Financial reporting is the most part in the accounting process and there are international accounting standards issued to regulate the process of whole system of financial reporting. Financial reporting means the process of preparation of financial statements and notes to accounts using the accounting issued by the respective country after giving regards to the international accounting standards.
In this report, a company listed on the Australian stock exchange has been selected to make analysis on various aspects. Together with this competitor analysis has also been done to perform comparisons between the selected companies in the same industry. The main company selected from the list provided is Woolworth and its competitor is Wesfarmers. Both these companies belong to the retail industry of Australia.
Woolworth is the multinational company that is operating is many nations. In Australia, company mainly operates in supermarket chain and it has more than 1000 stores across Australia. The core business activity of Woolworth includes selling of groceries items such as vegetables, food products, all types of consumer durables and many more. Woolworth is regarded as the biggest super market chain in Australia and it was established in year 1924, in Sydney. The rival company of Woolworth in Australia is Wesfarmers and it was first set up in year 1914 as the Australia farmers’ cooperative and currently it is one of the largest growing companies in Australia. The company has its business in few countries like Australia, New Zealand, Ireland and United Kingdom (About Wesfarmers, 2017). The Wesfarmers deal in supermarkets, departmental stores, office supplies, home improvement goods and services, safety products, coal production and distribution, chemicals and many others. Headquarter of the Wesfarmers was located in Perth, Australia (About Woolworth, 2017). It has been reported that about 80 % of the retail industry was under control of Woolworth and rest is enjoyed by its competitor. The growing business of Wesfarmers in Australia will provide huge competition to the Woolworth in future time period.
Woolworth and Wesfarmers both operate in retail industry of Australia. Retail industry in Australia is growing and there is huge scope for the companies to earn good return. The main competitors of Woolworth are Wesfarmers, Myer and David Jones.
There are mainly two sources of finance. They are internal source of finance and external source of finance. Internal source of finance means the owner’s own capital has been used to finance the business and retained earnings are put to use in the business development. While external sources of finance includes issue of equity shares and taking loan from banks. Generally companies use external sources of finance to fund their business. Issue of equity shares was most common source of finance for public listed companies like Woolworth and Wesfarmers. Equity capital is also regarded as the owner’s capital as shareholder’s become the owner’s of the company. After analyzing the capital structure of the Woolworth Group it can be said that in year 2016, 5727.6 million dollars of debt and 5347.00 million dollars of equity capital was financed through external sources of finance while 3124.5 million dollars is of retained earnings which is regarded as internal sources of finance (Annual Report 2016: Woolworth Group). Wesfarmers has 7410.00 million dollars of debt and 21937.00 million dollars of equity capital was financed through external sources of finance while 874.00 million dollars is of retained earnings which is regarded as internal sources of finance (Annual Report 2016: Woolworth Group).
Directors of the Woolworth Group have declared following elements of financial performance:
Following declaration has been provided by the directors of the Wesfarmers:
It can be said that director’s declaration is almost same in the both the companies.
Events that occur after the balance sheet date and are important to be disclosed in the notes to account are known as subsequent events. Subsequent events have been disclosed by the Woolworth in their annual report under notes to account. The subsequent events that are disclosed by the Woolworth are related to its Home Improvement business unit. “As per details this event took on 24 August, 2016 and according to mention information, company and/or entities in the Hydrox Group entered into a series of arrangements related to the company’s exit from the Home Improvement business” (Annual Report 2016: Woolworth Group).
In case of Wesfarmers a small event took place after the reporting date. Company has declared fully franked final dividend of $0.95 per share that amount to final dividend of $1070 million and it has been paid on 5 October, 2016 (Annual Report 2016: Woolworth Group).
As per the notes to account of the Woolworth Company there has been no change in the accounting policies in the reporting period of Annual report 2016 (Annual Report 2016: Woolworth Group). Similarly in case of Wesfarmers, there has been no information in the notes to accounts regarding the change in accounting policies (Annual Report 2016: Wesfarmers Group).
In order to present the information regarding the carrying amount of property, plant and equipment extract form the annual report of the Woolworth has been taken as below:
|
Table Showing the Value of Carrying Value of Property, Plant and Equipments as on year ended 2016 |
|||
|
Amount in million dollars |
|||
|
Items under Assets Section (PPE) |
Cost at starting of Year |
Accumulated Deprecation |
Carrying Value |
|
Development Properties |
$ 358.30 |
$ (1.60) |
$ 356.70 |
|
Freehold Land, Warehouse, Retail And Other Properties |
$ 1,435.50 |
$ (116.00) |
$ 1,319.50 |
|
Leasehold Improvements |
$ 3,269.60 |
$ (1,474.10) |
$ 1,795.50 |
|
Plant And Equipment |
$ 13,937.00 |
$ (9,145.90) |
$ 4,791.10 |
|
Total |
$ 19,000.40 |
$ (10,737.60) |
$ 8,262.80 |
(Annual Report 2016: Woolworth Group)
Below is the table that shows the carrying value of property, plant and equipment that is presented in the annual report of Wesfarmers:
|
Table Showing the Value of Carrying Value of Property, Plant and Equipments as on year ended 2016 |
|||
|
Amount in million dollars |
|||
|
Items under Assets Section (PPE) |
Cost at starting of Year |
Accumulated Deprecation |
Carrying Value |
|
Freehold land |
$ 1,470.00 |
$ – |
$ 1,470.00 |
|
Buildings |
$ 1,082.00 |
$ (156.00) |
$ 926.00 |
|
Leasehold improvements |
$ 1,682.00 |
$ (757.00) |
$ 925.00 |
|
Plant, vehicles and equipment |
$ 12,860.00 |
$ (7,030.00) |
$ 5,830.00 |
|
Mineral lease and development |
$ 996.00 |
$ (535.00) |
$ 461.00 |
|
TOTAL |
$ 18,090.00 |
$ (8,478.00) |
$ 9,612.00 |
(Annual Report 2016: Wesfarmers Group)
Companies make use of accounting to figure out the value of property, plant and equipment and they disclose these policies under notes to account.
Accounting policies of the Woolworth regarding the property, plant and equipment
Accounting policies used by the Wesfarmers in contest of property, plant and equipment
Below table will provide the composition of the intangible assets with regards to Woolworth in year 2016
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Table Showing the Value of Carrying Value of Intangible assets as on year ended 2016 |
|||
|
Amount in million dollars |
|||
|
Intangible assets |
Cost at starting of Year |
Impairment |
Carrying Value |
|
Goodwill |
$ 3,731.30 |
$ (94.00) |
$ 3,637.30 |
|
Brand Names |
$ 285.40 |
$ (31.50) |
$ 253.90 |
|
Liquor And Gaming Licences |
$ 2,145.80 |
$ (135.90) |
$ 2,009.90 |
|
Other |
$ 173.70 |
$ (96.50) |
$ 77.20 |
|
Total |
$ 6,336.20 |
$ (357.90) |
$ 5,978.30 |
(Annual Report 2016: Woolworth Group)
Following table will provide details of the carrying value of each intangible asset of Wesfarmers:
|
Table Showing the Value of Carrying Value of Intangible assets as on year ended 2016 |
|||
|
Amount in million dollars |
|||
|
Intangible assets |
Cost at starting of Year |
Impairment |
Carrying Value |
|
Goodwill |
$ 16,556.00 |
$ (2,108.00) |
$ 14,448.00 |
|
Trade names |
$ 3,838.00 |
$ (21.00) |
$ 3,817.00 |
|
Contractual and no contractual relationships |
$ 84.00 |
$ (28.00) |
$ 56.00 |
|
Software |
$ 1,334.00 |
$ (738.00) |
$ 596.00 |
|
Gaming and liquor licenses |
$ 156.00 |
$ – |
$ 156.00 |
|
TOTAL |
$ 21,812.00 |
$ (2,895.00) |
$ 18,917.00 |
(Annual Report 2016: Wesfarmers Group)
Both the companies have calculated goodwill on the cost (determined at the time of acquisition) and after that it is measured at cost less any accumulated impairment.
No impairment has been done in relation to property, plant and equipment.
As analyzed from the annual reports of Woolworths Limited, the value of operate lease commitments are $2,073.1m (Annual Report 2016: Woolworth Group). These are classified as finance leases and are stated as expenses through the use of straight-line basis over the lease term. On the other hand, the value of asset assets is $21 m and the value of leased liabilities is $2,456 m. The leases are classified as operating and finance leases based on the ownership structure of the company. The leases are measured through the use of straight-line method over the lease term and are recognised as expenses in the income statement (Annual Report 2016: Wesfarmers Group).
The Wesfarmers Limited have provided voluntary disclosures regarding its taxation structure as per the tax transparency code (TTC) adopted by the Australian government. In addition to this, the company also voluntary complies with the Food and Grocery Code of Conduct (Annual Report 2016: Woolworth Group). These voluntary disclosures are provided by the company with the aim of improving its brand image in the global market. The voluntary disclosures improve the transparency of business operations in the eyes of its stakeholders and thus improving its growth and development. However, the Woolworths do not provide any voluntary disclosures in its annual report (Annual Report 2016: Wesfarmers Group).
The auditing of Woolworths has been done by Deloitte and the company provides a qualified auditing report as per the AASB standards and Corporations Act 2001 (Annual Report 2016: Woolworth Group). The Wesfarmers have also developed a qualified auditing report prepared by Ernst and Young in accordance with the Corporations Act 2001 (Annual Report 2016: Wesfarmers Group).
References
About Wesfarmers. 2017. Wesfarmers. [Online]. Available at: https://sustainability.wesfarmers.com.au/our-approach/about-wesfarmers/ [Accessed on: 23 September, 2017].
About Woolworth. 2017. Woolworth Group. [Online]. Available at: https://www.woolworthsgroup.com.au/page/about-us/our-brands/supermarkets/Woolworths [Accessed on: 23 September, 2017].
Annual Report 2016. Wesfarmers Group. [Online]. Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4 [Accessed on: 23 September, 2017].
Annual Report 2016. Woolworth Group. [Online]. Available at: https://wow2016ar.qreports.com.au/xresources/pdf/wow16ar-full.pdf [Accessed on: 23 September, 2017].
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