The Impact Of Sustainability Disclosures On Market Performance: A Study Of Hang Seng Index Constituent Stocks And The Relationship Between Sales And Financial Performance Of Woolworths Australia

Extent of sustainability reporting among Hang Seng Index constituent stocks

This research is aimed to investigate the impact of sales on the financial performance of firms, taking into consideration the special case of Woolworths Australia. The main motive of the private firms is to maximize the profit of the firm. According to the scholars, there are mainly two different ways through which the profit can be maximized(Khan, Naz, & Khan, 2013; Makhijani & Creelman, 2011; Malgwi & H. Dahiru, 2014). The first one is to increase the revenue and the sales is the most important factor which determines the revenue of any company. The second method is to reduce the cost of the production. However in some cases there is no scope to reduce the costs as there is high competition in the market and the firms cannot take the risk of losing the market by producing the low quality products or services(M. S. Ahmad, 2012; Garg & Ramjee, 2013). The prices are assumed to be fixed and determined by the supply and demand as there are high number of buyers and sellers in the market. Therefore, the sales are one of the most important factors for any firm whether it is a manufacturing firm or a service firm(Wanyonyi & Tobias, 2013; Yusuff, 2011).

On the other hand the current research is focused on analyzing the financial performance of the firm. The financial performance of a firm, depends on various internal and the external factors. The internal factors includes the sales of the product and services, cost of production, marketing strategies, investments, cost of productions, return on investments, profits earned by the firm etc(Alasadi, 2007; Yusuff, 2011). On the other hand the external factors includes the economic condition of the country, the global economy and the completion in the market(Shukla et al., 2013; Unctad, 2008). For the current research the financial performance of the selected firm has been measured in terms of the Earnings before Interest and Taxes (EBIT), which has been used as the indicator of the financial performance in many previous research also(Ghazouani, 2013; Mishra, 2011)(Mburu & Kagiri, 2013; Nedunchezhian & Premalatha, 2013; Wabwile, Chitiavi, Douglas, & Alala, 2014).

The current research where the main objective is to examine the impact of sales on the financial performance of the Woolworths Australia is significant both in terms of academic purpose and practical purpose also. The results from the current research can be used by the firms to examine the extent of the impact of sales on firms on the basis of which the marketing managers can strategize their marketing models. This will also help the managers not only in Woolworth but also in other similar firms to make more efficient marketing strategies based on the results(De Geuser, Mooraj, & Oyon, 2009; Shehu, 2014). If the sales do not show significant impact then the firms can reduce the advertisement costs and other marketing costs and focus more on cost reduction rather than increasing sales to improve the financials of the firms. On the other hand if the results shows positive impact then the managers can focus on increasing the sales through different channels(Boohene, Agyapong, & Gonu, 2013; KwabenaAdjei & Denanyoh, 2014). It has been shown in the previous research also that sales have positive and significant impact on the firms, however this research is only on particular firm and the results will be very specific to this firm. On the other hand the researchers can use the research method and data from the current research in future research also.

Relationship between sustainability reporting and industry

The current research is aimed to examine relationship between the sales and the financial performance of Woolworth.

On the basis of the research aim, following research question can be proposed:

Do increase in sales leads to higher EBIT in case of Woolworth?

Hypothesis:

H0: There is no significant relationship between sales and EBIT.

H1: There is significant relationship between sales and EBIT.

In this section some of the existing literature in the similar area has been discussed. The literature review helps the research to study the existing research which provides an overview about the topic, research methods used in the topic and the findings from the previous research.

A study by (N. Ahmad, Salman, & Shamsi, 2015) examined the impact of revenue and debt on the profitability of the firm’s performance. For the analysis purpose the secondary data for the time period 2005 and 2010 has been used. Results from the study shows that the profitability and the debt are negative correlated, whereas the revenue shows positive and significant impact on firm’s performance. Similarly (Anca & Marin, 2011) investigated the relationship between cost profit and price. On the basis of the analysis authors concluded that the management of the firms plays important role in the cost and profit in the firm. However the results are based on the qualitative study so there is no statistical back up for the results. Another study by (Mahdavi, Moghaddam, & Alipour, 2012) examined the relationship between the cost, revenue and the profitability for the Iranian firms. The data was collected for the time period 2006 to 2009. On the basis of the analysis, authors have found that there is statistically significant relationship exists between the total revenue and the profits of the company. Similarly the relationship between cost and profit is also significant however the relationship is negative. Apart from these, other scholars have also examined the relationship between sales and profit/EBIT(Singh, Sharma, & Mahendru, 2011).

Research methodology is the vital part of any research. It consists all the methods and techniques used in the research to answer the proposed research question and also test the hypothesis. In the current research also a particular research methodology has been followed.

Research methods

Various scholars have defined research methods in different way. One of the most popular definition was given by (Sauders, 2009). According to the author research method is “general plan of how the researcher will go about answering the research questions”. There can be different research methods such as the exploratory research method, explanatory research method and the descriptive research methods. In this research since the variables are defined and the relationship of the variables is to be tested, the explanatory research method will be used(Flick, 2011; Rajasekar, Philominathan, & Chinnathambi, 2013).

There are majorly two types of research approach which are used for any research. The first is the qualitative research. In case of the qualitative research the exploratory research method is used. It is used when the research wants to have the indepth knowledge of the particular area and uncover the thoughts, trends and opinions on the topic. The data for the qualitative study is in the form of text, image, audio, video etc. To collect the qualitative data, the open ended questionnaire is used and personal interviews or focus group discussion are used to collect the required data(Johnson & Onwuegbuzie, 2004; Rocco, Linda, & Perez-Prado, 2003; Vargas-hernández, Leon, & Valdez, 2011).

Correlations between sustainability reporting and market performance

On the other hand the quantitative approach is widely used by researchers to quantify the given problem statements. In this type of research the numerical data is used and various tools and techniques is used to transform the collected data into meaningful statistics. The data in this research is in numerical form. To collect the primary data for quantitative study one can use the close end questionnaire while conducting the primary survey(Jonker, J. and Pennink, 2010; Kumar, 2014; Rajasekar et al., 2013; Vargas-hernández et al., 2011).

In this research, since the main aim is to analyze the relationship of the two variables, the quantitative research approach has been used. The data is also in the numerical form, so quantitative approach is most appropriate.

For any research data plays an important role. The results and interpretations of the results are all dependent on the data. If the correct and appropriate data set is used, then only meaningful conclusions can be made. There are broadly two types of data sources which can be used by the researches. The first is the primary data which is also known as the first hand data. As the name suggests this type of data is collected by the researchers themselves as per the requirements of the study. To collect the primary data one can either conduct the primary survey of conduct the personal interviews. Since, the data is collected as per the requirements there is no problem of missing data or the appropriate data for the research. However, the data collection requires efforts and resources which can be very costly. The second type of the data is the secondary data which is already collected by someone else. The major sources of the secondary data are the published books, working papers, journals, government websites, company reports etc. The secondary data are less costly as compared to the primary data, however availability of the appropriate data is a challenge(Barreiro & Albandoz, 2001; Cierniak & Reimann, 2011; Gliner & Morgan, 2000).
For the current research the secondary data has been used. The sales data and the EBIT data for the selected company has been extracted from the company’s annual reports. The time period taken into consideration for the analysis is between 2000 and 2018.

For the current research two different types of analysis has been conducted. The first one is the descriptive statistics. The descriptive statistics includes the mean, standard deviation, median, Skewness kurtosis and the minimum and the maximum value of both the variables. The second type of the analysis is the inferential analysis and for the inferential analysis correlation analysis has been performed. The correlation analysis is used to examine the relationship between the two variables.

The two variables included in the current research are as follows:

The first variable included in the analysis is sales which is also the independent variable for the study. As per the annual report of the company following items are included while calculating the total sales for WoolWorth:

• Australian food
• Endeavour Drinks
• New Zea Food
• BIG W
• Hotels
• EziBuy

These are included in the continuing operations. Apart from these there are some discontinued operations for which the sales has been calculated for Fiscal year 2018(Woolworths Group Ltd, 2018). This includes:

• Home Improvement
• Petrol  

The second variable included in the study is the EBIT, which has been used as the indicator of financial performance of Woolworth(Heenetigala & Armstrong, 2011; Wabwile et al., 2014). The EBIT for Wooworth is calculated using the following method.

The cumulative amount for the earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) is given. From this the rent paid is deducted to get the Earnings before interest, tax, depreciation and amortisation (EBITDA). Furthermore from the EBITDA the value of depreciation and amortization is deducted to get the final value of EBIT.

The findings from the data analysis has been shown in the current section. In the first section the findings from the descriptive statistics have been shown. Furthermore, in the second section the inferential analysis results have been presented.

The descriptive statistics is used by researchers to get an overview of the collected variables. In this case also the various measures of central tendencies and distribution measures have been examined.

Net Sales		EBIT
Mean	44899.10526	Mean	2284.653
Standard Error	3519.499867	Standard Error	250.7387
Median	49595	Median	2563.8
Mode	#N/A	Mode	#N/A
Standard Deviation	15341.14425	Standard Deviation	1092.945
Sample Variance	235350706.9	Sample Variance	1194528
Kurtosis	-1.456511735	Kurtosis	-1.27784
Skewness	-0.45270502	Skewness	-0.17314
Range	41490.1	Range	3351.5
Minimum	20019.9	Minimum	621.6
Maximum	61510	Maximum	3973.1
Sum	853083	Sum	43408.4
Count	19	Count	19

Table 1 Results from the descriptive statistics

As shown in the table above the mean sales of the Woolworths is  $44899.10 million for the time period 2000 – 2018 with the standard deviation of 15341. This shows that the variation in the data set is very high. One reason for high variation is may be because of the long time period taken into consideration. There has been continuous growth in the sales of woolworths so there is high variation. The minimum and maximum value of 20019 and 61510 respectively, clearly shows the higher variations.

Similarly, the results from EBIT show that the mean value is $2284 million with standard deviation of 1092.94. As discussed, in this case also there is higher variation. The minimum EBIT is $ 621.6 million and maximum values is $3973.1 million. This indicates that the company has achieved high growth between the year 2000 and 2018(Woolworths Group Ltd, 2018).

Scatter plot between EBIT and Net Sales

The graphical representation of the relationship between the EBIT and the sales is shown in the figure above and the results shows that the scatter plot is upward sloping, which indicates that there is positive relationship between the two variables. In other words if the sales increases the earnings before interest and taxes (EBIT) also increases. However it should be noted that the positive relationship does not necessarily implies that the increase in the EBIT is due to the increase in sales.

Trend of sales for Woolworth for the time period (2000 -2018)

As the figure shows there has been continuous increase in the net sales over the period of time.  However after 2013 the growth rate in the sales is almost constant. There may be various factors which lead to such scenario.

Trend in the EBIT for Woolworth for the time period (2000 – 2018)

As shown in the figure above there has been continuous increase in EBIT till 2011 and there has been some slope in 2012. Also after 2015 there is declining trend in the EBIT.

Inferential analysis

Results from the inferential analysis have been discussed in this section..

The correlation analysis is one of the most popular techniques used to analyze the relationship between selected variables. In this case the variables taken into consideration are sales data and the EBIT of the firm.  The correlation values lies between -1 & +1. If the correlation coefficients are close to lower range then it can be said that the two variables are negatively related. On the other hand, coefficient in higher range of close to +1, then there is positive and strong relationship between the variables.

Total

	Net Sales	EBIT
Net Sales	1
EBIT	0.938826	1

Table 2 Results from the correlation analysis for entire time period

As shown in the table above, the correlation between sales and EBIT for the entire time period (2000-20180 is 0.93. This indicates that there is strong and positive relationships between the two values. This is also logically true. If the sales increases then the total revenue for the company also increases. With increase in the revenue and assuming that the costs do not increase with same rate, the EBIT increases. EBIT is total revenue minus the total costs.

Between 2000-2005

	Net Sales	EBIT
Net Sales	1
EBIT	0.995246	1

Table 3 Results from the correlation analysis for 2000-2005

Furthermore, the correlation analysis for the time period 2000-2005 shows that the correlation coefficient is 0.99, which indicates that there is very strong and positive relation between sales and EBIT. In this period increase in net sales and increase in EBIT have almost the same rate. However it should be noted that the correlation does not necessarily implies the causation.

Between 2006- 2010

	Net Sales	EBIT
Net Sales	1
EBIT	0.996649	1

Table 4 Results from the correlation analysis for 2006-2010

The correlation of the same variables for the time period 2006- 2010 also shows very strong and positive correlation as the coefficient is 0.99. This is also time period of the global financial crisis. However, for Coolworths both the net sales and EBIT do not show any decline in the crisis year.

Between 2011 – 2015

	Net Sales	EBIT
Net Sales	1
EBIT	0.806143	1

Table 5 Results from the correlation analysis for 2011-2015

In the table above the results for the correlation between sales and EBIT has been shown for the time period 2011-2015. The results show that the correlation coefficient is 0.80 which indicates strong and positive correlation between the two variables. However comparing to other time period, the correlation coefficient is less. Indicating that the net sales and the EBIT moves in the same directions, but not as the same rate as in other time periods.

Between 2016-2018

	Net Sales	EBIT
Net Sales	1
EBIT	0.949984	1

Table 6 Results from the correlation analysis for 2016-2018

The last correlation coefficient is for the time period 2016 – 2018 which shows that the correlation coefficient is 0.94. So, the correlation is strong and positive in this case also.

H0: There is no significant relationship between sales and financial performance.

H1: There is significant relationship between sales and the financial performance.

On the basis of the results from the correlation it can be concluded that there is significant relationship between sales and EBIT. So, the null hypothesis can be rejected in favor of the alternative hypothesis.

Conclusion 

The main aim of the current research was to examine the relationship between the sales and the EBIT taking into consideration the company Woolworth. For the analysis purpose the secondary data collected for the year 2000 – 2018 and both the descriptive and inferential analysis was conducted to examine the relationship. The results from the descriptive statistics shows that there is continuous increase in both the sales and EBIT for the entire period. Furthermore, the results from the correlation analysis shows that there is positive and strong relationship between the two variables for different time periods. Similar scholars have also examined the relationship between the sales and ebit in different perspective(Kanwal, Khanam, Nasreen, & Hameed, 2013; Lwiki, Ojera, & Mugenda, 2013). Some scholars have taken into consideration other factors as the indicator of profit, whereas some scholars have examined the relationship between marketing strategies, profit and the sales. Most of the research have found positive and strong relationship between sales and profits(Chaudhary, 2014; Herri, 2011; Opler & Stulz, 1999). So, the findings from the current research are in line with the results from the previous studies(N. Ahmad et al., 2015; Anca & Marin, 2011; Mahdavi et al., 2012).

The research question proposed in the current paper was to examine the relationship between the sales and the financial performance. Results from the correlation analysis show that there is positive and significant relationship between the two variables.

Every research have some limitations and same applies to the current research. One of the main limitation is that the entire research is based on only one company, so the results cannot be generalized. Also for the analysis purpose, only the quantitative analysis was used and there is no qualitative analysis in the research. The sample size taken into consideration is also very less. In terms of analysis techniques only the correlation analysis has been conducted which do not clearly shows the impact. However, further studies can be conducted to overcome the limitations of the research. Similar study can be conducted on other firms or group of firms with larger sample size. Furthermore the regression analysis can be conducted to examine the actual impact of sales on the financial performance of the company.

On the basis of the findings from the analysis following recommendations can be made:

• The findings from the correlation analysis has shown strong relationship between sales and the financial performance, so the Woolworth should focus on increasing the sales to improve its performance.
• To increase the sales the company can offer the discount on some particular products whose sales have declined.
• Both online and offline marketing strategies should be implemented to improve the sales. The use of the social media for marketing has become one of the most popular methods in the recent time.

Apart from the sales, the company should also focus on reducing the cost, so that the financial performance improves furthe

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