Financial Accounting: Woolworths Ltd

This report provides a detailed financial analysis of Woolworths Ltd. for the year 2016. It begins with an overview of the company, its history, and key directors. The report then analyzes the company's financial statements, including the auditor's opinion, sales figures (showing a slight decrease compared to 2015), and a cash flow analysis. A key section focuses on ratio analysis, examining profitability, liquidity, asset turnover, and leverage ratios. The analysis reveals a decline in profitability and liquidity, indicating areas needing improvement. The report concludes by summarizing the financial position of Woolworths Ltd. and highlighting the need for improvements in its financial performance despite the auditor's positive opinion on the financial statement preparation.

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
Brief of the company...................................................................................................................1
Which section dominate..............................................................................................................2
Main directors..............................................................................................................................2
Auditor opinion............................................................................................................................3
Sales increased or decreased........................................................................................................4
Cash flow analysis.......................................................................................................................4
Retained profit.............................................................................................................................5
Ratio analysis...............................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial analysis is most crucial for the organization as it helps in knowing the present
performance of the entity. Further, in the modern era with the rise in the level of competition in
the market, it has become necessary for every business to indulge in the practice of financial
analysis such as calculating ratios with the help of which present performance can be compared
with the past (Bailey 2017). The present study carried out is based on Woolworths Ltd where the
description of the organization has been provided regarding background, history, etc. Auditor
and director report of the organization has been analyzed along with the financial statements so
as to know overall performance. Apart from this, various ratios have been calculated.
Brief of the company
Woolworths group plc is a British firm that owns high street retail chain in the market of
Australia. The company other owns another type of entities that are book and resource
distributor, entertainment distributor, etc. Woolworths limited was founded in the year 1924 on
September 22 where its key founders are Percy Christmas Stanley Chatterton Cecil Scott Waine
George Creed Ernest Williams (Group 2017). The organization is based in New South Wales,
Australia. Further, the key areas served involves Australia, India and New Zealand. The stores
through which company operates are popular in every type of market. In the year 1955, the first
self-service store of the organization was opened with the motive to deliver the high experience
to the target market. The organization manages some of the most trusted brands in the Australian
market and at present company has more than 28 million satisfied customers worldwide.
Woolworths employs 205,000 team members and has trusted partners which involve
manufacturers and local farmers.
The company is one of the largest supermarket chains where 995 stores are operated
across Australia. Company sources 96% of the fresh fruits and vegetables from the farmers
present in the Australian market. All form of retail products is offered by the organization that
involves food, clothes, grocery items, etc. In short, all the items that are used in day to day life of
the consumers are offered by Woolworths in the market, and this allows business to satisfy the
need of its target market in the proper manner (Group 2017). Time to time new products are
added in the existing range of products so that level of brand loyalty can be well maintained with
the help of this and through this Woolworths can manage its overall performance in the market
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where overall operations are being carried out. Therefore these are some of the key insights
associated with Woolworths for the year 2016 (Bloomberg 2017).
Which section dominate
Considering the annual report of the enterprise it has been found that the financial section
dominates the entire report Woolworths group has highlighted its financial performance
appropriately so as to deliver the right information to its stakeholders that involve shareholders,
customers, supplier, financial institutions, etc (Bailey 2017). The Company has focused on key
areas that involves profit level, dividend per share, earning before interest and tax, sales from
different sources such as hotels, drink group, new Zealand group, etc. Group sales have been
highlighted that undertakes the different type of areas such as BIGW, New Zealand food, hotels,
Australian, etc. All these are key areas in which company operates, and they are managed
appropriately.
Group profit and loss account have been reflected in the entire report that considers the
main expenses and income sources of the through which it has been known that income level of
the enterprise is high and firm has control on its major expenses. Generally, for every type of
company operating in the market it is necessary to highlight the financial performance properly
for the benefit of the parties that have the direct interest in the firm. The section of Australian
food and petrol has been highlighted differently with the help of its sales and EBIT. It has been
known that this section is most important for the business on the basis of the sales level. The
Endeavour drink group and New Zealand food section have also been highlighted separately by
the business (Kang & Gray 2013). So, in this way, the financial section of the business
dominates the entire report of the organization and highlights how the organization is performing
efficiently in the market. Apart from this, the financial section provides a base for comparison
where present performance can be compared with the past. Due to this reason this section is most
crucial.
Main directors
The key directors of Woolworths limited are Mr. Bradford Leon Banducci who is CEO of
the company, Mr. David Paul Marr who is CFO, Mr. Martin Smith who is managing director of
Endeavour drinks and Ms. Claire Peters who is managing director Woolworths supermarket
(Group 2016). All these directors are indulged into the practice of developing the strategic plan
for the business, and they take various crucial decisions for the welfare of the entire organization.
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CEO of Woolworths limited named Bradford Banducci takes investment decisions and ensures
whether financial resources are utilized efficiently or not. Role of every director present within
the Woolworths plays the different role (Kang & Gray 2013).
Considering the director report of the business the background of every director has been
provided in the report which involves their educational background, the career as a leader and
another type of crucial information that is significant for the business. The principal activities of
the organization have been highlighted in the director's report which involves Australian food
and petrol, BIGW, petrol, New Zealand supermarkets and Endeavour drink group. Dividend
declared in the financial year 2016 has been shown where the high amount of dividends were
paid in the year 2016 as compared with the previous year (Group 2017). Director interest in
share and performance right part has been shown in the report along with meetings of directors
that held during the financial period ended 26 June 2016. Along with this environmental
regulations have been highlighted in the report where it has been highlighted that all the
operations of the Woolworths group are as per the environmental regulations. Apart from this,
the remuneration report of the directors has been reflected in the director's report that highlights
the salary paid to the top executives of the company. Moreover, the range of KPI undertaken for
every individual has also been shown in the report.
Auditor opinion
The main auditors of Woolworths limited are Ernst & Young Inc, Deloitte and SAB&T
Inc where both these companies hold the responsibility to audit the financial statements of the
company in order to know overall performance in the market. The audit committee of the
Woolworths limited carries out different functions that take into consideration reviewing reports
that are presented by the treasury committee, reviewing the interim results, considering the
independence of the external auditors, etc (Group 2016). In short, each and every function of the
audit committee is quite crucial, and they ensure whether the organization is carrying out every
financial function in the proper manner or not. The committee has reviewed the annual financial
statements of the group and is satisfied with the business activities as its practices comply with
the international financial reporting standards.
Further, the entire committee also reviewed the assessment of the going concern status of
the group, and it has been suggested to the board that group will be a going concern for the
foreseeable future. Considering the audit opinion, the entire committee has audited the
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consolidated and separate financial statements of the Woolworths holding limited where the
responsibility of the auditors have been highlighted. It is ensured by the auditor that they comply
with the ethical requirement and carry out all the audit practices as per the regulatory
requirement. It has been analyzed by the auditors that financial information has been represented
in a fair manner and no unethical practice has been undertaken so as to highlight the company’s
performance in the wrong manner (Limited 2016). Apart from this, it is recommended to the
Woolworths group to maintain this performance for the longer period. Therefore, this highlights
the overall opinion of the auditor of Woolworths group where they are satisfied after auditing the
financial statements of the business.
Sales increased or decreased
After undertaking the annual report of Woolworths Ltd for the year 2016 sales of the
organization has been known. In the year 2016 the group sales were 60,186 $M, and in the year
2015, it was 60,679 $M where the decline in (0.8%) has been witnessed in the overall sales of
the enterprise. The major change has been witnessed in the fuel sector where less amount of
petrol has been sold by the company in the year 2016 as compared with the previous year. Apart
from this, the sale of another sector such as food, the drink has enhanced in the present year as
compared with the past (Group 2016). The possible reason for the decline in the sales volume of
the enterprise can be competition in the market. This issue is adversely affecting organization
where Woolworths ltd is not able to accomplish its key goals and objectives.
Apart from this, the company is required to focus more on marketing and the promotional
medium through which it is possible to attract customers towards the range of its products, and
this can surely act as the development tool for the enterprise (Mertens et al. 2016). Further, sales
of the group have been segregated into different areas which involve Australian food, petrol,
drinks group, etc. All these are the main sources of income of Woolworths limited.
Cash flow analysis
Cash from operating activities helps in knowing the inflow and outflow of the money
from the main activities of the enterprise. Further, it helps in knowing whether the organization
is effectively carrying out its main operations or not (Phillipov 2016). Considering the cash flow
statement of Woolworths ltd for the year 2016 the operating activities of the enterprise has been
undertaken where it is showing positive outcome with the inflow of 2,357.5 $M, and this is the
favorable situation for the organization. As compared with the previous year the cash inflow
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which was 3345.1 $M in the year 2015 from the operating activity has been declined by 29.53
percent. The main reason behind the same is the decline in the level of receipts from customers.
It is indicating the Woolworths group is efficiently carrying out its major operations, and this is
one of the main reason behind the success of the enterprise in the market where it operates. In
terms of money and percentage both cash, inflow has changed in the year 2016 as compared with
the previous year. Therefore, it is recommended to the entire group to maintain this performance
for the longer period.
Retained profit
On the basis of financial analysis of Woolworths limited for the year 2016 it has been
found that organization has incurred the loss of 2,347.9 $M in the year 2016 and in the year 2015
the company earned the profit of 2137.4 $M. One of the valid reasons behind the decline in
profitability level of the enterprise is the decrease in sales volume that has influenced profits.
Apart from this, the main expenses of the enterprise have adversely affected the business such as
income tax, movement in translation of foreign operations taken to equity, etc (Price 2016). Due
to this reason, the retained earnings of the company has also declined where in the year 2016 it
was (5.6) $M and in the year 2015 it was 11.3 $M. This is clearly representing that
organizational performance is not up to the mark and improvement is needed in every possible
manner.
The company has no control over its major expenses and due to this reason profitability
level is not maintained by the enterprise by conducting its overall operations in the market. One
of the best ways is to focus on the practice of enhancing sales as in case if sales will increase
then it will positively influence the profits of the entity and in turn can assist to accomplish the
desired goals of the business (Rose 2017). Further, Woolworths Limited has to identify the major
areas where the level of costs can be reduced easily for the overall benefit of the organization in
the market.
Ratio analysis
Profitability
Ratio 2016 2015
Net margin (2.12) 3.53
Operating margin 2.3 5.0
Return on invested capital (7.63) (15.40)
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Above shown are the financial ratios of Woolworths Ltd that highlights overall performance of
the business in the market. Profitability ratio highlights whether profits earned by the company
are adequate or not. Liquidity ratios highlight that enough cash is available within the
organization so as to conduct overall operations. Net margin of the company has decreased in the
year 2016 as compared with the previous year. It is showing that adequate amount of revenue is
not present with the business after deducting all the expenses (Group 2016). Operating margin of
the Woolworths has also declined which indicates ineffective pricing strategy of the enterprise.
Return on invested capital of the entity is also adverse that reflects that company is not able to
obtain the high return on the invested funds.
Liquidity
Ratio 2016 2015
Current ratio 0.83 0.84
Quick ratio 0.16 0.23
Above shown are the liquidity ratios of Woolworths ltd. Further, current and quick ratio of
enterprise has declined in the year 2016 as compared with the past. It is reflecting the
organization is not having sound cash position.
Asset turnover
Ratio 2016 2015
Return on asset (5.06) 8.66
Asset turnover 2.39 2.46
Return on asset ratio of Woolworths Ltd is negative and it has declined in the year 2016 as
compared with the past. Apart from this asset turnover of the company has also declined. This is
clearly representing that company is not able to utilize its assets and due to this lower return is
obtained.
Leverage
Ratio 2016 2015
Financial leverage 2.77 2.34
Debt/Equity 0.46 0.28
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Financial leverage of Woolworths ltd is indicating that organization is using higher debt to
acquire additional assets and this is considered to be risk for the business (Price 2016). Company
has high dependency on loan and this can have adverse impact on the organization. Debt equity
ratio of company is also high which reflects more ratio of debt which is not favorable.
CONCLUSION
The entire study carried out has supported in knowing the financial position of
Woolworths Ltd in the market. Further, with the help of ratio analysis, it has been identified that
organization is not operating efficiently in the market where its profitability, liquidity, leverage
position is adverse, and improvement is needed. Moreover, the auditor report has shown that
financial statements are prepared by the company in the proper manner as per IFRS. Therefore,
business is efficient, but improvement is needed in the financial position.
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