Financial Analysis of Woolworths: A Comprehensive Report

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Finance for Business
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Abstract
This report is made on the Woolworths company which is a supermarket/grocery which is
located in the Australia and dealing with the business of groceries and selling several kinds of
product in the market such as vegetables, fruits, pets etc. B y going through this assignment it
will help in understanding the objective if the report and will give understanding regarding the
various financial ratios such as the liquidity ratio, capital structure and the price earning ratios.
All the ratios are estimated on the basis of the financial report of the year 2016, 2017 and 2018.
This report involves the study of the sensitive analysis to understand the effects of one into the
other. The company wants to determine this because they want to implement certain things for
the improvement in the organization. At last various recommendations have been given to the
Woolworths which can provide the various advantages to the company.
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Contents
Abstract.......................................................................................................................................................2
Introduction.................................................................................................................................................4
II Financial Analysis of Woolworths Company...........................................................................................5
III. Recommendation Letter.......................................................................................................................22
IV Conclusion...........................................................................................................................................23
Reference...................................................................................................................................................24
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Introduction
This report demonstrates about the understanding of the requirement of the finance for doing
several business activities such estimation of the financial ratios which helps in determining the
issue of shares. This report involves the project related to the Woolworths company which is
based in Australia which deals with the grocery product and works as a supermarket in the
Australia. The main objective of the Woolworths is to deliver good to the right people for the
purpose of profitability and the sustainable sales. This report analysis about the project for the
purpose of financial decisions which provides advantage to the company. Report estimates about
the ratios of the last three financial years of the company. An analysis also have been made
regarding the non-current assets of the company. This further involves the calculation about the
net present value of the company and various recommendations have been provided regarding
the worst and the best case of the company.
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II Financial Analysis of Woolworths Company
2.1 Description
Woolworths is an Australian supermarket store which is owned by the Woolworths group
founded in the year 1924, Thiscompany deals with the selling of the groceries such as the meat,
fruits, vegetables etc. but also deals with selling of different products such as health and beauty
products, Magzines, pets and the baby supplies.Woolworths performs their operations in about
1000 stores in the Austalia along with the 976 supermarkets. They also provide the online
facilities to their customers, those services known as the Homeshop (Woolworths limited. 2018).
Woolworths mainly operates in the grocery items such as fruits and the vegetables, fruits
involves apples, oranges, bananas, avocados, berries etc. however fruits are the best selling items
in the Australian market and at the top it is not even avocado or the banana but it is the berries
which is the best seller in the Australian market sold by the Woolworths. The biggest sales
category at the top is berries after the bananas which is at the second position and the avocado
which is at the third, berries are sold more than 25% than the quantity of the bananas
(Woolworths limited. 2018). The reason behind the topping of the fruit items is because of the
health conscious priority of the Australian consumers and all these super fruits have got the
natural properties of health and the consumers of the Australia wants to live the healthy life.
According to the above discussion about the several types of the products in the Woolworths it
has been observed that the main product of the company comes under the category of which are
the berries because the consumers of this fruits bear large in number which helps the company to
attain various advantages in the competitive market. Since Woolworths in very popular
supermarket which offers the several kinds of the product mainly fruits with various health
benefits which further help the company in achieving their objective of getting profitability and
several other benefits such as goodwill, satisfaction among customers etc (Arkan, 2016).
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2.2
Calculation of ratios and their analysis
Financail position of the Woolworths in
Million $
Particulars 2016 2017 2018 2019
Current Assets 7427 6994 7014 6298
Current Liabilties 8992 8824 9029 8620
Inventories 4558 4080 4233 4280
Cash 948 909 1273 1066
Total Assets 23502 22915 23391 23491
Total Liability 14720 13039 12542 12822
EBIT 1494 2326 2548 2353
Finance cost 245 193 154 126
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Liquidity Ratios:
Particulars 2017 2018 2019
Current ratios 0.793 0.777 0.731
Liquid Ratios 0.330 0.308 0.234
Absolute liquid ratios 0.103 0.141 0.124
2017 2018 2019
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
Chart Title
Current ratios Liquid Ratios Absolute liquid ratios
According to the trends of the ratio the above chart shows movement of the all the three ratios
current, liquid and the absolute liquid ratio, it can be seen that in the current and liquid ratio there
is a negative increment and in case of the absolute liquid there is a fluctuating increment.
Liquidity ratios actually shows the company’s ability to convert the assets into the cash but in
this case in the year 2019 company is not efficient enough to convert into cash as compared to
the previous year (Woolworths limited, 2018).
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Capital structure
ratios:
Particulars 2017 2018 2019
Debt equity ratios 1.320 1.156 1.202
Interest coverage Ratios 12.052 16.545 18.675
2017 2018 2019
0.000
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
20.000
Chart Title
Debt equity ratios Interest coverage Ratios
According to the above chart is shows an increase in the trend of the interest coverage ratio and
if we look at the trend of the debt equity ratio it remains almost same throughout all the three
years.So, in this case there is an increase in the trends of the interest coverage ratio which means
the company is efficient enough to pay the interests on the debts. In case of the debt equity it
shows percentage of the company financing that are received from the investors and the
creditors. So, higher debt equity means more bank loans are used than the shareholders (Arkan,
2016).
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2.3
Analysis of Non-current Assets of Woolworths
2017 2018 2019
15921 m $ 16377 m $ 17193 m $
The non current assets of the Woolworths have been increased year after year up to 2019. Which
states that the Woolworths is paying their attention on investing in the fixed assets of the
company rather than the current assets. Therefore it can be said that company is focusing on their
long term goals and they instead of short term which also can help the company in achieving the
long term profit (Aggarwal and Padhan, 2017).
Woolworths have used the straight line method for the estimation of the depreciation, SLM
method of depericiation have not been changed until the other method of the depreciation are
stated in the financial position of the company. The depriaciation which have been calculated
with the slm method is not needed by the accountant of the company for the calculation of the
regular depreciation amount and there are no alterations between such amounts (Woolworths
limited, 2018).
Depricaition will always be treated as the non cash expenses as there is no cash payment done by
the company. As depreciation are the amount which reduces the cost of the fixed assets due to
several reasons such wearing and tearing which means using the assets which reduces the
efficiency of the assets (Woolworths limited, 2018).
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2.4
Project NPV
Year 0 1 2 3 4
Cash outflow -2500000
Working capital -800000 800000
Cash profit after tax 298500
0
298500
0
298500
0
298500
0
Net cash flows -3300000 298500
0
298500
0
298500
0
378500
0
Discount factor @
12%
0.893 0.797 0.712 0.635 0.567
Discounted cash
flows
-2946900 237904
5
212532
0
189547
5
214609
5
Net cash flow 5599035
Working note: Calculation of sales per
annum
Selling price 25
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No. of units 450000
Total annual sales
revenue
11250000
Working note: Calculation of variable costs
per annum
Variable cost per
annum
15
No. of units 450000
Total variable costs 6750000
Working note: Calculation of contribution
per annum
Total annual sales
revenue
11250000
Total variable costs 6750000
Contribution per
annum
4500000
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Working note: Calculation of depreciation
per annum
Cost of the asset 2500000
Less: Residual
method
500000
Depreciable amount 2000000
Life of the asset 4
Depreciation per
amount
500000
Year 1 2 3 4
Sales 11250000 1.1E+0
7
1.1E+0
7
1.1E+0
7
Less: Variable costs 6750000 675000
0
675000
0
675000
0
Contribution 4500000 450000
0
450000
0
450000
0
Less: Depreciation 500000 500000 500000 500000
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