Comprehensive Financial Analysis of Woolworths Group Limited Report

This report provides a comprehensive financial analysis of Woolworths Group Limited, a major Australian retail giant. It begins with an executive summary and a brief history of the company, followed by a market and peer analysis to assess its position within the industry. The core of the report involves a detailed financial analysis, including profitability, liquidity, and efficiency ratios, along with an examination of factors influencing the company's financial statements. The analysis covers key financial metrics such as Return on Equity, profit margins, current and liquid ratios, inventory turnover, and earnings per share. The report also discusses special events, news in the public domain, and concludes with an investment perspective based on the financial and technical analysis. The report uses data from 2017 and 2018 to provide a comparative view of the company's performance.

5/19/2019
WOOLWORTHS GROUP LIMITED
ANNUAL REPORT ANALYSIS

Contents
Executive Summary............................................................................................... 2
History of Woolworths Group Limited....................................................................3
Market Analysis..................................................................................................... 3
Peer Analysis......................................................................................................... 3
Financial Analysis of Company..............................................................................3
Factors influencing Financial Statement of the company and Significant item in
Balance Sheet........................................................................................................ 4
Special Events....................................................................................................... 5
News in Public Domain.......................................................................................... 5
Conclusion............................................................................................................. 5
References............................................................................................................. 5

Executive Summary
The report has been written with a view to present the present financial performance of a retail giant
in Australia. The name of the giant is Woolworths Limited. The concerned entity is a listed entity on
Australian Stock Exchange and part of ASX 200. The report presents financial performance of the
company over the period of two years to supplement users in decision making based on fundamental
analysis of the company.

History of Woolworths Group Limited
The Woolworths Group Limited had a humble beginning back in 1924 with its headquarter in Belle
Vista, Australia. The company initially started its operation as Bazaar for groceries and other allied
products. The name of the company is after a famous person Mr. F.W. Woolworth. At present, the
company owns more than 80% of the Australian Market post purchase of Coles. The company runs
supermarket and grocery chains pan Australia. At present, the employee base of Woolworth is
approximately 1.15Lacs with a revenue turnover of around 57 Billion AUD. The company operates
through 995 locations with different segments across Australia.
Market Analysis
The share price of Woolworths Group Limited is AUD 34.18 as on 17th May, 2019 with a market
capitalisation of $32 Billion which represents the giant size of the company. Over the past years, the
dividend yield of the company is 3.38% representing a dividend of $ 1 per share which is fairly good
considering the growth rate and inflation in the economy. From risk perspective the company has a
beta of 0.96 compared to ASX 200. Thus, the company is less risky and the return of company in
terms if share price and dividend is higher than ASX 200. Thus, on risk return trade off parameter the
company has been performing well. (Reuters.com, 2019)
Peer Analysis
Since, no company in the industry has same product line and the level of diversification as that of
Woolworths Limited, it shall be impractical to compare an Australian entity with the retail giant.
Further, it shall be incorrect to compare Australian entity with foreign entities like Walmart and
Future Group on account of geographical differences. Thus, an industrial and sector analysis has been
presented based on data available in public domain.
Financials
WOW.AX Industry Sector
P/E (TTM): 22.49 39.19 40.43
EPS (TTM): 1.11 -- --
ROI: 10.61 6.06 60.54
ROE: 15.8 9.41 71.82
On perusal of the above, table it can be inferred that P/E ratio of the company is lower in comparison
to industry and the sector which is good sign for undervaluation of share of the company. Thus,
company appears undervalued on this parameter compared to industry. Further, investing in this type
of company has also been propounded under Intelligent Investor by Benjamin Graham and the
investor giant Mr. Warren Buffet.
On other parameters, like Return on Income and Return on Equity the company has been performing
well compared to industry but poor in comparison to sector.
Financial Analysis of Company
The financial analysis of the company has been carried based on the following ratio analysis:
(i) Profitability Analysis of company based on Return on Equity, Gross profit margin and net
margin;
(ii) Liquidity Analysis based on current ratio, liquidity ratio and turnover ratios;
(iii) Financial Flexibility Ratios;

(iv) Earnings per share ratios;
(v) Cash Flow ratios.
The computation of all the ratios has been presented here-in-below:
WOOLWORTHS GROUP LIMITED
Year 2018 2017
Particulars Briefs Briefs
Return on Equity 17.23% 16.10%
Gross Profit % 29% 29%
Net Profit Margin 3.03% 3%
Current Ratio 0.781 0.795
Liquid Ratio 0.321 0.326
Inventory Turnover 13.499 9.295
Debt Ratio 1.213 1.382
Operating Cash Flow Margin 5.14% 5.67%
Cash Return on Owners Equity 29% 33%
EPS 132.6 119.4
(Woolworths Group Limited, 2019)
On perusal of the above, details it can be inferred that there has been no change in profitability in
terms of sale. However, the profitability has seen a marginal increase in case of return on equity.
Further, as far as liquidity of the company is concerned the results are alarming symbolising
inadequate current asset of the company to meet the liabilities.
On the efficiency front, the company results are not so exciting as the inventory turnover ratio is not
so good in days the same stand at approximately 30 days. It can be further reduced to 20 days for
increasing efficiency. However, on year on year basis the results are good.
Also, on receivable front the company has a very strong hold as the cycle is just three days assuming
all sales are made on credit. Further, the same has seen an improvement on year on year basis.
From cash flow point of view, the performance of the company has been good. However, the results
have seen a decline on year on year basis.
The earning per share of the company has seen an increase which is a good sign of company’s
performance.
Thus, on the basis of above it can be commented that company has been performing well except on
some parameters and has a lot of potential.
Factors influencing Financial Statement of the company
and Significant item in Balance Sheet
Since the company is majorly driven by end consumers, the purchasing power and the seasonal effect
has a great impact on the business of the company. Further, the credit terms and competition also
impact the figures of balance sheet and profit and loss account of the company. Also, on perusal of the
statement it shall be inferred that branch expenses form a significant portion of indirect expense of the
company. Also, it can be seen that intangible asset form a significant portion of non current asset
which is an alarming sign for brick and mortar enterprise.
On further analysis, it can be seen that Goodwill forms a significant component under intangible asset
and which is impaired based on numerous factors.

Further, no details have been provided for branch expense which appears to be quite high.
Special Events
During the year, the company has paid a special dividend which is over and above the general
dividend distributed by the company and the dividend is fully franked. The said dividend is positive
from investor point of view.
News in Public Domain
The recent news of the company in public domain encompass news of shrinking Big W division
which led to spurt in share prices. Thirty Big W stores were closed under the said regime as they were
loss making. Thus, company is applying filters to increase the profitability of the company. Further,
the profit of the company during the December ended did not meet the expected demands of the
investor. Thus, there is mixed emotions among the investors for the company. In addition to above,
the slowing down of Australian economy on account of numerous factors both internal and external
shall have great impact on the fundamentals. (Reuters.com, 2019)
Conclusion
Based on the fundamental and technical analysis, it shall be worthwhile to invest in Woolworth
because of the potential of the company and the great fundamental it presents. In addition, the
company shall soon see better results with settling of global turmoil.
References
Reuters.com. (2019, May 19). Australia's Woolworths to shut 30 BIG W stores.
Retrieved from www.reuters.com:
https://www.reuters.com/article/woolworths-grp-restructuring/australias-
woolworths-to-shut-30-big-w-stores-idUSL3N21I1BS
Reuters.com. (2019, May 19). Woolworths Group Ltd (WOW.AX). Retrieved from
www.reuters.com:
https://www.reuters.com/finance/stocks/overview/WOW.AX
Woolworths Group Limited. (2019, May 19). Woolworths Group. Retrieved from
www.woolworthsgroup.com.au/:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-
2018.pdf