Comprehensive Financial Ratio Analysis of Woolworths Group, Australia

This report offers a detailed financial analysis of Woolworths Group, an Australian retailing company, through the computation and interpretation of key financial ratios. It evaluates the company's profitability, liquidity, gearing, and efficiency using ratios such as gross profit ratio, net profit ratio, current ratio, acid test ratio, debt-to-equity ratio, fixed asset turnover ratio, and total asset turnover ratio. The analysis compares these ratios against industry averages to identify areas of strength and weakness in Woolworths' financial performance, highlighting the importance and limitations of using financial ratios. The report also evaluates the strategies employed by Woolworths, such as cost minimization, to improve its financial standing and competitive edge. It concludes by summarizing the overall performance of Woolworths Group and suggesting areas for improvement to maintain its market position. Desklib provides access to similar reports and study tools for students.

Business Finance
Report

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Calculations of ratios...................................................................................................................1
Interpretation of each ratio as per industry average.....................................................................2
Importance of using ratios...........................................................................................................3
Limitations of financial statements..............................................................................................3
Evaluation of the strategies that are used by the company..........................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business finance is one of the most important aspect and thus it can be said that it is very
important as well as crucial for the firm to analyse and evaluate its overall working so that it can
help the firm to expand and operate in an impactful manner that can further help it is making its
mark in the business sector it is operating (Aliu, Aigbavboa and Thwala, 2021). The company
that is taken in this study is Woolworth’s group which is operational and is located in Australia
and is a retailing company and hence is operating on a much larger scale and thus has captured a
larger market share in the industry. In this report there is a detailed evaluation as well as
computation of the financial ratios which are very crucial as well as vital for a company to
review its overall position in the industry so that it can make necessary as well as appropriate
changes in the working which can subsequently help it to grow and survive in the market
competition which is highly dynamic and competitive ni nature. Apart from that the report also
includes various aspects of the financial ratios and the financial statements which possess a lot of
value in the current market scenario in relation with the company that has been taken for the
report.
MAIN BODY
Calculations of ratios
Profitability ratios-
Gross profitability ratio:
Gross profit/ Net sales * 100
2021=15,209,000,000/51,743,000,000*100
=29.39334789246855
Net profit ratio:
Net profit/ sales * 100
2021=19,700,000,000/51,743,000,000*100
=38.07278279187523
Liquidity ratios-
Current ratio:
Current assets/ Current liabilities
2021=15,786,000,000- 3,132,000,000/ 23,117,000,000

= 0.68:1
Acid test Ratio:
Current assets – Inventory / Current liabilities
2021= 15,786,000,000- 3,132,000,000/ 23,117,000,000
= 0.55:1
Gearing ratios-
Debt to equity ratio:
Debt/Equity
2021= 2.959
Efficiency ratios-
Fixed asset turnover ratio:
Sales/Fixed assets
2021=51,743,000,000/23,450,000,000
=2.206524520255864
Total asset turnover ratio:
Sales/Total assets
2021=51,743,000,000/39,236,000,000
=1.318763380568865
Interpretation of each ratio as per industry average
It can be said that the gross profit ratio of the company was 29.4 which is good but still
well below the industry average which is around 35-40% and thus it can be said that the firm has
to take appropriate steps so that it can help in growing the ratio of the firm and at last surpassing
the industry average which can prove beneficial for the firm in the long run (Bancroft and
Nyirenda, 2020).
Net profit of the firm is 38.1 and thus it can be said from the above calculations that the
firm is doing very well in this aspect as the industry average is around 30-35% and it can be seen
from the calculation that the firm is well above it and hence it is performing as per its standard
which is beneficial for it in the market.
The current ratio of the firm is below 1 as it is 0.68 to be precise as it can be seen from the
calculations that are done above and thus it can be said that the firm is not performing well in
this aspect as the industry average and the ideal ratio for this part is 2:1 and the firm is lacking

behind it and thus it has to take immediate steps so that it can help the company to grow its
current assets and minimising its current liabilities which can subsequently help it in improving
its overall ratio as a whole.
Acid test ratio also known as quick ratio is also not at its very good in terms with the
company as it can be seen from the above calculations that the ratio was 0.55 which is not at all
as per the industry standards as the ideal ratio is 1:1 and the firm is well behind it and therefore
has to take a lot of measures which can help it in increasing this ratio and mainly the firm must
increase its quick assets as a whole.
It can be said from the calculations of debt equity ratio that the ratio was around 3 for the
company and thus the firm is performing well above the industry average which is around 2-2.5
and thus it can be said by this that the debt of the company is much more than its equities.
Fixed asset turnover ratio of the company is around 2.3 which is below the industry
average which is 2.5 or more and thus it can be said that the firm must increase its overall sales
as compared with the fixed assets of the company (Elatawneh and Sidek, 2021).
Total asset turnover ratio of the company is around 1.3 and hence it can be said that the
firm is not performing up to the industry standards as the industry average is around 2.5 or more
and thus the firm must increase and improve its sales in context with its total assets.
Importance of using ratios
There are a lot of importances of the ratios that are calculated above and thus below are
some of them:
 It helps in analysing and evaluating the short term paying capacity of the firm so that it
can be observed from it that the current assets are capable of paying off its current
liabilities or not.
 It helps in assessing the efficiency of the company which can prove very beneficial for
the firm in the long term scenario (Leach, Lavallee and Charlton, 2018).
 It also assists in analysing the risks and opportunities that the firm has so that appropriate
measures and steps can be taken according to its report.
Limitations of financial statements
There are many limitations of financial statements and thus those are elaborated below:

 They are just related to the financial part of the company and thus ignores the non
financial part which is also equally important and crucial for the firm in the market in
which it is operational.
 It can be not precise at times as it is easy to change the facts and figures and thus fraud
and deception can be done in the financial statements which result in heavy losses and
damages to the firm as well as to its users and stakeholders (Walter, Mulherin and Cox,
2018).
Evaluation of the strategies that are used by the company
The firm that is Woolworths group uses many strategies so that it can help the company to
sustain and survive in the long run and thus the major strategy that is used by it is minimising the
cost and reducing the wastages so that it can help in increasing its overall profit and also reduce
the per unit cost and can assist in the overall growth and development of the firm in the sector
wherein it is working (Whatley, 2019).
CONCLUSION
It can be concluded from the above that the company Woolworths group is performing very
well in the industry apart from some areas and if the firm takes appropriate measures to improve
it as mentioned in the report it can help it to stand well ahead of all its competitors that are
prevailing in the current market scenario.

REFERENCES
Books and journals
Aliu, J., Aigbavboa, C. and Thwala, W., 2021. A 21st Century Employability Skills Improvement
Framework for the Construction Industry. Routledge.
Bancroft, S.F. and Nyirenda, E.M., 2020. Equity-focused K-12 science teacher professional
development: A review of the literature 2001–2017. Journal of Science Teacher
Education, 31(2), pp.151-207.
Elatawneh, H.A.A. and Sidek, S.B., 2021. Structural Model of Teaching Quality Improvement
Factors for Academics Professional Develo Leigh, J.A. and Darvil, A., 2016. De-
mystifying role transition: a study to evaluate the preparation for role transition:
perspectives from final year undergraduate nursing students and stakeholders.
Leach, C.J., Lavallee, S.L.P. and Charlton, R., 2018. 4 CPD, lifelong learning and preparing for
examinations. In Learning to Consult (pp. 257-269). CRC Press.
Walter, S., Mulherin, K. and Cox, C.D., 2018. A preceptor competency framework for
pharmacists. Part 2 of a 3-part series. Currents in Pharmacy Teaching and Learning,
10(3), pp.402-410.
Whatley, J., 2019. Professional Development Within Second Year Computing Degree
Programmes. In Employability via Higher Education: Sustainability as Scholarship (pp.
429-440). Springer, Cham.