The report aims to conduct the various aspect of the report associated to the construction of the top down analysis of Australia and bottom up analysis for Wesfarmers Limited and Woolworth Group. Some of the significant discussion on the top down analysis have stated on the overall assessment of the economic environment of Australia. The next discourse of the study has stated on the various types of the evaluation which are related to the stating of the direct impact of the performance of the companies in the industry selected for the study. Some of the various types of the other depiction of the information in the report is able to state on the significant nature of the reporting elements on the current interest rate and consideration of the current value of the AUD. It has been further able to state the present GDP along with the current inflation rate. The latter part of the top sown analysis is conducive in stating the various types of the important information which are seen to be taken into consideration for the business cycle in the currently operating economy.
The conduction of the bottom up analysis is stated with the various types of the depiction of the financial ratios comparison for both Wesfarmers Limited and Woolworth Group. The significant nature of the discussions of the report in this aspect is taken into consideration with the depiction of the accounting ratio such profitability ratio, market stock performance ratio, liquidity ratio and solvency ratios in the last two years.
The economy of Australia is considered as one of the highly developed economies in the world with the largest mix among the economies in the word with a total GDP of AUD 1.69 trillion as observed in 2017. In terms of the wealth the country is recognised as one of the wealthiest nations in the world in terms of the wealth per adult after Switzerland. This particular consideration is seen to be based on the various types of the depiction which are seen to be based on the facts which stated that the country is the 14th largest in terms of the national economy in terms of the nominal GDP. It is also considered as 20th largest in terms of the PPP adjusted GDP and was considered as the 25th largest exporter of the goods and 20th largest importer (Hatfield-Dodds et al. 2015).
In general, the economy of the country is seen to be depicted with the various types of the consideration which are based on the longest run for uninterrupted growth in the GDP. It is further depicted with the different types of the consideration for the GDP growth has been taken into account with the different types of the information which has been able to state on the significant assessment on the 103rd quarter and marked as 26 years since the country has a technical recession in the two consecutive quarters in the avocet of the negative growth. The significant measures of the aggregate economy have been seen to be taken into consideration with the significant nature of the depictions which are taken into account with the comprehensive measure of the activity from the national accounts. The recent release of the data in the annual national accounts is able to significantly state in the various types of the depictions of the information which are seen to be taken into consideration as per downward revision and the export volumes (Shahiduzzaman and Alam 2014). The quarterly growth of the GDP depictions is stated as follows:
Figure: Year ended and quarterly GDP of Australia
(Source: Economic 2014)
The important assessment on the economy of has been further able to reveal that the present policy interest rate of the country was 1.50 as per the census data of 2016. This was identified as a decrease in compared to the previous year’s interest rate which is seen to be based on the several types of which is seen to be based on the significant nature of the depiction which has showed a policy interest rate on 2% in 2015 and 2.5% in 2014. Out of the total population 24.3 million in 2016, the GDP per capita income of the company is depicted with the $ 51878. The total GDP in USD in 2017 is further depicted to be 1260 million (Settre and Wheeler 2016). The overall basement of the Australian economy data is shown below as follows:
Figure: Australian Economy Data
(Source: FocusEconomics 2018)
The Australian economy is considered to be mostly dominated with the service sector with 61.1% of the total GDP which has been seen to be employing a total of 79.2% of the total labour force in Australia in 2016. The East Asia is considered with the various types of the depictions which are seen to be assessed as per the significant nature of the discussions associated to the highest total natural resources valued at USD 19.9 trillion. In compared to the USD the ADU is presently valued at 0.74 USD in exchange of 1 AUD. The particular consideration of the retail sector in Australia it has been seen to be discerned that the country is made improvements with doubling of retail sales growth by 0.6% in February. It is also seen that the various type of the recording of the growth is able to state on the considerable level of the information which are seen be directly related to the various type the speculations considered with the retail spending increasing in February 2017. The information published by the “Australian Bureau of Statistics (ABS)” have sated that the retail sales grew by 0.6% to $ 24.45 billion in the seasonally adjusted terms and doubling of the various amounts related to the median economist forecast which was seen with an increase of 0.3%. This is discerned with 0.1% increase from 0.2% in the previous year. These results have bee seen to depict the various type the important increment considered with increasing of the data in January. Due to this the net result was seen to be depicted with a total increase of the annual retail sales from 2.1% to 3%. This is depicted with the fasts increase since July last year (Woolworthsgroup.com.au. 2018).
The present information on the inflation rate of the country has been depicted as 1.8% annually and 0.6% quarterly as per the report results depieced in the September quarter 2017. It is also seen that the overall recessions did not assist in reducing the inflation rate expectation which are seen to be taken into consideration as per the different types of the evaluation of the data for the present data.
Figure Australia’s annual inflation rate (percentage change in CPI) since 1949
(Source: Statista 2018)
The depiction of the business cycle in Australia have stated that the unemployment rate in the country has considerably increased in the past few years. The is further depicted to be consistent with the various types of the evaluation of the information which is seen to be based on the growth in the financial year however there is significant nature of the increase in various types of non-mining activities. The unemployment rate of the country has been shown the diagram as follows:
Figure: Unemployment rate in Australia
(Source: Economic 2014)
The conduction of the financial performance of the company is performed with the evaluation of the various types of the finical ratios which are seen to be segregated in form of Profitability ratios, efficiency ratios, short term liquidity analysis, solvency ratio and solvency. These ratios have been used to conduct the analysis of the financial performance of the Woolworth limited. To compare the various types of the depiction with similar player in the industry the main company is considered with Wesfarmers Limited which is a competitor of Woolworth and seen to be holding a significant position in the in the retail sector. The evaluation of the profitability ratio is seen to be based on the depictions of the “Net Profit margin, return on equity and return on assets” (Titman, Keown and Martin 2017).
Based on the interpretations of the net profit Woolworth is having a slightly better net profit in compared to Wesfarmers. This is seen to be considered with the improvement in the net profit margin from 1.36% in 2016 to 2.56 in 2017. On the other hand, Wesfarmers has improved the net profit from 1.42% in 2016 to 2.23% in 2017. The return on equity is depicted in terms of massive improvement in compare to the previous year. The Wesfarmers on the contrary has demonstrated only a slight improvement in compared to the previous year. It needs to be further seen that the various types of the evaluations on the increasing return on equity is seen with -58.82% in 2016 to 92.74% in 2017 (Finkler et al. 2016). The increasing ROE has suggested that Woolworth is able to significantly able to maximize the investment on equity. It is also seen that the increase in return on assets for the company is depicted with an increase of 3.09% to 6.21%. The improving nature of the return on assets has further suggested that the company has been able to perform the varies type the depiction which are related to effective use if the assets (Wesfarmers.com.au. 2018). On comparing the data to the industry standard, it is able to infer that return on assets for Wesfarmers has increased only from 4.09% to 6.39%.
The assessment of the efficiency ratio of the company is evaluated as inventory turnover ratio and total asset turnover ratio. The inventory turnover ratio is used to depict the effective management of the inventory and comparing cost of goods sold with thee average considered for a period. It needs to be further determined that Woolworth was significantly able to increase the inventory turnover from 2016 to 2017. This is identified as a positive trend for the company. It needs to be further discerned that on comparing the inventory turnover with Wesfarmers limited it is depicted that it performed rather poorly in terms of the managing the inventory efficiently. The increasing nature of the inventory turnover ratio has suggested that it took more amount of time for Wesfarmers to replenish the inventory. This is evident with inventory turnover ratio of 1.43 in 2016 which further reduced to 1.39 in 2017 (Moutinho and Vargas-Sanchez 2018).
The depiction on the total asset is calculated by dividing the revenue with total assets. This ratio evaluates on the efficiency of the company to utilise the assets in maximizing the revenues. This consideration is able to suggest on the suggest that Woolworth group is in a better position in compared to Wesfarmers Limited. On the other hand, the total asset turnover for Wesfarmers is seen to be depicted in form of the slightly increasing nature of the total asset turnover ratio. This aspect is evident with the increase in the total asset from 1.62 in 2016 to 1.71 in 2017 (Zietlow et al. 2018).
The various depictions made on the short-term liquidity analysis of the company is seen to be based on the different types of the evaluations which are seen to be based on the computation of the current ratio and quick ratio. The depiction of the current ratio of the company shows that the ability of the company to finance short time liability has decreased over time. On comparing this information with the industry standard, it is determined that other company such as Wesfarmers has been seen with the constant current ratio. The quick ratio has remained same in both the years for the company. However, Wesfarmer is able to improve on the quick ratio aspect. This is evident with a quick ratio of 0.21 in 2016 which increased to 0.25 in 2017 (Petty et al. 2015).
The solvency ratio of the company is depicted with the evaluation of the debt equity ratio and debt to total assets ratio. Based on the significant nature of the outcome on the debt equity ratio the company is seen to be in a risky position. This is evident with a debt equity ratio of 8.5 in 2017. This shows the dependency of Woolworth in the long-term borrowing to support the owner’s equity. In addition to this, on comparing the results with the industry analysis it needs to be discerned d that the various types of the depiction on the debt equity ratio for Wesfarmers Limited has shown hugely better results. Bases on the interpretation of the debt equity ratio of the Wesfarmers Limited it is depicted to main a debt equity ratio of 0.44 in 2017. This shows that company’s minimum reliance on the long-term borrowings to support the equity of the company. This also shows that the competitors company is in a less risky position that the predecessor. Some of the other depiction performed with the evaluation of the debt to total assets ratio is able to show the reliance of the company on the debt to support the assets. The significant nature of the evaluation based on this aspect has been able to show that the company is performed poorly in terms of the industry assessment.
The top down analysis has suggested on the consideration for the GDP growth which has been taken into account with the different types of the information which is able to state on the significant assessment on the 103rd quarter and marked as 26 years since the country has a technical recession in the two consecutive quarters in the avocet of the negative growth. The important assessment on the economy of has been further able to reveal that the present policy interest rate of the country was 1.50 as per the census data of 2016. This was identified as a decrease in compared to the previous year’s interest rate which is seen to be based on the several types of which has been seen to be based on the significant nature of the depiction which has showed a policy interest rate on 2% in 2015 and 2.5% in 2014. The assessment on the profitability ratio has been suggested with the various improvement in the profitability and efficiency ratios. However, the performance of Woolworth was not impressive in terms of the liquidity ratio and solvency ratio.
The interpretation made in the report has been able to state that Woolworth needs to reduce its reliance on the long term borrowing to support the operating activities. It needs to be further discerned that in order to improve the present situation of the current assets, Woolworth needs to inject more liquid funds. This will be able to significantly improve the current ratio and the quick ratio of the company. The various types of the other investing recommendations to the Woolworth Group is based on the investing in long term government bonds. In addition to this, it should prevent itself from borrowing any loan in the future.
References
(Economic), C. (2014). The Business Cycle in Australia | Speeches | RBA. [online] Reserve Bank of Australia. Available at: https://www.rba.gov.au/speeches/2014/sp-ag-131114.html [Accessed 16 May 2018].
Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.
FocusEconomics | Economic Forecasts from the World’s Leading Economists. (2018). Australia Economy – GDP, Inflation, CPI and Interest Rate. [online] Available at: https://www.focus-economics.com/countries/australia [Accessed 16 May 2018].
Hatfield-Dodds, S., Schandl, H., Adams, P.D., Baynes, T.M., Brinsmead, T.S., Bryan, B.A., Chiew, F.H., Graham, P.W., Grundy, M., Harwood, T. and McCallum, R., 2015. Australia is ‘free to choose’economic growth and falling environmental pressures. Nature, 527(7576), p.49.
Moutinho, L. and Vargas-Sanchez, A. eds., 2018. Strategic Management in Tourism, CABI Tourism Texts. Cabi.
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.
Settre, C. and Wheeler, S.A., 2016. Environmental water governance in the Murray-Darling Basin of Australia: the movement from regulation and engineering to economic-based instruments. In Handbook of Environmental and Sustainable Finance (pp. 67-91).
Shahiduzzaman, M. and Alam, K., 2014. Information technology and its changing roles to economic growth and productivity in Australia. Telecommunications Policy, 38(2), pp.125-135.
Statista A. (2018). Australian inflation rate 2022 | Statistic. [online]. Available at: https://www.statista.com/statistics/271845/inflation-rate-in-australia/ [Accessed 16 May 2018].
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.
Wesfarmers.com.au. (2018). [online] Available at: https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0 [Accessed 16 May 2018].
Wesfarmers.com.au. (2018). [online] Available at: https://www.wesfarmers.com.au/docs/default-source/default-document-library/2016-annual-report.pdf?sfvrsn=0 [Accessed 16 May 2018].
Woolworthsgroup.com.au. (2018). [online] Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed 16 May 2018].
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Zietlow, J., Hankin, J.A., Seidner, A. and O’Brien, T., 2018. Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.
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