MBS539 Report: Analyzing Woolworths Financial Performance and Ratios

This report provides a detailed financial analysis of Woolworths Ltd, examining its performance in 2018. The analysis includes horizontal and vertical analysis of the profit and loss statement and balance sheet, as well as a comprehensive ratio analysis. The report compares Woolworths' perfor...Read More

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Horizontal Analysis of Profit and Loss statement and Balance Sheet.............................................3
Vertical Analysis of Profit and Loss statement and Balance Sheet.................................................4
Ratio Analysis of the Business........................................................................................................7
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
The assessment would be considering the financial performance of Woolworths Ltd for
the period of 2018. In order to effectively estimate the financial performance of the business, key
financial ratios for the business would be computed which would help in the analysis of the
financial performance of the business (Baños-Caballero et al., 2014). In addition to this, the
assessment would be comparing the performance of Woolworths ltd with one of the closest rival
of the company which is Cole Group ltd. The comparison is done in order to effectively estimate
whether the business is actually performing well in terms of other businesses which are operating
in the industry.
The market conditions of supermarket businesses are thriving as most of the business are
attaining growth. The business of Woolworths is doing extremely well in terms of growth and
expansion of the business. The business has extensively invested in undertakings which would
help the management of the company to achieve long term growth and sustainability in future. In
terms of growth, the business has achieved a growth rate of 4.9% in 2017 and the same is
achieved more in 2018. As per the annual report of the business, the supermarket serves around
29 million customers on a weekly basis which provides an idea regarding the scale at which the
business is operating (Wahlen, Baginski & Bradshaw, 2014). This is the reason that the
management of the company has offered a dividend which represent a 22.6% increase in
dividend per share from 2017 estimates (Woolworthsgroup.com.au., 2019). The overall
profitability of the business has experienced as significant rise which is a positive sign for the
business. In addition to this, the business operates in a sustainable manner contributing to the
needs of society and environment.

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Horizontal Analysis of Profit and Loss statement and Balance Sheet
Profit and Loss Statement
Balance Sheet

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Vertical Analysis of Profit and Loss statement and Balance Sheet
Profit and Loss Statement

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Balance Sheet

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The profit and loss statement which is presented in the above figure reflect that profits of
the business have fluctuated as presented in the financial statement of the business. The main

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reason for fluctuation in the profits of the business is due to increase in the cost of the sales of the
business. The profits of the business are considered to be important as the same are considered
by investors for taking major investment decisions regarding the business. The cost of sales of
the business also shows significant fluctuations which is a result in the change in the costs of the
business (Weil, Schipper & Francis, 2013). The cost of sales of the business also shows
significant changes which may be due to increase in the sales of volume of the business during
the period.
As per the balance sheet of the business, the other financial assets have shown significant
changes which may due to investments which are made by the business in other financial assets
of the company. In addition to this, the figure of borrowings also shows similar increase which
may be due to changes which are made by the business in the debt capital which is used by the
business. The increase in debt capital also represent that the management of the company is
relying more on use of debt capital for funding the operations of the business.
Ratio Analysis of the Business

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Figure 1: (Table Showing Ratio Analysis of the Business)
Source: (Created by the Author)
The above figure effectively shows that the management of Woolworth has made
improvement in the profits which is generated by the business of the analysis of the net profit
margin of the business (Delen, Kuzey & Uyar, 2013). However, the profitability of Coles Group
is shown to be more which means that the Coles Group business is operating at more profits in
current level. However, the return on assets and equity estimates for Woolworth is shown to be
better which is a favourable factor for the business and it also indicates that the management of
the company is dedicated to look after the needs of the investors.

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The efficiency ratio shows total asset turnover ratio which is shown to be favourable for
Woolworth ltd in comparison to Coles Group which makes it clear that the management of
Woolworth ltd is better at managing the assets of the business. However, the management of
Woolworth need to work on improving the debtor’s policy and inventory policies of the
business. In an overall estimation, it can be said that the management of Woolworth ltd needs to
make changes in the business structure so that overall efficiency of the business can be
improved.
The liquidity estimate for the business is shown to be not appropriate as the same is
below 1 which means that the current liabilities of the business is more than the current assets of
the business (Feng et al., 2014). On the other hand, Coles Group shows a better liquidity position
in comparison to Woolworth ltd which shows that in terms of financial power Coles group can
undertake more projects and effectively expand the operations of the business. It is to be noted
that liquidity ratios are considered important as they are related to success of the business and
ability of the business to meet the current obligations effectively.
Conclusion
The above discussion effectively shows that the business of Woolworth ltd needs to make
improvement in the business structure as certain area still lack appropriate performance. The
management of Woolworth ltd need to benchmark the performance of Coles Group so that the
performance of the business can be improved. The above analysis also shows horizontal and
vertical analysis of the financial statements of Woolworth ltd.

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Reference
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), 332-338.
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2014). Financial reporting, financial statement
analysis and valuation. Nelson Education.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Woolworthsgroup.com.au. (2019). Retrieved 21 May 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf