Comprehensive Financial Analysis of Woolworths Group Performance

This report provides a comprehensive financial analysis of the Woolworths Group, a major Australian supermarket chain. It examines the company's performance, market position, and strategic initiatives. The analysis includes an overview of Woolworths' history, current operations, and competitive landscape, with a focus on the company's financial statements, including horizontal and vertical analyses, and an evaluation of key financial ratios such as gross profit ratio, net profit ratio, inventory turnover, and return on capital employed. The report delves into the company's strategies for enhancing shareholder value, customer satisfaction, and operational efficiency, including the 'voice of customers' and 'voice of team' policies. It also assesses the impact of digitization, cost management, and investment decisions on the company's financial health, as well as its approach to corporate responsibility. The report concludes with an interpretation of the financial ratios, highlighting the company's strengths and weaknesses, and offering insights into its overall financial position and future prospects.

Accounting and Finance
for Managers

EXECUTIVE SUMMARY
Woolworths group is a leading Australian supermarket or grocery store chain. The
company was founded in 1924. Currently it has more than 1000 stores in Australia. Woolworth
Group is one of the biggest supermarket retail business organisation that has been listed in the
Australian stock exchange. In this regard, its shares can be traded in the stock market of
Australia easily firm is needed to develop the most effective competitive strategies. In this
regard, it needs to invest a higher amount in managerial decision making process. The company's
sales volume have been raised with the help of which company has become able to earn more
revenue from sales.They developed a new policy with the name of voice of customers and voice
of team as to fulfill these objectives. With the help of these policies, Woolworth has become able
to achieve the score of supermarket by 81%. Moreover, the earnings of Woolworth's
shareholders got reduced in the year 2015. although, with the help of its effective strategies and
plans, the company enhanced its shareholders value.Furthermore, the vertical statement of
financial position states that company's cash and cash equivalent maintenance capacity has been
raised from 12.77% to 13%. Although, its it's net profit ratio has been declined, but the major
reason behind it is the increase in number of supermarkets and reduction in price of American
foods as to increase in number of customers for the business.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Discussion and critical analysis...................................................................................................1
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................7

INTRODUCTION
Woolworths group is a leading Australian supermarket or grocery store chain. The
company was founded in 1924 Parkinson, (2018). Currently it has more than 1000 stores in
Australia. Further, it also operates its business on online platform. The present case study
includes a brief explanation of overall company's performance. It shows an interpretation of
Woolworths' annual reports along with its horizontal and vertical analysis of financial
statements. The study shows economic condition, competitive analysis of the firm. Further, it
also shows an analysis of various financial ratios for the purpose of determining its actual
financial position.
MAIN BODY
Discussion and critical analysis
Woolworth Group is one of the biggest supermarket retail business organisation that has
been listed in the Australian stock exchange. In this regard, its shares can be traded in the stock
market of Australia easily Morioka, Evans and de Carvalho, (2016). Further, being a listed
company, its key objective is to enhance the value of its shareholders. In this regard, company is
needed to develop strong strategies and plans for enhancing its business operations so that it can
be able to enhance its shareholders' wealth. In addition, company also has to develop effective
plans for maintaining retained earnings, providing dividends to shareholders, etc. so that over
value of all the shareholders of Woolworth could be enhanced.
By evaluating annual reports of key managerial persons of Woolworths group like
directors, financial managers, chairman etc., it can be analysed that the value of shareholders has
been raised over the year. Recently, the shareholders value has been risen by 22.4%. further,
company's has gained a reduction in the debts through which its liquidity maintenance capacity
has been raised. It has a direct impact over the financial position of the company in positive way.
As per the annual reports, Woolworths has innovated its business functioning and entered
into digital business market (2018 Annual Report, 2018). It has helped the company's ability to
attract customers towards the products and services of it has been risen. In this regard, the
company is growing at a sustainable rate. Although, digitization of the company's business has
also resulted in enhancing various burden of the company. It was needed to provide appropriate
training to the employees, need of employing new candidates also arisen. In this order, over all
cost of company to be incurred by the company. Moreover, its overall cost of doing business
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also risen due to its decision of expanding the company and developing new shops in all over the
world. Although, this cost has been covered up by enhancement of its number of customers and
sales revenues. It also helped the company in improving its economic condition.
The company sales clothing, beauty products, accessories and other grocarry products to
its customers Shauki, (2016). Further. It also provides financial services to them. Carrefour,
Tesco, Walmart, Amazon, Kroger, etc. are some key competitors of woolworths group. All these
are one of the major business of supermarket and grocery products industry. Each of them have
grab a large number of market share. In this regard, firm is needed to develop the most effective
competitive strategies. In this regard, it needs to invest a higher amount in managerial decision
making process.
As per the analysis of financial performance of the company, it can be interpret that the
cost of doing business has been rise over the year. It has a major impact over the financial cost of
the company and its financial position as well. Due to increase in this cost, the company's ability
to earning profit is also being effected. The annual reports of group also states that company
developed effective investment strategies through which its overall capacity of earning income
has been risen.
As per the reports of key managerial persons, company has set its priority list according
to which the managers develop their strategies for the company and develops ability of the
business organisation. Taking feedback from customers, staying in connection with them and
provide them personalised shopping experience, etc. are one of the major priorities of company.
As per the priority list, it can be analysed that company's major focus is to enhance the customer
satisfaction, enhance the number of customers, maintain the existing customers with the
company for long time as well.
From analysis of the annual reports of Woolsworth supermarket, it can be analysed that
company's overall financial position is increasing over the year. The company's sales volume
have been raised with the help of which company has become able to earn more revenue from
sales Abed, Al-Najjar and Roberts, (2016). Although, with enhancement in the sales revenue,
company is also needed to incur higher amount of operating expenses, but with increase in profit,
the company did not get much affected by the increase in expenses.
As per the sales reports of Woolworth, company has generated approx 1.9% more sale as
compare to the sales of previous year with the help of its effective marketing and selling
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capacity. These strategies has also helped in enhancing its gross profit margin and competitive
market positioning as well.
In addition, as per the report of CEO of Woolworth, recently major focus of the
managing directors and financial managers is over company's investment decisions, financial
position and enhancing its shareholders value in the market. Further, Reports of managing
director of Woolworth states that they have stated that they have developed their major focus
over the improving the customer relationship with the company, and develop efficiency in the
team work of the employees. They developed a new policy with the name of voice of customers
and voice of team as to fulfill these objectives. With the help of these policies, Woolworth has
become able to achieve the score of supermarket by 81%.
moreover, managing directors of the company has also developed corporate
responsibility strategies for the purpose of fulfilling its liability and responsibility towards the
society and natural environment Flax, Bick and Abratt, (2016). In addition with the help of its
strategy of developing sustainable performance in food business, Woolworth became able to
enhance its sales volume of food products by 4.5% over the year.
Woolworth's annual reports states that company has employed more than 205000
employees in all over the world. It is serving over 29.6 million customers in a week. Although
company's dividend payout ratio shows that it has reduced the amount of dividend to be paid to
its shareholders. Moreover, the earnings of Woolworth's shareholders got reduced in the year
2015 (2018 Annual Report. 2018). although, with the help of its effective strategies and plans,
the company enhanced its shareholders value.
The annual financial reports of Woolworth's shows that for the purpose of enhancing
number of customers, it reduced prices of 3500 food products. It helped the company in
enhancing the amount of customer satisfaction. Further, with the increase in number of
customers, it also opened various new stores recently.
The horizontal statement of financial position of Woolworth states that amount of current
assets has been reduced by 5.83% over the year as cash maintained by the company, trade
receivables, inventories held by it has been reduced (CHAIRMAN'S & MANAGING
DIRECTOR'S REPORTS. 2018). In addition, total current liabilities of it has been reduced. As
current liability has been reduced with less proportion of current liabilities, company's liquidity
and overall financial position has been maintained.
3

Furthermore, the vertical statement of financial position states that company's cash and
cash equivalent maintenance capacity has been raised from 12.77% to 13%. further, proportion
of other assets like receivables, inventories, properties, plants and equipment has also been
enhanced. In addition, proportion of current liabilities like trade payable,tax, financial liabilities
has also been increased in Woolworths group. Therefore, it can be analysed that overall financial
position of the company has been effectively maintained by its financial managers.
By analysing the report relating the business culture, it can be analysed that the company
has developed effective strategies for its employees (Financial Report 2017. 2018). With the
help it, woolworth enhanced efficiency of its employees and overall business performance as
well. Further, the company has adopted team work policy in its business organisation through
which its ability to achieve its long term goals and objectives have been enhanced.
Although, By analysing the horizontal and vertical analaysis of profit and loss statements
of the company, it can be interpret that the gross profit margin has been reduced as compare to
last year. In addition, the other revenues of the company have been risen through which it has
become able to maintain its overall profitability.
Further, for the purpose of having a complete and actual evaluation of its financial
position and performance, financial ratios can be calculated. There are various ratios like gross
profit ratio, return on capital employed, inventory turnover ratios, etc. with the help of which
company's actual performance can be measured.
Calculation of financial ratios of the Woolwothrs Group
Particular Formula
Amount
(2017)
Amount
(2016)
Gross profit ratio Gross profit/ sales ratio*100 28.61 28.18
Net profit ratio Net profit/ sales*100 2.86 4.38
Inventory turnover ratio Cost of goods sold/ average inventories 9.74 8.45
Return on capital employed
Operating profit / share capital + reserves + non
current liabilities * 100 9.60 7.70
Sales revenue to capital
employed ratio
Sales revenue / share capital + reserves + non
current liabilities * 100 557.86 484.60
Current ratio Current assets / current liabilities 0.14 0.12
Quick ratio Current assets – inventories / current liabilities 0.33 0.32
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Interest cover ratio Operating profit / interest payable 4.23 2.45
Interpretation
From the analysis of above calculated financial ratios it can be interpret that companies
ability to earn gross profit has been enhanced in the year 2017 from 28.18 to 28.18. although its
net profit ratio has been declined from 4.38 to 2.86. company has improved its inventory
management functioning through which its inventories turnover ratio i.e. cost of maintaining
inventory has been controlled. Return on capital employee shows companies earning capacity
over its overall current liabilities including share capital and reserves. It shows capability of
company to pay its overall debts (3. Ratio Analysis. 2018). The ratio analysis of return on capital
employed shows that company's capacity to repay the debts have been improved.
Moreover, current ratio show of the company has been improved as per the analysis of
financial ratios. It shows that company's liquidity position has been improved. With the help of
it, Woolworths capacity to pay its debts has been improved. Further, the company's capability to
pay the amount of interest has also been enhanced as its interest cover ratio has been raised
substantially.
Therefore, from the analysis of overall financial performance of Woolworth, it can be
evaluated that company's overall financial position has been raised over the year. Although, its
it's net profit ratio has been declined, but the major reason behind it is the increase in number of
supermarkets and reduction in price of American foods as to increase in number of customers for
the business (Financial Statement Analysis. 2019). Furthermore, with the increase in current and
quick ratios, company's liquidity position is improved.
CONCLUSION
From the evaluation of above critical analysis of the Woolworths company, it can be
concluded that its overall financial position of the company has been improved. There are
numerous key competitors of the business organisation, company's market risk is quite high.
Although, the company has developed appropriate plans, policies and strategies relating to the
market competition. With the help of its strong competitive strategies and plans, its position in
the competitive market has been improved. Profitability of the company has also being improved
over the year with increase in sales revenue and other operating revenue. Moreover, the study
has also concluded that Woolworths group is having a sustainable growth over the year.
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6

REFERENCES
Books and Journals
Abed, S., Al-Najjar, B., & Roberts, C. (2016). Measuring annual report narratives disclosure:
Empirical evidence from forward-looking information in the UK prior the financial
crisis. Managerial Auditing Journal. 31(4/5). 338-361.
Flax, J., Bick, G., & Abratt, R. (2016). The perceptions of supplier-buyer relations and its affect
on the corporate brand. Journal of Brand Management. 23(1). 22-37.
Morioka, S. N., Evans, S., & de Carvalho, M. M. (2016). Sustainable business model innovation:
exploring evidences in sustainability reporting. Procedia CIRP. 40. 659-667.
Parkinson, M. M. (2018). Case Study 4: Woolworths Group plc. In Corporate Governance in
Transition (pp. 203-221). Palgrave Macmillan, Cham.
Shauki, E. (2016). Is this a case of self-enlightened interest or genuine accountability: a study on
different reporting media in the Australian retail industry. Asia Pacific Journal of
Accounting and Finance. 2(1). 51-76.
Online
2018 Annual Report. 2018. [Online] Available through :
<https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf>
3. Ratio Analysis. 2018. [Online] Available through:
<https://www.scranton.edu/faculty/hussain/teaching/fin361_/Fin361C03.pdf>
CHAIRMAN'S & MANAGING DIRECTOR'S REPORTS. 2018. [Online] Available through:
<https://wow2017ar.qreports.com.au/home/performance-highlights/chairmans-and-mds-
report.html>
Financial Report 2017. 2018. [Online] Available through:
<https://wow2017ar.qreports.com.au/xresources/pdf/wow17ar-financial-report.pdf>
Financial Statement Analysis. 2019. [Online] Available through:
<https://www.csus.edu/indiv/p/pforsichh/documents/01FinancialStmtAnalysisSummaryL
ecture21slides.pdf>
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APPENDIX
horizontal statement of financial position
particular
Amount
(2017)
Amount
(2016) % change
current assets
cash and cash equivalents 909.4 948.1 -4.08%
receivables 744.7 763.9 -2.51%
inventories 4080.4 4558.5 -10.49%
financial assets 16.1 56 -71.25%
stock 1243.6 1100.5 13.00%
total current assets 6994.2 7427 -5.83%
non current assets
receivables 72.1 85.9 -16.07%
other financial assets 506.9 638.2 -20.57%
properties, plants and machinery 8437.5 8262.8 2.11%
intangible assets 6532.8 6590.6 -0.88%
advance tax paid 372.3 497.7 -25.20%
total non current assets 15921.6 16075.2 -0.96%
total assets 22915.8 23502.2 -2.50%
current liabilities
trade payables 6684.7 6266.1 6.68%
loans 253.5 490.7 -48.34%
tax payable 80.9 39.5 104.81%
financial liabilities 313.8 120.3 160.85%
provisions 1470.6 1873.5 -21.51%
liabilities for assets held for sales 20.7 202.6 -89.78%
total current liabilities 8824.2 8992.7 -1.87%
non current liabilities
loans 2777 3870.9 -28.26%
other financial liabilities 115.7 179.8 -35.65%
8

provisions 1010.9 1382.4 -26.87%
other non current liabilities 311.9 294.5 5.91%
total non current liabilities 4215.5 5727.6 -26.40%
total liabilities 13039.7 14720.3 -11.42%
net assets 9876.1 8781.9 12.46%
equities
equity shareholders 5615 5252.2 6.91%
reserves 113.8 93.9 21.19%
retained earnings 3797.2 3124.5 21.53%
equity attributable to shareholders of holding
company 9526 8470.6 12.46%
non controllable interest 350.1 311.3 12.46%
total equity 9876.1 8781.9 12.46%
verticle analysis of statement of financial
statements
particular
Amount
(2017) % change
Amount
(2016)
%
change
current assets
cash and cash equivalents 909.4 13.00% 948.1 12.77%
receivables 744.7 10.65% 763.9 10.29%
inventories 4080.4 58.34% 4558.5 61.38%
financial assets 16.1 0.23% 56 0.75%
stock 1243.6 17.78% 1100.5 14.82%
total current assets 6994.2 100.00% 7427 100.00%
non current assets
receivables 72.1 0.45% 85.9 0.53%
other financial assets 506.9 3.18% 638.2 3.97%
properties, plants and machinery 8437.5 52.99% 8262.8 51.40%
intangible assets 6532.8 41.03% 6590.6 41.00%
9