Detailed Ratio Analysis and Financial Overview of Wesfarmers Limited

This report presents a ratio analysis of Wesfarmers Limited, an Australian Stock Exchange-listed company and one of Australia's largest by revenue. The analysis focuses on the company's 2017 annual report, computing liquidity and profitability ratios to assess its financial health. Liquidity ratios, including the current ratio, quick ratio, and cash flow ratio, are evaluated against industry standards, revealing areas for potential improvement. Profitability ratios such as return on equity, return on assets, gross profit margin, net profit margin, and cash flow to sales ratio are analyzed, indicating positive growth patterns. The report concludes that while Wesfarmers demonstrates strong profitability, improvements in liquidity are advisable, and the company adheres to accounting standards and the Corporation Act, 2001. Desklib provides access to similar solved assignments and past papers for students.

RATIO ANALYSIS AND
FINANCIAL ANALYSIS ON
WESFARMERS LIMITED

CONTENTS
 INTRODUCTION
 RATIOS
 LIQUIDTY RATIOS
 PROFITABILITY RATIOS
 CONCLUSION

INTRODUCTION
 Ratio analysis being done for Wesfarmers Limited
 Listed on Australian Stock Exchange
 Employs over 220000 people
 Largest company in terms of revenue in Australia
 Annual Report of 2017 being considered for analysis
 Company has been in operation for over 100 years
 Deals in chemicals, fertilizers, mining and production and
sale of other industrial and safety products
 Has a number of subsidiaries over the world

RATIO COMPUTATION
 Liquidity and
Profitability
Ratio being
computed
for 2017
 Formulas
shown below
 Page no.
mentioned
from annual
report
Name of the ratio Formulas Result
Data collected
from annual report
(Pg. No.)
Part A: Liquidity Ratios
Current Ratio or Working Capital
Ratio Current Assets / Current Liabilities 0.9x Pg. 96
Quick ratio or Acid test ratio (Current Assets - Inventory) / Current Liabilities 0.3x Pg. 96
Cash flow Ratio Net cash flow from operating activities / Current
Liabilities 0.4x Pg. 96, 97
Part B: Profitability Ratios
Return on Equity Profit available to owners / Average Equity *100 12.30% Pg. 94, 96
Return on Assets Profit (loss) / Average total assets *100 6.20% Pg. 94, 96
Gross Profit Margin Gross Profit / Sales Revenue *100 31.70% Pg. 94
Profit Margin Profit (loss) / Sales Revenue *100 4.20% Pg. 94
Cash Flow to Sales Cash Flow from operating activities / Sales Revenue
*100 6.17% Pg. 94, 97

LIQUIDITY RATIOS
 Current ratio: Ability to pay current liabilities of
current assets, ideal industry trend is 2 times
 Current Ratio of Wesfarmers 0.9 times (2016: 0.9
times)
 Liquid Ratio: Short term liquid assets with company
to pay of current liabilities, ideal liquid ratio is 1
times
 Liquid Ratio of Wesfarmers: 0.3 times (2016: 0.2
times)
 Presentation of discretionary Accounting norms is
troublesome
 Cash Flow ratio: Ratio of Net cash flow from
operating activities to the current liabilities

PROFITABILITY RATIOS
 Return on Equity: Net income earned by the equity
shareholders, 12.30% in 2017 (2016: 1.7%) for
Wesfarmers (Positive indicator)
 Return on Assets: Ability of company to use assets to
generate sales, 6.20% in 2017 (2016: 4.90%)
(negative indicator)
 Gross profit margin: 31.70% in 2017 (2016: 30.4%)
(Positive indicator)
 Net profit margin: 4.20% in 2017 (2016: 0.6%)
(Positive indicator)
 Cash flow to sales ratio: 6.17% in 2017 (2016: 5.1%)
(Positive indicator

CONCLUSION
 Profitability ratios beating the industry trend and
indicate growth patterns
 Liquidity ratios are on lower side, need to improve
upon.
 Overall, Wesfarmers being an Industry leader
performing well and growing simultaneously
 Meeting all the reporting requirements as per
Accounting Standards and Corporation Act, 2001

THANK YOU