Analysis of Woolworths' Financial Performance and Board Composition

This report presents a comprehensive financial analysis of Woolworths, examining its business operations, board composition, and financial performance. The report is divided into two main parts. Part A focuses on the independent directors, gender distribution, and key financial data points such as borrowing costs and interest rates. Part B delves into the company's profitability, dividend payments, growth opportunities, and challenges, analyzing financial ratios like the net profit ratio and gross profit ratio. The analysis also includes an income statement for Orion Ltd, assessing revenue, expenses, and net profit. The report further discusses the prime users of consolidated financial statements and the implications of non-controlling interest, and also the impact of debt on financial leverage. The conclusion summarizes key findings and emphasizes the importance of regulatory compliance for long-term business stability, referencing various financial and auditing standards and reports.

Name of the student
Topic-
University Name
1

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Contents
Introduction......................................................................................................................................5
Part-A...............................................................................................................................................6
Answer to question no-1..............................................................................................................6
Answer to question no-2..............................................................................................................6
Answer to question-3...................................................................................................................7
Answer to question no-4..............................................................................................................7
Answer to question no-5..............................................................................................................8
Answer to question no-6..............................................................................................................8
Part-B...............................................................................................................................................9
Answer to question no-1..............................................................................................................9
Answer to question no-2..............................................................................................................9
Answer to question no-3..............................................................................................................9
Answer to question no-4..............................................................................................................9
Answer to question no-5............................................................................................................10
Answer to question no-6............................................................................................................10
Answer to question no-7............................................................................................................10
Answer to question no-8............................................................................................................10
Question- 2.....................................................................................................................................11
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Part-A.........................................................................................................................................11
Part-B.........................................................................................................................................12
Answer to question No-1...........................................................................................................12
Answer to question No-2...........................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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Introduction
In this report analysis of the business functioning of the Woolworth and its board
composition have been taken into consideration. In the first part, Woolworth Company has been
taken into consideration. After that in second part, financial performance of company has been
analyzed. In Question-2, financial performance of company have been analyzed.
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Part-A
Answer to question no-1
There are several independent directors who are working in Woolworth Plc.
Jillian
Broadbent,
AO BA (Maths
& Economics)
Independent
Non-Executive
Director
Holly
Kramer BA
(HONS), MBA
Independent
Non-Executive
Director
Siobhan
Mckenna B.EC
(HONS), MPHIL
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
Scott
Perkins Bcom,
Llb (Hons)
Independent
Non-Executive
Director
Kathryn
(Kathee)
Tesija Bsrmm
Independent
Non-Executive
Director
Michael Ullmer BSC (Maths) (Hons), FCA, SF Fin
Independent Non-Executive Director
Answer to question no-2
Number of directors of each gender
 Male- 10 directors
 Female-5 Directors
6

Answer to question-3
(Woolworths Group Limited (2018).
Answer to question no-4
(Woolworths Group (2016).
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Answer to question no-5
Calculate borrowing costs and interest rates
The borrowing cost of Woolworth Company is AUD $ 162 million. It shows that the
interest rate of the company would be
162/13040*100=
=1.24%
Answer to question no-6
The main reason to select this company is based on the strategic financial planning,
capital structure, and governance program and board composition of company
(Woolworths Limited 2015).
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Part-B
Answer to question no-1
Particular Formula 2015 2016 2017
Net profit ratio Net profit/
Sales
2.62 2.34 2.75
Gross profit
Ratio
Gross profit/
Sales
26.14 27.14 28.61
The profitability of the company has increased by .15% since last three years. It shows
that company has increased the value of its investment. The gross profit has also
increased by 2% since last one year. It shows good stability throughout the time.
Answer to question no-2
The quality of the dividend payment has gone down which shows the negative outcomes to
shareholders. It is observed that company has decreased its dividend payment to AUD $ 562
million which is 225% lower as compared to last three year data.
Answer to question no-3
Company has strong opportunity due to the effective growth rate of the industry. In addition to
this, company has also been trying to tap other markets by tapping the new markets
(Deloitte00202018).
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Answer to question no-4
The main challenge which Woolworths has been facing is increased complexity of the business
and other rivals such as Tesco, Morrison and Wesfarmers by using the advance cyber computing
system for the secure online gateway for clients (Khorwatt, 2015).
Answer to question no-5
Woolworth has been contributing at least by 5 % of the average net profit of the last five years. It
shows high profitability and increased business outputs (Auditing and Assurance Standards
Board (2015).
Answer to question no-6
The main key assumption is related to its investment in the online business sectors to sell its
goods and services. It has assumption that it will help company to grow speedily if it taps the
online E-business (Hay, Stewart, and Redmayne, 2017).
Answer to question no-7
The possible reason for the different methods of the classification of the expenses is related to
identify which amount to be charged from the profit and loss account and which amount to be
placed in the balance sheet. It helps company to save its busienss from the direct loss.
Answer to question no-8
The liquidity ratio analysis of the cash flow statement of Woolworth has shown that net cash
outflow from the investing activities has increased by 22% since last five year in 2017. It has
cash outflow of AUD $ 1431 million which is way higher and may result to destruction of
business if not managed effectively (Auditing and Assurance Standards Board (2015).
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Question- 2
Part-A
Preparation of the income statement
Profit & Loss for [Orion Ltd ] as at [30 June
2017]
PROFIT & LOSS 30-Jun-17
Sales 6,50,000
Interest income 1,000
Gain on sale of plant 13,000
Rental income 1,000
Royalty income 5,000
Other revenue 500
Total Revenue $6,70,500
Cost of goods Sold $4,10,000
Gross profit/net sales $2,60,500
Expenses
Interest on borrowings $16,500
Sundry borrowing costs $500
Research expense $25,500
Advertisement Expenses $12,500
Sales Staff salary $48,500
Amortisation of patent $3,500
Freight out $16,000
Shipping supplies $8,000
Depreciation on sales equipment $2,500
Administrative salaries $36,000
Legal and professional fees $6,500
Office rent expense $15,000
Insurance expense 7,000
Depreciation of office equipment $8,000
Stationary and supplies $2,500
Miscellaneous expenses $1,000
More…
Total expenses $2,09,500
NET PROFIT (Net Income) $51,000
Income tax expense 15,500
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Net Profit After Tax 35,500
Assumptions:
All figures are GST inclusive.
(Financial Times (2017).
Part-B
Answer to question No-1
Prime users of the consolidated financial statements are creditors, shareholders and
employees of the company. Company needs to identify that prime users are not indulged in the
preparation of the financial statement of company. As per the AASB 101, consolidated financial
statement should not be influenced by the people who have direct and indirect relation with the
company (Kristensen, 2015). This standard focuses on increasing the true and fair view of
financial statements with a view to increase the overall outcomes of the business. These prime
users are the real users of the financial statements who have big amount of stake in the company.
Therefore, they considered by the accountants whether they will understand the prepared
financial statement of company. The reporting period of the consolidated statement also varies
due to the transactions risk on the international level (Vîlsănoiua, and Buzenche (Matei, 2014).
Answer to question No-2
It is observed that if the non-controlling interest is booked as debt in the books of accountant of
the company rather than the equity then it will increase the financial leverage of the organization.
The main changes would be increased cost of capital and increased charges on the profitability of
the business. If these problems are not taken in the proper manner then it will result to
destruction of the business in long run. It is observed that debt to equity of Company should be
below 30:70 i.e. 30% debt and 70% equity portion. If company undertakes the non-controlling
interest as debt then it will increase the debt funding by 20% which will eventually impact the
financial leverage and solvency risk (Grant Thornton, 2017). It will also be undertaken as
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related party transactions which needs should be assessed by evaluating the arm length price
rules and regulation (The Institute of Chartered Accountants in England and Wales 2013).
Conclusion
There are several factors which have been analyzed such as board composition,
borrowing cost, interest expenses and financial statement of the company. Now in the end, it
could be inferred that there are several rules and regulations which needs to be complied by the
stakeholders if they wants to maintain stable business in long run.
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References
Auditing and Assurance Standards Board 2015. Auditing Standard ASA 701 Communicating Key
Audit Matters in the Independent Auditor’s Report [ONLINE] Available from
http://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 8th January,
2018].
Auditing and Assurance Standards Board 2015. Auditing Standard ASA 570 Going Concern
[ONLINE] Available from
http://www.auasb.gov.au/admin/file/content102/c3/ASA_570_2015.pdf [Accessed 8th January,
2018].
Deloitte 2018. Deloitte Touche Tohmatsu LLC [ONLINE] Available from
https://www2.deloitte.com/jp/en/pages/about-deloitte/articles/audit/audit.html [Accessed 8th
January, 2018].
Financial Times 2017. Equities [ONLINE] Available from
https://markets.ft.com/data/equities/tearsheet/forecasts?s=WOW:ASX [Accessed 18th January,
2018].
Grant Thornton 2017. IFRS Viewpoint. [ONLINE] Available from
https://www.grantthornton.global/globalassets/1.-member-firms/global/insights/article-pdfs/
2017/IFRS-Viewpoint-7-going-concern.pdf [Accessed 8th January, 2018].
Hay, D. Stewart, J. and Redmayne, N, B. 2017. The Role of Auditing in Corporate Governance
in Australia and New Zealand: A Research Synthesis. Australian Accounting Review. 27(4).
Khorwatt, E., 2015 .Assessment of Business Risk and Control Risk in the Libyan Context. Open
Journal of Accounting.4.
Kristensen, R. H. 2015. Judgment in an auditor’s materiality assessments. Danish Journal of
Management & Business. 2.
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The Institute of Chartered Accountants in England and Wales 2013. Audit and Assurance
Advanced Stage Technical Integration Level. [ONLINE] Available from
https://www.icaew.com/~/media/corporate/files/qualifications%20and%20programmes/learning
%20partners/learning%20materials/ti%20audit%20assurance%2020142015%20inspection
%20copy.ashx [Accessed 8th January, 2018].
Vîlsănoiua, and Buzenche (Matei),S. 2014. Determining Audit Materiality in the banking
industry- a knowledge based approach. Procedia Economics and Finance.15.
Woolworths Group 2016. Financial Report 2016. [ONLINE] Available from
https://wow2016ar.qreports.com.au/xresources/pdf/wow16ar-financial-report.pdf / [Accessed 18
th January, 2018].
Woolworths Group Limited 2018 Portfolio Businesses [ONLINE] Available from
https://www.woolworthsgroup.com.au/page/about-us/our-brands/portfolio-businesses/ [Accessed
8th January, 2018].
Woolworths Limited 2015. Annual Report 2015. [ONLINE] Available from
https://www.woolworthsgroup.com.au/icms_docs/182381_Annual_Report_2015.pdf [Accessed
18th January, 2018].
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