Analysis Of Equity, Debt And Cash Flow Statements Of Wesfarmers And Woolworths

Owners’ Equity

Corporate accounting is a branch of the accounting which deals with the preparation of the final accounts and the cash flow statements. The corporate accounting also deals with the analysis and the interpretation of the companies and the financial results and the accounting treatment of the events like the amalgamation. The companies like Wesfarmers and the Woolworths are of large volume and therefore it is necessary to observe the financial statements.

Owners’ Equity

Shareholder’s Equity
				Wesfarmers	Woolworths Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Share Capital
	Ordinary Share capital	22268	5615
	Other Equity Instruments
Reserves				190	113.8
Retained profits				1509	3797.2
				23967	9526

Ordinary Share capital

Ordinary share capital represents the equity of the company and the equity is comprised of the several components such as Share capital, reserves and the retained profits. The share capital of the Wesfarmers firm is $22268 and that of the Woolworths is $5615. From the results above it can be interpreted that the Wesfarmers has the greater share capital portion in relation to the Woolworths. The annual report downloaded showcases the huge difference in case of the Woolworths as the Equity raised from 5252.20 to 5615 in the year 2017.

On the other hand the ordinary share capital of the Wesfarmers accelerated from 21937 to 22268 (Wesfarmers, 2018).The possible reasons are the increase in the interest of the investors towards the share price of the company. Moreover in comparison to the market the sales growth have been 7.2% more in comparison to the previous year. Due to turnaround potential in case of the Woolworths the investors are investing more in the largest retailer company of the Australia.

Reserves

Reserves which are also known as the retained earnings are the portions set aside by the company in the anticipation of the fact that it can strengthen the position of the company. The reserves are generally are used for the purpose of the purchasing of the fixed assets to repay the debts or it funds the bonus and the expansion and the payment of the dividend. The reserves of the Wesfarmers are 190 and that of the Woolworths are 113.8, and in both the case the reserves have been increased (Woolworths, 2017).

Retained profits

Retained profits are the amount which has been earned till date less any dividends or the other amount of the distributions paid to investors. Undistributed profits generally club themselves in the company’s equity which is owned by the investors and the shareholders. There are different names for the same terms as the retained profits are also known as the accumulated or undivided profits. The major reason for the increase in the retained earnings is the increase in the amount of the revenue more than the ones that are expensed out and when the income is readily steady. The Retained profits of the Wesfarmers are $1509 and $3797 in case of the Woolworths (Wesfarmers, 2017).

Comparative Analysis

The comparative analysis of the shareholder equity will eventually give the company an analysis of the fact that how much portion of the share and the debt for the part of the capital structure and the funds which are invested by the investors and the shareholders (Campbell, 2015). The data presented in the report id of the past three years and in case of the Wesfarmers and the Woolworths the share capital of both the companies has increased overall from $22949 to $23941 and $8781.9 to $9876.21 respectively (Wesfarmers, 2018).

Comparative Analysis

Cash flow statements

Operating Activities

Operating activities fall under the category of the direct activities which have been a part of the business right from the start. In simpler words the ordinary activities are basically those activities which are associated with the supply of the goods and services to the market. The core activities such as procurement of the raw materials and the distribution and marketing are certain examples of the operating activities (McInnis, Yu and Yust, 2018).

Funds from operations

In the cash flow statement the amount form the funds from the operations the are used by the real estate investment trusts mainly represent the cash flow from the different and variety of the areas. The FFO is calculated by subtracting the profit on sale and the addition of the depreciation value (Talebnia, Jaberzadeh and Salehi, 2015).

Changes in the Working Capital

The working capital is basically the difference between the assets and the liabilities of the current nature. A change in the figure of the working capital reflects the decision making capacity of the investors and therefore it is very important to analyse the cash flow statements (Suzuki, 2015).

Net Operating Cash Flow

The net operating cash flow is the cash amount generated by the company to perform the normal activities of the business. The operating cash flow indicates whether the company is having the sufficient amount of the cash to maintain and grow its operations which may also be required for the purpose of the external expansion (Weber, 2018).

Investing Activities

The investing activities are basically those activities which are represented in the cash flow statement and report the aggregate change in the cash position of the company. The factors that help in determining the same are purchase of the machinery of the equipment, the gain or loss from the purchase of the investments and reflects the changes in the amount spent by the owners (Agrawal and Cooper, 2017).

Capital Expenditures

The capital expenditure of the company are the expenditures that will provide the long term benefits to the company and the benefits can be monetary as well as the non-monetary. The capital expenditure of the Wesfarmers have increased from -229 to -105 whereas in case of the Woolworths the same has been improved from -1910 to -1848 (Watson, 2015).

Net Assets from Acquisitions

The net assets from the acquisition is the basically the amount of the assets which have been purchased by the company instead of the stock. The net assets will assist the investors and the shareholders with the information of the net assets so that they can determine the amount of the assets and utilise the same instead of the inventory (Manova, Wei and Zhang 2015).

Sale of Fixed Assets & Businesses

The sale of the fixed assets is necessary and this is an item of the investing activity. The amount received from the sale of the fixed assets is a kind of an income for the company. Under the sale of the fixed assets it also involves the transfer of the business and the possession of the asset to another party (Ehrhardt and Brigham, 2016).

Cash Flow Statements

Purchase/Sale of Investments

Any change in the amount of the cash which is occurring due to the change in the purchase and sale of investments fall under the category of the investing activities. The investments are an assets which are taken for the purpose of securing the company if the company goes cashless. The right market price will fetch the right amount of the revenue in return (Borio and Disyatat, 2015).

Financing Activities

Financing activities are those activities which can be found in the cash flow statements that typically accounts for the external activities. It enables the firm to raise the capital. In addition to the raising of the capital the financing activities also involve in the process of the repaying the investors, issuance of more stock, and the addition and disbursement of loans are also some of the examples that fall under the umbrella of the financing activities.

Cash Dividends

Cash dividend is the amount which is paid to the stockholders, normally from the current earnings or the accumulated profits of the company. Not all companies are in favour of payment of the dividend. The decision of the dividend is taken by the board of the directors in lieu of whether the dividend is necessary or not (Firth, Gao, Shen and Zhang, 2016).

Common Dividend

A common stock dividend is the dividend is the amount paid to the common shareholders and the stockholders out of the normal profits incurred by the company. Under the scenario of the common dividends the method of the payment is either in the form of cash or stock. The dividend decides the reward associated with it. The higher the dividend, higher will be the reward. Therefore it can be inferred that there is a direct relationship between the dividend and the reward (Amess, Stiebale and Wright, 2016).

Long term debt

Having too much of the debt reduces the flexibility of the operations and reducing the long run can help a business proceed it in a long run. Long term is cumulatively inclusive of the borrowings and the payments. The prospective analysts are also interested in the debt component to gain an understanding the debt position of the company and whether it is able to pay back its debts on time utilising the income and assets.

Net Change in Cash

The net change in cash determines the rise and fall of the cash and the cash equivalents in the period of one financial year. the net change is calculated on the basis of all the adjustments made in the cash flow from different activities such as ordinary, investing and the financing.

Free Cash Flow

The free cash flow is a kind of a metric that depicts the ability of the company to generate the cash after paying off all the capital expense such as the buildings or the equipment. Once the cash is generated it can be sued for the various purposes such as the expansion, reduction of the debt by repayment and for other purposes as well such as tax payment (Free cash flow, 2017).

1. IV)

Cash flow Statements of Wes farmers					Cash flow Statement of Woolworths
	2018	2017	2016		Fiscal year is July-June. All values AUD Millions.	2018	2017	2016
Net Income before Extra ordinaries	407	2440	2689		Net Income before Extra ordinaries	1795	1593	-2311
Net Income Growth	-0.8332	-0.0926	–
					Net Income Growth	0.1268	1.6892	-2.0814
Depreciation, Depletion & Amortization	1296	1219	1123
Depreciation and Depletion	1162	1101	1033		Depreciation, Depletion & Amortization	1103	1061	1076
Amortization of Intangible Assets	134	118	90		Depreciation and Depletion	1085	1043	1053
Deferred Taxes & Investment Tax Credit	-347	6	-40		Amortization of Intangible Assets	18	18	23
					Deferred Taxes & Investment Tax Credit	98	122	-362
Deferred Taxes	-347	6	-40
					Deferred Taxes	98	122	-362
Other Funds	2179	11	-350
					Other Funds	-52	362	2075
Funds from Operations	3535	3676	3422
Changes in Working Capital	-170	115	-196		Funds from Operations	2944	3138	477
					Changes in Working Capital	-10	-12	1884
Receivables	-12	17	54
					Receivables	-142	3	29
Inventories	-444	-128	-266
					Inventories	-60	305	204
Accounts Payable	259	219	-91
					Accounts Payable	129	323	-172
Income Taxes Payable	-31	-106	-35
					Income Taxes Payable	28	45	-60
Other Assets/Liabilities	58	113	142
					Other Assets/Liabilities	35	-688	1882
Net Operating Cash Flow	3365	3791	3226
Net Operating Cash Flow Growth	-0.1124	0.1751	–		Net Operating Cash Flow	2934	3126	2361
					Net Operating Cash Flow Growth	-0.0614	0.3242	-0.2953
Net Operating Cash Flow / Sales	0.0511	0.061	0.0539
Capital Expenditures	-1899	-2239	-2233		Net Operating Cash Flow / Sales	0.0515	0.0568	0.044
					Capital Expenditures	-1848	-1910	-1983
Capital Expenditures (Fixed Assets)	-1794	-2010	-2111
					Capital Expenditures (Fixed Assets)	-1848	-1910	-1938
Capital Expenditures (Other Assets)	-105	-229	-122
					Capital Expenditures (Other Assets)	–	–	-45
Capital Expenditures Growth	0.1519	-0.0027	–
					Capital Expenditures Growth	0.0325	0.0368	0.0874
Capital Expenditures / Sales	-0.0288	-0.0361	-0.0373
					Capital Expenditures / Sales	-0.0324	-0.0347	-0.037
Net Assets from Acquisitions	-748	-339	-36
					Net Assets from Acquisitions	-38	-6	-23
Sale of Fixed Assets & Businesses	563	687	1017
Purchase/Sale of Investments	-1	80	2541		Sale of Fixed Assets & Businesses	372	481	737
					Purchase/Sale of Investments	–	–	-1
Purchase of Investments	-2	-44	-100
					Purchase of Investments	-251	–	-1
Sale/Maturity of Investments	1	124	2641
Other Uses	-47	-87	-337		Sale/Maturity of Investments	251	–	–
					Other Uses	–	–	–
Other Sources	–	–	–
Net Investing Cash Flow	-2132	-1898	952		Net Investing Cash Flow	-1514	-1435	-1270
Net Investing Cash Flow Growth	-0.1233	-2.9937	–		Net Investing Cash Flow Growth	-0.0551	-0.13	0.0513
Net Investing Cash Flow / Sales	-0.0324	-0.0306	0.0159		Net Investing Cash Flow / Sales	-0.0266	-0.0261	-0.0237
Cash Dividends Paid – Total	-2270	-2597	-2160
					Cash Dividends Paid – Total	-724	-541	-1185
Common Dividends	-2270	-2597	-2160
					Common Dividends	-724	-541	-1185
Change in Capital Stock	1	-860	-581
					Change in Capital Stock	–	56	108
Repurchase of Common & Preferred Stk.	–	-864	-585		Sale of Common & Preferred Stock	–	56	108
					Proceeds from Stock Options	–	56	108
Sale of Common & Preferred Stock	1	4	4		Issuance/Reduction of Debt, Net	-280	-1222	–
Other Proceeds from Sale of Stock	1	4	4
Issuance/Reduction of Debt, Net	936	208	-703		Change in Long-Term Debt	-280	-1222	–
Change in Long-Term Debt	936	208	-703		Issuance of Long-Term Debt	4	184	–
					Reduction in Long-Term Debt	-284	-1406	–
Issuance of Long-Term Debt	2360	930	888
Reduction in Long-Term Debt	-1424	-722	-1591		Other Funds	-56	-22	-32
Other Funds	–	–	–		Other Uses	-56	-22	-32
Other Uses	–	–	–		Net Financing Cash Flow	-1060	-1729	-1475
Net Financing Cash Flow	-1333	-3249	-3444		Net Financing Cash Flow Growth	0.3869	-0.1723	0.0844
Net Financing Cash Flow Growth	0.5897	0.0566	–		Net Financing Cash Flow / Sales	-0.0186	-0.0314	-0.0275
Net Financing Cash Flow / Sales	-0.0202	-0.0523	-0.0575		Exchange Rate Effect	–	-1	7
Net Change in Cash	-100	-1356	734		Net Change in Cash	360	-39	-377
Free Cash Flow	1571	1781	1115		Free Cash Flow	1086	1216	422
Free Cash Flow Growth	-0.1179	0.5973	–		Free Cash Flow Growth	-0.1069	1.8788	-0.6534
Free Cash Flow Yield	–	–	–		Free Cash Flow Yield	0.0093	–	–

Operating Activities

V) From the similar examination of both the organizations which are the Wesfarmers and the Woolworths, the investigation in the form of the comparative cash flow is essentially attempted to get an understanding of the financial performance between the factors more than at least two detailing periods. The most ideal approach to discover the situation in the market is to compare the market performance of both the firms and to provide a brief look over the cash flows. Besides there are numerous competitive strategies through which the benefit can be expanded but in certain situations the cash flows fails to solve the questions of the shareholders.

The monetary investigators not only compares the income statemnetas nf the balance sheet rather they additionally examine the cash flow and each of the category and different set of the activities which are the cash flow from the financing activities, the cash flow from the investing as well as the operating activities. The contrast between the various years can be accounted for, with the assistance of the correlation explanation and the information is additionally displayed in terms of the figures as well as percentages. Further the cash is the major criteria which will determine the position of each of the firms.

From the above comparison it can be stated that the cash flow statements of both the Wes farmers and the Woolworths are reported for the period of the three years and it can be interpreted that in case of the net cash the Woolworths have performed better but the firm is not having enough free cash flows left and the situation is vice versa in case of the Wesfarmers.

The net cash flows from the operating activities in case of the Wesfarmers is 3365 and that of the Woolworths 2934. The net cash from the investing activities is negative in case of the Wesfarmers which is -2132 and in case of the competitive bank the same has been -1514 which is less risky (Wesfarmers, 2018). Lastly from the financing activities the amount achieved is -1333 in case of the Wesfarmers and that of the Woolworths is -1060.

Comprehensive Income statement

1. VI) The statement of the comprehensive income depicts the items that may be reclassified to the profits or loss or the opposite of the same. The transactions of the special nature are recorded in the comprehensive income such as the foreign currency translation reserve, cash flow hedge reserve, and at last there is an adjustment of the retained earnings. The total income is distributed to the members of the parent. In case of the Wesfarmers the comprehensive income changed and improved form (78) to 18 and in case of the Woolworths the income fell down drastically from the 188.6 to 2.3. The tax component of the Wesfarmers is same and the Woolworths decreased from 1.7 to 1.0.

VII) The items of the comprehensive income is taken by the organisation to reflect the interest of the owners’ in the business. The Comprehensive income is normally listed separately which include the changes in the foreign currency translations and the other reporting incomes and the expenses. The tax component accumulated has also been shown.

In case of the smaller businesses these kind of the expense occur rarely and in case of the larger corporations the comprehensive income is reported differently to showcase the individual affect which gets merged if it has been added in the income statement.

VIII) From the above image it can be analysed that the total comprehensive income of the Woolworths is 1593.4 and that of the Wesfarmers is 2873. The comparative analysis is carried out to report the changes after infusing the accounting policies and the recording it separately.

Investing Activities

The retained earnings are defined under the items that are not required to be reclassified and this is same for the past two years in case of the Wesfarmers. The gain or loss on the hedging instruments is high in case of the Wesfarmers has transferred to the net profit. In comparison to Wesfarmers, Woolworths hedging reserve increased form (2.7) to 3.8.  If these items were presented in the income statement the amount of the net income will change and the investors will not be able to get the entire idea and reflection of each item as they have to be clubbed (Huang, Lin and Raghunandan, 2015).

1. IX) The comprehensive has its own set of the importance and it is usually to help the GAAP merge more closely whit the IFRS standards that require the presentation of the comprehensive income in the financial statements. Analysing the OCI can uncover other potentially major items and the performance of any manger or the supervisors are linked to the transparency they are able to maintain with their team internally and the clients externally. There is an indirect relation of the employee’s performance and henceforth, it is important to recognise the OCI (Graham and Lin, 2018).
2. Accounting for Corporate Income Tax

Accounting for Corporate Tax		Wesfarmers	Woolworths
Tax Expense	1265	650
Income tax expense		1265	650
Earnings before Tax	4402	2132.4
Effective Tax rate	29%	30%
Deferred Tax Assets/Liabilities (17)	971	372.3
2016		1042	497.7
Deferred tax assets increase
Increase/ Decrease	-71	-125.4
Income tax provision	1743	1470.6
Increase/Decrease in Deferred Tax	-71	-125.4
Total taxes	1672	1345.2
Other income	288	244.2
Tax paid on other Income	0.83	0.74
Unlevered Taxes	1671	1344
Earnings Before Income tax	4402	8661
Cash Tax Rate	38%	16%
Income Tax Provision	3960	1010
Deferred Tax	971	372.3
Total Taxes	4931	1382.3
Interest Income	2873	1593
Tax paid		8.26	4.86
Cash Tax Amount	4923	1377

X) The tax expenses represented in the last year of both the companies are A$1265 and A$650 respectively for the Wesfarmers and Woolworths (Faulkender, Hankins and Petersen, 2018).

1. XI) The effective tax rate of Woolworths is higher at 30% in comparison to the Wesfarmers (Creedy and Gemmell, 2017)

XII) The deferred tax expense can be utilized by the organization to diminish the assessable taxable income and it is appeared under the head of the current assets in the financial statement commonly known as balance sheet. Deferred tax liability on the other hand imposes obligation with a specific end goal to discover how much risk the organization will pay in future in view of the present changes (Kahng, 2015).

XIII) The deferred tax asset/liabilities of the Wesfarmers decreased by A$71 and the liabilities decreased by A$125.4 in case of the Woolworths.

XIV) The cash tax amount for the Wesfarmers is A$4923 and that of the Woolworths is A$1377 (Wesfarmers, 2018).

1. XV) The cash tax rate of the Wesfarmers is higher in comparison to the Woolworths at 38% (Wesfarmers, 2018). The cash tax rate of the Woolworths is 16%.

XVI) There are the temporary and the long term differences which occurred due to the practice adopted by the IRS of not equating the pre-tax and the pre taxable income in the books of accounts. Therefore there is a difference in the numbers. Short term difference results into the deferred tax whereas the permanent changes results in the effective tax rate.

Conclusion

From the above analysis it can be concluded that the financial statements and the cash flow analysis is necessary to get the  overview of the entire position of the company and with the assistance of the accounting and the corporate practice helps the investors to make the nice decisions before making the investment.

References

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Free cash flow, (2017) what is the free cash flow? 

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