Analysis of Debt Ratio and Net Profitability of Woolworths, Australia

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Assessment 3
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Table of Contents
Research Problems Statement, Aims and Objectives......................................................................2
Research Project Justification and Potential Outputs......................................................................4
The conceptual Framework.............................................................................................................4
Methodology....................................................................................................................................8
Research Project Organisation, Budget and Schedule.....................................................................9
References......................................................................................................................................14
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Research Problems Statement, Aims and Objectives
The debt capital can have positive effect on the company profitability and income ratio n which
directly impact on its business operations and functions in effective manner (La Rosa, et. al.,
2018). The debt allows the organizations to leverage the current funds; therefore they are enables
to get more rapid expansion which would be possible and required for the company. It can be
examined that effective usage of debt financinghelp in enhancing in income and revenue which
exceeds the expense of interest payments effectively (Mefteh-Wali, et. al., 2018). It can be
analyzed that the role of debt in the firm performance is considered as major objective of the
contemporary researches in the last 15 years. Along with this, the net income of an organisation
is mainly depending upon the net profitability. There are different aspects which includetotal and
total liability which help them in evaluating the debt equity which help in measuring the
management performance. The research is based on analyzing the net profitability which is
impact on organisation performance. Woolworth is the Australian retail company which is
provides different products and services to their customers (Mefteh-Wali, et. al., 2018). They are
face issue while their net profitability is reduce due to enhancement in debt rate so they are work
on increasing in their financial performancewith the help of using various approaches or
practices.
Scope of the study - The research main purpose is to analyze that how Woolworth financial
performance is mainly affected by other significant factors that include net income, debt equity
proportion and various other factors. The reports is describing the impact of debt ratio on the
company financial performance and how they are perform better to enhance its business
operations with the help of different practices or approaches.
Aim: “Impact of debt ratio on net profitability of Woolworth and how they are effectively
enhancing the financial performance and feasibility with the assistance of various approaches or
practices”. The project objectives are described as under:
Objectives:
 To evaluate how capital structures help in building the net income of the company
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 To analyze data of Woolworths which support in determining the connection between debt ratio
and profitability of the company
 To evaluate some financial factors which help in increasing the performance of the company (La
Rosa, et. al., 2018)
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Research Project Justification and Potential Outputs
The research project is based on analyzing the impact of debt ratio on Woolworthfinancial
performance. It report will help in maintaining and managing the business operations and its
functions effectively (Damijan, 2018). Along with this, they require toanalyze the whole net
profitability ratio which is up and down due to continuous changing in financial position of the
company in the market place. The factors which are directly affecting the debts level of an
organisation which is associated with the course of economy as well as profitability of the
company. The main reason for conducting this topic is to analyze the role of debt ratio impact on
company performance and how this will effectively changes its current position within the large
market area. For this, Woolworth needs to focus on its net profitability by satisfying and
attracting new customers to offer new products and services (La Rosa, et. al., 2018). With this,
there are number of customers who are attracted from company current services and innovative
goods which are delivered by them in the large audience.
The outcome of this study will help in providing an analytical framework for research in
different factors which are directly effect on Woolworth company net profitability in any
manner. When company analyze its debt ratio so they can easily measure their performance level
of the current time period as per this they are make proper improvement in services and facilities
provided by customers. The main goal of the company is to make improvement in their net
profitability which enhancing its income and feasibility in proper manner. Along with this, it will
help in getting accurate outcome in the form of gaining maximum income and revenue in proper
manner. For this, business can easily gain competitive benefits which remain constant whether
they are enhancing its sales and reduce the expenses. With the assistance of conducting research,
an investigator can able to identify the major approaches and practices which are directly impact
Woolworth financial performance effectively (Damijan, 2018).
The conceptual Framework
Capital structure decision is vital for any organization. The decision is crucial because of the
requirement to produce maximum returns to organizational communities and also because such
decisions have major influence on the working structure of company to cope up with the
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competitive world and deal with growing competitors (Kartikasari & Merianti, 2018). Numerous
theories have been produced in detailing the capital structure of companies. Still practitioners
and academics have not been able to determine the optimal capital structures. Till date, only best
prescriptions have been determined to fulfill the short-term goal. Relationship between firm
value and capital structure has been topic of considerable debate. Throughout the previous
works, debate has centered on doubt whether for a firm there is optimal capital structure or
whether proportion of debt is not appropriate to firm’s value. Capital structure concerns the mix
of equity or debt that a company uses in its operation. Selection of capital structure is essentially
a marketing problem. Debt ratio can be defined as the solvency ratio through which total
liabilities of firm is measured as percentage of total assets (Taber, 2012). It can be said that
Woolworths’s potential to pay off its liabilities with its assets can be described by the debt ratio.
Number of assets that company needs to sell to pay off liabilities is represented by debt ratio.
Financial leverage of Woolworths can be measured by the debt ratio. In general company can be
considered highly leveraged if it has high level of liabilities when compared the assets. Through
debt ratio, it would be easy for creditors and investors to analyse the total debt burden on the
Woolworths as well as it’s potential to pay debt in future during unfavourable economic times
(Kartikasari & Merianti, 2018).
Factors influencing the debt levels of company are related to the economy course and
profitability. But predicting the course of economy is complex task. Profitability indicators affect
the debt levels of company. Debt and equity are the two major sources of financing reach in
capital market. Company’s overall funding is referred by the capital markets. Any variation in
the capital structure can influence the net income, liabilities, cost of capital and leverage ratios.
In contemporary researches, describing the role of debt ratio in the performance of firm is major
objective. This aims gained the attention of number of researchers and analysts, however the role
remained questionable. Indeed, researchers investigated and analyze the debt ratio and try to
identify if optimal debt ratio exist or not (Taber, 2012). The one which reduces the capital cost
and maximize value for company is defined as the optimal debt ratio. According to the literature
works it can be said that debt ratio increases the profitability of company. In theoretical strand of
literature, divergence among can researchers can be observed (Tanyeli Zeki & Kuter., 2018).
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Basically there are total of three vital theories that highlights the impact of debt on corporate
profitability i.e. agency cost, signaling theory and tax theory. In the basis of these three theories,
impact of debt ratio on net profitability of Woolworths can be investigated. According to the
signaling theory, in availability of asymmetric information, debt is correlated positively to the
profitability to Woolworths (Lach, 2014). On the basis of agency cost theory, debt have two
contradictory effect on the profitability, first if agency cost of equity between managers and
shareholders it will have positive effect on the profitability, secondly if the agency cost of equity
lies between the shareholders and lenders then it will have the negative effect on the profitability
of Woolworths. Impact of taxation on the profitability is complex and difficult to predict because
it totally depends upon the tax deductibility of interest, non-debt tax shield and income tax
principles.
Also, disagreement on empirical strand also exists. Negative effect of the debt ratio was
confirmed by numerous on the net profitability of firm. Several literature works resulted into the
non-significant effect of debt ratio on the profitability. For contradiction of results obtained
empirical studies can be revealed by several factors. Major one is that empirical studies on this
topic concentrate on the varying types of sample (periods, companies, sectors and countries).
Furthermore, researchers have employed the several debt ratios as independent variable and
various measures of profitability. Moreover, present work is very crucial because debt is risky
decision whose consequences on Woolworths’s profitability can be considerable (Tanyeli Zeki &
Kuter., 2018).
Explanatory variables
 Debt: In theory, debt ratio can be determined in several ways: i.e. debt ratio as long, medium
and short, overall debt ratio. Total debt ratio can be measured by dividing sum of long and short-
term debt by the total assets (Manturuk, et. al., 2018).
 Tax: Influence of tax on the company’s profitability is tough to predict, because it depends on
tax deductibility. Negative effect of tax can be experienced on the profitability form do not take
benefit of this principle. Impact will be positive if firm takes advantage of principles. Tax ratio in
regression equation can be used to highlight the influence of tax on the net profitability (Christy
& Rawl., 2013).
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 Tangibility: Tangibility has contradictory effects on the net profitability. It is easy to monitor
tangible assets and good collateral is provided and agency conflicts between creditors and
shareholders can be easily mitigated (Wagner, et. al., 2012). On the other hand, if firm has high
level of tangible assets, it seems to be less profitable. More investment opportunities are
available to the firms who got high levels of intangible assets. Both negative and positive
relationship between profitability and tangibility is confirmed by numerous literature works.
 Growth opportunities: If company have high growth opportunities tends to have better rate of
return and because of this companies would be able to produce more profits through investment.
Growth opportunities have positive impact on the profitability.
Debt ratio is measured by the dividing the liabilities by assets. Here is the formula for debt ratio:
Deb t ratio=Total Liabilities
Total Assets
It is required to use employ total assets and total liabilities in calculation of debt ratio. Not just
present burden, overall debt burden of Woolworths can be determined through debt ratio (Christy
& Rawl., 2013).
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Methodology
A research methodology is an effective process which can be helpful in identifying, recognizing,
selecting, processing and analyzing the important data and information regarding research topic.
In this section, methodology allows the reader in order to measure and evaluate the research
project feasibility and reliability in better manner (Mishra, et. al., 2012).
Data collection method
Qualitative method – It is that method which can be used for gain explanation about the views,
opinions and thoughts related to the research in proper way. It will help in providing insights into
major issues and it assist in developing the ideas for potential quantitative investigation. This is
the process which aid in providing in-depth understanding of social phenomenonin their natural
settings. Qualitative method is mainly focus on direct experience of the human being as
becoming an agent in the daily life (Kim, et. al., 2013). The method of collecting required data is
mainly concentrated on acquiring essential data with the help of open-ended and conversational
communication.
Quantitative method - It is that method which helps in collecting and gathering appropriate data
in numerical format. It can be assist in determining and evaluating the company growth by
collecting accurate statistical data which are required for the research completion. Along with
this, there are various sources which are helpful in gathering quantitative data such as interview,
surveys, questionnaire, database, case study and many more. Through quantitative data
collection method, numerical and statistical analysis can be conducted by means of surveys,
questionnaires, polls or pre-existing statistical data so that objective measurements can be carried
out (Kabakova, & Plaksenkov., 2018).
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Research Project Organisation, Budget and Schedule
Research project organisation
For the attainment of the suitable and valuable outcome, it is necessary that the focus is made by
the authorities on the organisation of the various activities and operations in a systematic
manner. In addition, it is also essential that the authorities make appropriate focus on the various
aspects such that leading to effective and evaluative judgment (Zhang, et. al., 2012).
To conduct the research work various chapters or sections has been discussed that support in
gathering of the useful and viable information that can better assist in the conduct of the
activities with respect to the subject matter. In addition, suitable factors were identified that
supports in the elaboration and identification of the new areas that can assist in getting of ther
valuable outcome (Hadad, et. al., 2012).
Chapters or sections Discussions
Research Problems Statement With the concerned chapter the focus can be
elaborated on the various problems that can be
addressed in relation to the subject matter (Lin,
et. al., 2014). With the suitable identification of
the problems various approaches can be
addressed that can enhance the financial
performance of the Woolworth. Additionally,
problem statement assists in the better
identification of the subject matter leading to
the better work operations (Ada &
Ghaffarzadeh, 2017).
Aims and Objectives After addressing the problem focus can be
made on the formulation of the aims and
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objectives. This chapter supports in deciding
the future course of the action related to the
research.
Research project justification and potential
output
With the aid of the concerned chapter the focus
is made on gaining suitable focus on the
various points of significance that can be
attained with the conduct of the research work.
Apart from that the aspects of the theoretical
and practical prospects can be gained.
Conceptual framework With the set up of the suitable and effective
conceptual framework analysis and evaluation
of the various authors can be attained. This will
assist in gaining of the constructive and non
constructive points. As such the authority
concern of the Woolworth can ensure to have
better judgment with respect to all the facts and
aspects.
Methodologies used for the collection of the
data
After the identification of the problem
statement and formulation of the aims and
objectives associated with the research work,
the concerned section assist in making a
judgment with respect to the various
methodologies that is used for the collection of
the data (Ada & Ghaffarzadeh, 2017). The This
chapter assists in gaining of the better
knowledge about various methods that can
provide elaborated decision. Additionally, the
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concerned section assist in the analyzing of the
data collected so as to examine all the aspects
leading to effective judgment.
Formulation of the budget The concerned section involves the application
of the cost resources to various activities in
accordance to the aspects of the importance.
This will ensure that the resources are used and
applied in the bet6s possible manner. With the
aid of the suitable budget formulation the focus
can be made on the identification of the new
areas that can support in the better conduct of
the research work (Garrido-Baserba, et. al.,
2012).
Scheduling of the activities The concerned chapter elaborates on the
scheduling of the activities in a manner such
that all the activities and operation with respect
to the work operations of Woolworth can be
conducted in a smooth and systematic manner
(Rahmanpour & Osanloo, 2017). This will
assist in the realization of the aims and
objectives associated with the research work in
the proper and desirable time frame.
Budget and scheduling
Budget is quantitative statement that assists in the suitable allocation of the cost factors to the
various activities such that all the operations can be conducted in a smooth and systematic
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