitable changes. It help to anticipate
future deficits of cash, established a solid base for requesting credits etc.
5 Need to be aware of your tax liabilities.
It refers to an aggregate amount of obligations concerned with taxes and duties payable
by business organization and individuals to relevant authority which is responsible for collection
of taxes and duties. Tax liabilities are calculated on income and profit on sale of assets. Taxes are
charged by different tax authorities including federal, local and state governments. Tax liabilities
are changes with change in law and regulations so some times estimation of these liabilities for
the purpose of providing provision may be incorrect. Although provision for tax liabilities are
essential to formulate budgets. Tax liabilities not only includes current year tax but also
combines unpaid amount of tax related to previous year and other miscellaneous. In this context
Wesfarmers has reported provision for income taxes AUS $ 1246 million, differed tax asset
amounting AUS $ 692 million and differed tax liabilities of AUS $ 299 million in 2017-18.
Which indicates that company is aware about the importance of tax liability.
6 Questions you should asked to ensure financial management software is suitable for business.
Financial management software is an application that assist in managing all financial and
accounting activities, operations and functions whether financial. It also includes various
methods and tools for reporting, tools to analyse budgets and planning. However these types of
software leads to extra cost and also complex. But overall benefits of financial management
software is more than its advantages. In Wesfarmers, managers are using Microsoft Money and
excel or google spreadsheet to handle like recording of financial transactions, reporting of
financial statement. classification of segment income and expenses, developing new reports as
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per requirement, assessment of value of business, tracing return from investments, formulation of
budgets, comparative analysis of data or information for more than one year and for creation of
other relevant analysis or evaluation reports (DeYoung and Jang, 2016). Company's most of the
budgets are prepared by using these software. It also provide assistance in evaluation of
Company's overall performance online real times basis. It provides a systematic groundwork for
decision making.
7 Need to consider previous financial data when managing resource allocation.
Managing resource allocation simple refers to selecting a best appropriate available or
existing resources in a business organisation covering all segments or units to prevent over or
under utilisation of all company's resources. Use of past year financial information or data
provide a framework for trend analysis and comparison to effectively allocation of various
resources. In Wesfarmers, previous year data provides a basis for choosing a viable project while
utilising existing resources and allocation of resources. Proper utilisation of existing resources
using previous financial data not only helps to choose best alternatives but also it optimise
process to enhance profitability and performance. Resource allocation is significant to take
important decisions and to resolve previous and continuous problems. Therefore it is important
to consider previous financial data to manage activities related resource allocation.
8 Need to estimate the costs of potential new items.
Every organisation in order to launch new product, service or to acquire new unit or
assets, conduct an analysis for estimation of cost of such item to manage their cash flow and to
assess viability of item in business organisation. Such act of estimation by business organisation
helps to enhance performance and attainments of objectives behind potential new item. It also
provide assistance in presenting a true and fair view of financial statement. It is required for
business organisation to make estimation of for new items to eliminate or reduce and identify
any potential threat related with such item. Management always puts efforts to develop reliable
estimation of new potential items. Wesfarmers conducts analysis for estimation of cost of
potential or new item to ensure viability of decision taken related to such item. In company
management is dedicated towards enhancement of credibility of estimation made using different-
different analysis and evaluations. Company also use financial management software to make
estimation by analysing present performance.
9 Need to prepare budgets in line with organizational policies.
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Budgets are important in context of organisation and its policies. It makes an estimation
of income and expenditures for future so it is compulsory for the companies to follow that
estimation of income and expenses and as well as companies should make policies in context to
the budgeted information (Ferrando and Mulier, 2013). Mainly budgets are prepared for three
basic purpose which are following:
 To forecast about income and expenses.
 To make decisions for future.
 Analyse business's performance.
Due to these three importance, it is necessary to prepare budgets for companies. Budgets
contains many important informations and data which is required in making organisational
policies and plans for future. For example if Wesfarmers company wants to make policies about
the advertisement of products and services then they need to make policy according to their
budget because they can't cross the expenditure limit of budgets. On the other hand, budgets also
need to be prepare according to the organisation size, policies and financial condition.
10 Managers need to be clear about the budget.
Budgets are important for whole organisation but it is necessary to managers that they are
aware about the budget or not. In the absence of proper knowledge about the budget, managers
can't manage the organisation in a right way. This is so, because budgets consists about the
financial goals and objectives and if a manager is not known about the budget then it is
impossible to make strategies and policies for future. For example Wesfarmers is planning to
start a new communication centre then they are preparing a new budget which contains all the
information about the income and expenses. Now it is important for manager of that
communication centre to know about that new budget's information like estimated income in a
starting year, expense on new employees hiring etc. So all these informations will definitely help
the manager. In addition it is also important for the other staff of office to know about the
budgeted plan.
11 Several examples of how a company’s funds might be misappropriated.
Misappropriation of funds of company is regarded as fraud because by doing this
defaulted person gains undue advantages from company's funds to attain its personal objectives.
It large organisation like Wesfarmers there are thousands of employees and staff so chances of
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misappropriation of monetary funds are high and also it is not easy to track guilt person.
Following are the examples of misappropriation of funds such as:
 Use of company's laptops, computers, cars, stationary product etc. for personal or private
use by selling them or taking it home.
 Taking reimbursement of fictitious expenses by employees.
 Misappropriate funds by manipulating any accounting entry (Fischer, 2011).
 Hiding credit or debit notes to misappropriate inventory amount.
Such type of acts at small level is ignorable but in large organisation this type of acts
should be controlled to avoid any big scam of funds. Ignorance of these small appropriations of
funds encourage people to do big scams. In Wesfarmers management is aware about the fact so
proper authorisation level is established to control such activities.
12 Useful of ageing summaries.
Ageing summaries are prepared with help of ageing reports. It includes all the
information about the money which is due by the customers. It is suitable for those organisations
who makes their transactions mostly in credit. If Wesfarmers allows their customers to purchase
products on credit then they are required to make ageing summaries. Importance of ageing
summaries are following :
 It is helpful in checking that how much collection, a company have in the market from
customers.
 Keep an extra eyes on the all the debtors of company.
 It contains dates also on which credit transaction took place so it reduce the task of
finance managers.
 Brings surety in credit collection.
 Makes credit transactions smooth and fair.
 Helps in credit collection on time (Greenwood and Scharfstein, 2013).
 It is helpful for auditors in checking company's receivables in a particular year.
 It is beneficial in setting the credit standard for the customers. It depends on the
customers that how they pay credit amount.
13 Example of a contingency and how the budget may have to be revised.
Contingency means making provision for future possible activities. It is just an estimation
not possibility of happening those activities. Companies makes many kind of provisions for
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future activities. Like a company makes contingency about the protection from fire or natural
disasters. It is important to know about the provision amount of the contingency because it effect
the budgets. For an example of contingency that company make provision for fire protection and
if in future company suffers from the fire then it directly impact on the budgets because it is not
confirmed that how much loss will company bear from the fire. In this condition companies has
to change their budget otherwise it will effect negatively to the company and its profitability. In
this kind of condition it is suitable for the companies that they need to make flexible budget
because this budget allow changes because static budget doesn't allow to be change and it can
create difficulty. So contingency may effect the budget if certain activity happens and activity
does not happen then it will not impact on the budget.
14. How can an audit trail help you identify discrepancies? Which type of discrepancies may be
identified.
It is observed a proper audit trail includes records that documents each and every steps in
a business transactions that further beneficial to discover any discrepancies in annual financial
data of an organisation. So it support an auditor to trace and track the financial data from the
general leader to source different documents like invoice, bills, vouchers etc. It is noticed that
audit trial are reliable manner to ascertain whether business transaction are conduced and
recorded smoothly and truthfully manner so that accurate information are provided to make
useful decision (Grimsey and Lewis, 2017).
In case if there is authentic and accurate audit trial within a firm it help to detect error in
annual reports and statements. It is further helpful to determine some other error such as
intrusion detection which means that unauthorised activates have been performed to penetrate a
system and receive unofficial profit within a time frame. For example, in Wesfarmers audit trial
is a common practise that is helpful to check the accuracy in financial final accounts prepared
during an accounting year and in case if any discrepancies are found like error of commission,
omission than proper solution are made for improvement.
15. Need to be diligent when ensuring compliance.
Compliances are set of rules and regulations which are needed to be follow by the
organisation. These are made by the government authorities. It is describe that what is required
for the organisation and what is not required. It is mandatory for Wesfarmers to follow all
compliances in order to perform the operations in effective manner. As an example, It is essential
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for the corporations to publish true and fair annual book of accounts in front of public so that
people can know the financial position of company (Wang, 2014). If it does not publish
appropriate books of accounts than government can impose fines and penalties to the
organisation. As a result it can affect the performance of corporation. There are a specific person
can be appointed by the firm in order to ensure that all compliances are properly following by the
company. If these are follows as per the requirement than reputation and brand image can be
enhanced in the market which is a good sign.
Q16 Requirements for report formatting.
For an organisation it is essential to follow the specific formate of report. As Wesfarmers
follows the specific formate of report in order to produce balance sheet, profit & loss account,
income statement, cash flow etc. These reports are helpful to analyse the financial performance
of corporation in order to take effective decisions for the growth and success of company. It is
important to make specification about report formatting is that all data's can provide reliable and
authentic information as per the nature of business and its activities. It shows that organisation is
following policies as per the requirement of corporation. In large companies like Wesfarmers it
is very essential for the internal management to follow the guidelines framed by Generally
Accepted Accounting Standard and applies International financial Reporting Standard to prepare
annual that is beneficial to detect any kind of misrepresentation's of business transaction. It is
also necessary for them to adapt the procedures made by governance of a nation to prepare their
annual report so that authentic information are provided to stakeholders (Morris, 2012).
Q 17 Need to draw attention to significant issues in reports.
For all the business entities it is very important to draw attention to the significant issues
in reports so that the factors that are resulting in huge losses can be analysed and effective
strategies can be formulated for their resolution. It can also guide to figure out the changes that
are required to be made in the processes of the company and area where improvement is
required. If significant issues are taken in to consideration then it helps to implement best
suitable policies for the betterment of the company. For example, late payments made by clients
is an issue which should be considered by the top authority because it may result in lack of
financial resources for operational activities. If appropriate information is not recorded in the
reports then it is not possible to deal with them in proper manner. Detailed content can guide
managers to figure out the cause of issue and then find the best suitable technique to deal with it
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in an effective manner. When the factors which are resulting in late payments of clients then
managers may tighten the credit policies so that this issue can be resolved (Pasricha, 2012).
Q 18 Ways in which financial viability can be monitor.
Measuring financial viability is very important for large as well as small organisations. It
is necessary for Wesfarmers Limited as it can help to determine that the company is able to
sustain in market or not. It also guides the managers to measure financial status of the business
entity. The process of generating appropriate income which is required to cover all the expenses
of the company that are faced in a specific time period is known as financial viability (Pollock,
Price and Liebe, 2011). The best way to measure it is analysing all the current assets and
liabilities and then figuring out that its current assets are not able to pay all the short term
payments then the viability is not good. For this purpose current ratio is calculated by the
organisations such as Wesfarmers Limited that helps the managers to analyse that the company is
financially viable or not.
Q 19 Review of own company’s financial management processes.
From the income statement of Wesfarmers Limited it ash been analysed that other
expenses of the company have been increased as compare to previous year. In order to control
such type of expenditures, the top executives of the organisation are required to analyse the
causes of spendings and then control all of them. Net profits of the company have been
decreased as compare to previous year due to reduction in total revenues of Wesfarmers Limited.
Revenues could be increased by attracting large number of customers with the help of attracting
promotional strategies. Decrement in total revenues is the main issue for the company because it
is affecting the whole operations and may create more problems such as lack of monetary
resources in future. Current assets of the company are low as compare to current liabilities which
means the organisation is not able to make short term payments. Stakeholders funds have also
been decreased within Wesfarmers Limited which means they are loosing hope in the company
and the managers are required to form attractive strategies that may results in increased funds of
shareholders (Preuße, 2012).
CONCLUSION
From above report its has been articulated that company should critically analyse their all
resources and funds to manage finance. Managing finance is significant to assess the actual
performance and growth of company also helps to evaluate various other financial aspects of
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company. Beside these company should adept financial management software and tools to
achieve specific objective and need. It is very important for to analyse the cash flow trends that
give a detail information about the overall performance of different business operation in
company. Management must be aware about the actual Tax liabilities in order to ascertain the
profitability of company in order to make other useful investment decision by holding cash
liquidity. It is also concluded that budgets are effective tool top make meaningful decision for
future that are based on past income and expenses to increase profitability. With accurate audit
trail management of an organisation are able to determine discrepancies within annual statements
and proper solution are done to resolve issues.
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