Financial Analysis of Woolworths Ltd. for Accounting Managers

This report provides a comprehensive analysis of Woolworths Ltd.'s financial performance for the year 2018, focusing on key financial ratios and their relation to the company's overall financial health. The analysis includes horizontal and vertical analyses of the profit and loss statement and balance sheet, highlighting significant changes in net profit, cost of sales, and inventory. The report also features a ratio analysis, comparing Woolworths' performance with that of Coles Group, a competitor in the same industry. The efficiency, liquidity, and profitability ratios are examined to assess Woolworths' strengths and weaknesses, offering insights into areas needing improvement, such as cost management and liquidity strategies. The report concludes by emphasizing the need for Woolworths to improve its cost structure to enhance profitability and formulate strategies to improve its liquidity position.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
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Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Horizontal Analysis of Profit and Loss statement and Balance Sheet.............................................2
Vertical Analysis of Profit and Loss statement and Balance Sheet.................................................4
Two Significant Ratios....................................................................................................................5
Ratio Analysis of the Business........................................................................................................6
Reference.........................................................................................................................................9

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Introduction
The main purpose of the assessment is to analyse the financial performance of the
business of Woolworth ltd for the year 2018. The analysis would be showing key financial ratios
of the business and how the same is related to the financial performance of the business
(Robinson et al., 2015). In order to effectively compare the performance of Woolworths, key
financial ratios for Coles Group is also computed which belongs to the same industry.
On the basis of the market trends, the industry ion which Woolworth operates is growing
significantly. The business of Woolworth is blooming with growth as the overall earnings of the
business for the year 2017 has achieved as growth of 4.9% in comparison to previous years. In
addition to this, the profits of the business have increased significantly which has prompted the
directors of the business to declare a dividend of 50% on the shares of the business. This shows
that the industry is growing one and therefore there is more scope of growth in the market. The
overall profitability of the business has experienced as significant rise which is a positive sign for
the business (Woolworthsgroup.com.au., 2019). As per the chairmen report of the business, the
management of the company is planning to further expand the operations of the business so that
more revenue can be generated and it is also a priority of the management to make the
supermarket industry number 1 in the country. Therefore, it can be said that there is sufficient
scope of growth in the industry.
Horizontal Analysis of Profit and Loss statement and Balance Sheet

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Vertical Analysis of Profit and Loss statement and Balance Sheet

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Two Significant Ratios

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The profit and loss statement effectively show that the net profit of the business has
significantly shown increase in the horizontal and vertical analysis of the business. The figure
has shown tremendous increase which suggest that the management of the company is trying to
increase the profitability of the business. 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 analysis of the balance sheet of the business, the inventory balance shows
significant fluctuation during the period which is a factor which the management of the company
needs to consider while taking important decisions regarding the business operations. The other
financial liabilities of the business effectively show that the management of the company also
shows significant changes which is also material in nature.
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 the company of the company
is performing appropriately in terms of maintaining the profitability of the business. it is to be
noted that the net profit of the business shows a tremendous decline which is mainly due to
increase in the expenses of the business while the net profit of Coles Group is shown to be better

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which suggest that the management of Coles is appropriately maintaining the costs of the
business (Kim, Kraft & Ryan, 2013). Therefore, in terms of profitability, the management of
Woolworths need to make significant changes in the costs structure so as to ensure that there is a
chance of better profit generation in future (Haller & van Staden, 2014). Therefore, the business
of Coles Group is better in terms of profitability than Woolworths ltd.
The efficiency ratio of the business is shown with the help of total asset turnover ratio,
inventory turnover ratio and debtor’s turnover ratio. In an overall estimation, it can be said that
the overall efficiency of Woolworth is better than Coles Group which is a favourable factor for
the business (Colesgroup.com.au., 2019). The management of the company however, needs to
maintain such an appropriate control over the business.
The liquidity ratio of the business of Woolworth shows a significant decline and the same
is shown to be lower than 1 which means that the current assets of the business is lower than the
current liabilities. The liquidity ratio of Coles Group is more appropriate than Woolworth ltd for
the period even though the estimates which is presented is lower than 1. This signifies that the
management of the company needs to formulate appropriate strategies so as to improve the
liquidity of the business.

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Reference
Coles Group | A trusted retailer, delivering quality value and service.
(2019). Colesgroup.com.au. Retrieved 20 May 2019, from
https://www.colesgroup.com.au/home/
Haller, A., & van Staden, C. (2014). The value added statement–an appropriate instrument for
Integrated Reporting. Accounting, Auditing & Accountability Journal, 27(7), 1190-1216.
Kim, S., Kraft, P., & Ryan, S. G. (2013). Financial statement comparability and credit
risk. Review of Accounting Studies, 18(3), 783-823.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Woolworthsgroup.com.au. (2019). [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf
[Accessed 20 May 2019].