Financial Analysis Of Woolworths For 2017

Relevant Background of the Company

The assessment aims in identifying the current financial capability of Woolworths for the financial year of 2017. Adequate background of the organization is depicted in the assessment, where its products and services are analyzed. Furthermore, the calculations such as profitability ratio, efficiency ratio, solvency ratio, and market ratio are conducted to identify the current financial position of Woolworths. Moreover, relevant comparison of two fiscal years is conducted to identify the current financial position and the progress that has been made by Woolworths during the period. Further evaluation has been conducted for investigating the current Common size analysis and trend analysis of Woolworths for detecting its current financial performance. After conducting the relevant evaluation the performance of the organization is anticipated, which relatively helps in detecting the level of income and revenue that can be generated in future. The identification of positive trend in Woolworths would eventually allow the investors to generate high returns from investment.

Woolworths Limited is one of the largest Supermarkets that adequately operate in Australia since 1924. The company during the initiation stage was relatively small and was considered a grocery store. However, the rising demand and changing customer preference directly lead to augmentation of supermarkets in Australia, which supported the growth and expansion process of Woolworths. Woolworths is considered to be under supermarket industry, the composition of the competitors relatively indicate duopoly condition in Australia. The company is selling adequately everything in supermarkets starting from vegetables to the electronics components demanded by consumer. Woolworths Limited has around 1000 stores across Australia, which comprises of 976 supermarket and 19 convenience stores that provides services to the customers. The company not only limits appearance to physical stores but also has a presence in online market, which allows the organization to reach out more customers and improve their current revenue generation capability. The current employee strength of wolves is around 111,000, while the overall revenue that is generated from operation is 55.92 billion dollars (Woolworthsgroup.com.au 2018). The organization has adequately improved their condition over the past fiscal years for supporting their operation and improving the capability of generating high revenues from operations. Adequate improvements from the overall operations of Woolworths can be seen today, which has allowed your management to sustain the competitive edge against its peers. Woolworths has adapted to the changing requirements of the industry, which allowed the organization to increase its operation from a single store to large supermarkets.

Profitability Ratio:

PROFITABILITY RATIOS	Formula Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2017	2016
Net Profit Margin	Net profit / sales	2.86%	-4.37%
Gross Profit Margin	Gross profit / sales	28.61%	28.18%
Interest cost as a percentage of sales	Interest expense / sales	0.35%	0.46%
Asset turnover	Sales / Average total assets	2.40	2.20
Return on assets	Net profit / Average total assets	0.07	(0.10)
Return on ordinary shareholders equity	Net profit / Average ordinary share holder equity	0.17	(0.24)

The financial ratios depicted in the above table indicate the profitability condition of Woolworths from 2016 to 2017. This improvement in the current financial performance of Woolworths can be identified with the rising net profit margin from -4.37% to 2.86%. However, the overall gross profit margin of the organization relatively increased from the level of 28.18% to 28.61%, which indicates that the administrative expenses of the company substantially reduced during 2017. On the other hand, the overall asset turnover ratio, return on Assets and return on shareholders has relatively improved over the period of one fiscal year. This is relevant improvement in the overall financial performance was a relatively delivered by the rising net income that was generated by the organization during the fiscal year of 2017. The loss was from discontinued operations, which directly reduced the level of profit that was generated during the fiscal year. Therefore, from the valuation it can be understood that the current progress of the organization is adequate, while the discontinuation of some operation led to losses (Scarborough 2016).

Analysis of Discussion (Profitability, Efficiency, Short-term Solvency Ratio)

Efficiency Ratio:

EFFICIENCY RATIOS	Formula	2017	2016
Accounts receivable turnover	Revenue / Average accounts receivable	73.80	65.08
Average days sales uncollected	days in a year / Accounts receivable turnover	5	6
Inventory turnover	Cost of goods sold / Average inventory	9.20	8.17
Inventory turnover in days	days in a year / Inventory turnover	40	45

The efficiency ratio of Woolworths can be identified from the above table, which relatively indicates the level of improvements that has been conducted by the organization during the festival of 2017 as compared to 2016. The formulas directly indicate the current efficiency condition of the organization, which has the relatively improved, as the accounts receivable turnover has increased from the levels of 65.08 to 73.08 in 2017. This improvement in the accounts receivable turnover decrease the average days sales and collected from 6 days to 5 days in 2017. The efficiency of the organization has relatively improved over the past year, which can be identified from the rising inventory turnover ratio calculated in the above table. The inventory turnover ratio is increased from the levels of 8.17 to 9.20, which relatively depicts the efficiency that is being made by the management to clear out the inventory in time. This improvement has a relatively allowed the organization to reduce the blockage of capital that is conducted in inventory. The reduction in the inventory turnover ratio has relatively allowed the organization to reduce the number of days that is taken into consideration to clear their inventory, which has decreased from 45 days to 40 days (Vogel 2014).

Short-term solvency Ratio:

SHORT-TERM SOLVENCY RATIOS	Formula	2017	2016
Current ratio	Current Assets / Current Liabilities	0.79	0.83
Quick ratio	Quick Assets / Current Liabilities	0.33	0.32
Cash flow from operations to current liabilities	Operating cash flow / Current Liabilities	0.35	0.26

The short-term solvency position of wolves can be identified from the above ratios, which relatively indicates the improving performance of the company over the period of one year. The current ratio of the organization is relatively decline from the levels of 0.83 to 0.79, which indicates the current problematic condition faced by the organization to sustain its capability for supporting their short-term obligations. However, the increment in overall quick ratio has been witness for the period of one fiscal year, which indicates the efficiency and improvements that has been conducted by the organization to be improve its current financial capability (Evans and Mathur 2014). The rising cash flow from operation has also supported improvements that have been obtained by the organization during the fiscal year of 2017, as the ratio has improved from the levels of 0.26 to 0.35. The rising quick ratio and declining current ratio indicate that the overall current assets of the organization is being blocked by inventory, which needs to be improved for boosting the financial position of Woolworths.

Long-term Ratio:

LONG-TERM SOLVENCY RATIOS	Formula	2017	2016
Debt to equity	Total liabilities / total shareholders equity	1.32	1.68
Debt to total assets	Total liabilities / total assets	0.57	0.63
Leverage ratio	Total assets / total shareholders equity	2.32	2.68
Interest coverage	(Net profit + Income + interest) / Interest	9.23	(8.56)
Cash flow from operations to total liabilities	Operating cash flow / total liabilities	0.24	0.16

Long-term solvency ratios are relatively depicted in the above table, which depicts the rising performance and financial stability of Woolworths. The calculations relatively indicate that debt to equity condition of the organization has a relatively improved, where the values have declined from 1.68 to 1.32 in 2017. Furthermore, the improvements in depth to total assets has been also conducted where the values has decrease from the levels of 0.63 to 0.57. This directly indicates that the overall debt accumulated by Woolworth has relatively declined during the financial year of 2017. The decline in leverage ratio was relatively as the overall Assets of the organization decline, while the shareholders equity value increase. This was mainly conducted, as the organization sold off their assets to support the operations (Omar et al. 2014). However, the inclination in the overall interest coverage ratio can be seen due to the rising profits that were obtained during the financial year of 2017. The cash flow from operations has relatively improved over the period of 1 year, which has increased the value from the levels of 0.16 to 0.24. This improvement has been achieved by the rising profits and financial stability that has been maintained by Woolworths during the fiscal year of 2017.

Conclusion

Market based Ratio:

MARKET-BASED RATIOS	Formula	2017	2016
Price/Earnings	Market price per share / earnings per share	21.24	18.66
Earnings yield	Earnings per share/ Market price per share	4.71%	5.36%
Dividend yield	Dividend per share / Market price per share	3.31%	3.75%

The ratios depicted in the above table relatively represent the market conditions of Woolworths and states the level of returns that could be made from investment in the organization. The above calculations relatively indicate that the price earnings ratio of the company has relatively improved from the levels of 18.66 to 21.24. The rising earnings per share of the organization have obtained this improvement. The calculation also depicts the earnings yield of the company, which has deteriorated for the period of one year. This depicts the relevant decline in its performance to maintain a high earnings yield on each fiscal year. Similarly, the dividend yield of the organization has also declined which was due to the rising share price of the organization during the fiscal year. The analysis of the market-based ratio directly indicates the deteriorating performance of the organization, as both the earning yield and dividend yield has relatively declined for the period of one year. However, only the price/earnings ratio of the organization has improved indicating a possibility of higher earnings, which can be obtained by the organization in future fiscal years. Lakshmi, Martin and Venkatesan (2016) mentioned that with the use of fundamental analysis investors are able to anticipate the future performance of the organization and make adequate investment decision.

Common Size Analysis:

Item	06/13	06/14	06/15	06/16	06/17
Total Revenue Excluding Interest	100.00%	100.00%	100.00%	100.00%	100.00%
Operating Expenses	-92.03%	-92.19%	-92.00%	-93.88%	-94.03%
EBITDA	7.97%	7.81%	8.00%	6.12%	5.97%
Depreciation	-1.37%	-1.35%	-1.83%	-1.71%	-1.78%
Amortization	-0.26%	-0.28%	-0.04%	-0.04%	-0.03%
Depreciation and Amortization	-1.64%	-1.63%	-1.87%	-1.75%	-1.81%
EBIT	6.34%	6.18%	6.13%	4.38%	4.16%
Interest Revenue	0.04%	0.02%	0.00%	0.00%	0.00%
Interest Expense	-0.70%	-0.45%	-0.42%	-0.42%	-0.35%
Net Interest Expense	-0.66%	-0.44%	-0.42%	-0.42%	-0.35%
Pretax Profit	5.68%	5.74%	5.71%	3.96%	3.81%
Tax Expense	-1.69%	-1.73%	-1.71%	-1.22%	-1.16%
Net Profit after Tax Before Abnormal	3.99%	4.02%	4.00%	2.74%	2.65%
Abnormal	-0.22%	0.00%	-0.70%	-1.64%	0.00%
Abnormal Tax	0.06%	0.00%	0.19%	0.33%	0.00%
Net Abnormal	-0.16%	0.00%	-0.50%	-1.31%	0.00%
Reported NPAT After Abnormal	3.84%	4.02%	3.50%	-4.01%	2.85%

The common size analysis that has been conducted in the above table relatively represents the level of expenses and income that has been conducted by the company during the past five fiscal years. The calculations is relatively portrayed that the incremented operating expenses of the organization has been witnessed, which has directly affected the EBITDA of the company. Furthermore, the overall EBIT of Woolworths has relevantly deteriorated due to the rising administrative expenses, which has been conducted by the company over the past fiscal years. Furthermore the calculation also indicate that the tax expense of the company has declined, which is relatively due to the disappearance of interest revenue declining interest expenses and reducing EBIT (Greco, Figueira and Ehrgott 2016). The profits of the company has been steadily declining over the past 5 years, which relatively indicates the rising expenses and measures that has been taken by Woolworths to increase their competitiveness in the market.

Trend Analysis:

Particulars	06/14	06/15	06/16	06/17
Total Revenue Excluding Interest	3.86%	-0.09%	-4.25%	-4.51%
Reported NPAT After Abnormal	8.56%	-13.06%	-209.85%	-167.86%

The calculations conducted in the above table relatively represent a trend analysis for revenues of the organization and the total net profits. The calculation is relatively indicated a decline in the current revenue generating capability of the organization, which relatively increased and deteriorated over the period of 5 years. The reduction in the revenues was relatively initiated by intense competition that was conducted by other competitors in the market. However, the reduction in revenues directly produced the capability of the organization to sustain high profits. Therefore, the decline in profits of the organization was relatively witness, which can be seen in the above table. The net income of the organization deteriorated quickly as Woolworths obtained lost during the fiscal year of 2016. Woolworths mainly conducted the loss due to the non-continuation of the current operations (Ibn-Homaid and Tijani 2015).

Conclusion:

The assessment directly evaluated the current financial position of Woolworths, where adequate improvements in the current financial performance are seen. The company has relatively improved the levels of net profits generated during the fiscal year of 2017. The financial ratios such as profitability, efficiency, liquidity, and solvency relatively indicate the financial improvements, which have been obtained by Woolworth during the fiscal year of 2017. Adequate improvements are relatively conducted during the financial year of 2017, where reduction in debt was seen. This decline in debt accumulation of the organization has mainly allowed the company to increase their current financial performance. The financial ratios depict the current improvements that have been mastered by Woolworths for improving its financial performance and reducing the level of losses incurred from operations. The company has relatively improved its current net profits by adequately adjusting to its operations and improving the profits by 2.86%.

After evaluating the financial performance of Woolworths, it could be assume that the organization is a viable investment opportunities which can be used by investors. The company’s overall financial performance has improved during the past two fiscal years. The loss that was incurred during 2016 was due to the non-continuation of operations, which was only a onetime event. Hence, the improvements in the profits can be witnessed during the fiscal year of 2017. Therefore, investors can use Woolworths as an adequate investment opportunity, which might allow them to generate high returns from investment. The share value of the company has relatively improved over the fiscal years, which was supported by the P/E ratio. This indicates the growth and opportunity that is present within the organization, which could allow investors to improve their profits in future. The recommendation is supported with by the above tissue, which has been calculated for understanding the current financial position of Woolworths. The improvements in the operations of Woolworths directly indicate an investment opportunity, which the investors can utilize to generate high returns. However, the investment scope needs to be adjusted adequately, which might help in reducing the level of risk involved in investment.

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Woolworthsgroup.com.au. (2018). [online] Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed 20 Sep. 2018].