Homework Instructions (1000 words report)
Select a company that is currently listed on the ASX. Write a Financial Analysis Report that interprets the company’s most recent annual report. This report will need to be written for a stakeholder (external investor or internal manager).
Research additional information beyond the annual report about the company’s performance. Use the group financial results if the annual report presents financial results for the group and parent company.
Justify the selection of financial and non-financial performance indicators that are relevant for evaluating the company’s financial performance.
Use a formal language and structure of your report. Refer to Resource A below. Include relevant non-financial analyses. Refer to Resource B below to check the report covers all questions.
Resource A – Financial Analysis Report Content
Executive Summary
The executive summary should be approximately 10% of total word count. It provides a background of the company chosen, the main business activities and the purpose of the Financial Analysis Report.
Analysis
Analysis will present and discuss the financial results and performance indicators extracted from the company’s annual report.
A concise commentary should explain the significant changes in the financial results.
Interpretation
The interpretation should be approximately 70% of total word count. Interpret the causes of the changes in the company’s financial performance. Justify the inclusion of financial and non-financial performance indicators in the Financial Analysis Report.
Research additional non-financial performance indicators from a wider range of sources beyond the company’s own publications.
Discuss the company’s business activities and the financial implications of the activities. Apply financial and non-financial performance indicators to explain trends and issues in the company’s financial results.
Conclusion
The conclusion should be approximately 20% of total word count.
State a clear recommendation that addresses the decision-making needs of a stakeholder. For example, recommend a decision to invest or not invest in the company if the Report is written for a potential shareholder. Or, recommend a decision to improve the financial performance of the company if the Report is written for an internal manager.
Justify recommendations by explaining how it will meet the needs of the stakeholder.
Executive summary:
The shareholders and inventors of the company are interested to understand the financial position of the company as their investment decisions are based on how a company has performed in a particular year. In this case, with reference to financial ratio analysis, the financial position of Woolworths Group Limited is evaluated. The company is in the business of providing supermarket business services through retail and wholesale stores. The company also has subsidiary companies who are engaged in the business of wine distribution and hotel chain. However, considering the position o the company, it has been found that it will be beneficial for the investors to invest capital in the business in long run instead of the short term.
Financial analysis of Woolworths Group Limited:
Financial data of company:
The below table, donates the balance sheet, cash flow statement, and profit and loss statement of the company for a period varying from FY 2017 to FY 2020. On the basis of below data it can be said that there have been fluctuations in the financial statements of company.
($,000) | ||||
Particulars | 2020 | 2019 | 2018 | 2017 |
Income statement | ||||
Revenue | 63,675,000.00 | 59,984,000.00 | 56,726,000.00 | 55,668,600.00 |
% change | 0.06 | 0.05 | 0.02 | 1.00 |
Gross profit | 18,570,000.00 | 17,442,000.00 | 16,470,000.00 | 15,928,900.00 |
% Change | 0.06 | 0.06 | 0.03 | 1.00 |
Net profit | 1,165,000.00 | 2,693,000.00 | 1,724,000.00 | 1,533,500.00 |
% Change | (1.31) | 0.36 | 0.11 | 1.00 |
Balance Sheet | ||||
Assets | 38,472,000.00 | 23,491,000.00 | 23,558,000.00 | 22,915,800.00 |
% Change | 0.39 | (0.00) | 0.03 | 1.00 |
Liabilities | 29,440,000.00 | 12,822,000.00 | 12,709,000.00 | 13,039,700.00 |
% Change | 0.56 | 0.01 | (0.03) | 1.00 |
Equity | 9,032,000.00 | 10,669,000.00 | 10,849,000.00 | 9,876,100.00 |
% Change | (0.18) | (0.02) | 0.09 | 1.00 |
Cash flow | ||||
Cash flow from operating activities | 4,561,000.00 | 2,948,000.00 | 2,930,000.00 | 3,122,000.00 |
% Change | 0.35 | 0.01 | (0.07) | 1.00 |
Cash flow from investing activities | (1,945,000.00) | (246,000.00) | (1,510,000.00) | (1,431,400.00) |
% Change | 0.87 | (5.14) | 0.05 | 1.00 |
Cash flow from financing activities | (1,612,000.00) | (2,917,000.00) | (1,060,000.00) | (1,729,300.00) |
% Change | (0.81) | 0.64 | (0.63) | 1.00 |
Calculation of profitability ratios of Woolworths Group Limited | |||||
Particulars | Formula used | 2020 | 2019 | 2018 | 2017 |
Net profit ratio | Net profit / Sales | 2% | 4% | 3% | 3% |
Return on equity ratio | Net profit / Net worth | 13% | 25% | 16% | 16% |
Return on assets ratio | Net profit / Total assets | 3% | 11% | 7% | 7% |
Return on capital employed ratio | Net profit / Capital employed | 4% | 21% | 14% | 12% |
Profitability ratios of company, helps the shareholders or investors to understand whether the company will be able to earn and distribute profit to them. On the basis of above ratios, it can be said that there has been huge decline in the profitability of company as the net profit ratio, return on equity has declined (Daryanto, 2020). This is because, the percentage increase in revenue is way less than percentage decrease in net profit of the company. Also, this is majorly because of increase in cost of revenue, hence company needs to work to control the cost of goods sold. This shows that investing in this company, investors might have lower amount of return as compared to the return offered by market.
Calculation of liquidity ratios of Woolworths Group Limited | |||||
Particulars | Formula used | 2020 | 2019 | 2018 | 2017 |
Current ratio | Current assets / Current liabilities | 0.62 | 0.73 | 0.78 | 0.79 |
Quick ratio | Quick assets / Current liabilities | 0.28 | 0.23 | 0.32 | 0.33 |
Liquidity ratios of company are calculated to understand to capacity of company to discharge its current liabilities. In this case, the current ratio of the company has declined because the percentage increase in current assets is 29% while the current liabilities has increased by 53% in comparison to previous year. Hence, this declines the capacity of company to discharge its current liabilities. Though, quick ratio has increased, because quick assets have increased by 83%. As quick ratio is a better measure to understand the liquidity as it excludes inventory, it can be said, that liquidity position of company is decent.
Calculation of efficiency ratios of Woolworths Group Limited | |||||
Particulars | Formula used | 2020 | 2019 | 2018 | 2017 |
Trade receivables turnover ratio | Revenue / Average trade receivables | 125.10 | 134.80 | 136.61 | 116.14 |
Working capital turnover ratio | Revenue / Average working capital | -17.24 | -27.66 | -29.51 | -17.76 |
Fixed assets turnover ratio | Revenue / Average fixed assets | 2.68 | 3.57 | 3.51 | 2.61 |
Total assets turnover ratio | Revenue / Average total assets | 2.06 | 2.55 | 2.44 | 1.95 |
Efficiency ratios are calculated to understand, whether the company is able to generate revenue from the assets held by company. In this case, there is a decline in efficiency ratios of company this is because the increase in revenue is around 6% while the average trade receivables has increased by 14%, i.e. the efficiency of company has decreased and company is required to revise its credit policies allowed to their debtors. This will be beneficial for investors to create value on the invested capital in this company.
Calculation of gearing ratios of Woolworths Group Limited | |||||
Particulars | Formula used | 2020 | 2019 | 2018 | 2017 |
Debt capital ratio | Total debt / total assets | 0.49 | 0.13 | 0.12 | 0.13 |
Debt equity ratio | Total debt / total equity | 2.07 | 0.29 | 0.26 | 0.31 |
Gearing ratios in a company are calculated to understand the proportion of company in debt and equity i.e. how the company arranges its finance. In this case, the gearing ratios have increased because the there is an increase in debt of company while the equity of company has seen a decline. Hence, this reflects that the company is more relied on debt which is not a positive attribute for the shareholders and investors of company (Sobkow, Garrido, & Garcia-Retamero, 2020).
Non-financial analysis:
Non-financial analysis is about the other factors which have impacted the company in the reporting year. In this case, the company have observed immense growth in their supermarket sector, however, the gain in supermarket was set-off by loss in hotel industry as due to lockdown company to close a number of chain of their hotel industries. Also, the company has launched new websites to promote their e-commerce, online business as a respond to pandemic (Lindström, 2020). The company has tried their best to provide safe and heathy products to their customers. Also, the company has took measures to promote measures to help their employees cope with pandemic and continue their operations. The company has invested in e-commerce, and their online sales have seen immense growth
SWOT analysis:
Strength | The strongest part of company this year was the growth that the company has seen in their supermarket business despite of the lockdown. The company has invested in internet technology and have tried to change on business works. |
Weakness | The weakness is that company has took new loans and debts which has increased the reliance of company on debt. |
Opportunity | The e-commerce business have opened new opportunities for company as they can now deliver goods as the customers cannot come out of their houses. |
Threat | The company observes threat in respect to information technology, i.e. online phishing, access to data, etc. |
Based on the above analysis, it can be said that the portfolio of company is strong despite downfall in profitability and liquidity of company. This is also because the company has adopted new accounting standard on Leases, which has impacted the debt structure of company (Maliki, 2020). Also, though the profit earned in supermarket, has been set-off by loss in hotel chain, despite the company has shown immense growth opportunities, as they have invested in opening new units, and renovating the other ones. Hence, the shareholders and potential investors can invest their money in this company, as the company is reviving its methods, and adopting new ways of conducting the business which can help the company to grow in long-run.
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Words: 890