Answer To: ACC00724 (Accounting for Managers) S2, 2018ASSIGNMENT 1 (20 MARKS)In gradebook you will see a...
Sameer answered on Aug 01 2020
Financial Analysis of Woolworths Ltd.
Contents
Introduction: 3
a. Horizontal analysis of the Income statement 4
b. Ratio Analysis 6
c. Comment on Ratio Analysis 12
Conclusion: 14
Bibliography 15
Introduction:
We have conducted a financial analysis for Woolworths Limited and for the same purpose annual reports of the company for the year 2013 to 2017 has been extracted and analysed. The horizontal analysis of the income statement for these years has also been performed. The ratio analysis has ben conducted in order to prepare a report on financial performance and position of the company.
a. Horizontal analysis of the Income statement
The income statement for the year 2013 to 2017 has been provided below with comparative analysis:
Particulars ($M)
2017
2016
2015
2014
2013
%change over 5 years
Continuing Operations
Revenue
55,475
53,474
60,679
60,773
58,516
-5%
Other operating revenue
194
190
189
179
158
23%
Total operating revenue
55,669
53,664
60,868
60,952
58,674
-5%
Cost of sales
-39,740
-38,539
-44,345
-44,475
-42,913
-7%
Gross profit
15,929
15,125
16,524
16,478
15,762
1%
Gross profit ratio
28.6%
28.2%
27.1%
27.0%
26.9%
Other revenue
244
276
281
243
248
-1%
Branch expenses
-10,671
-10,684
-10,552
-10,236
-9,800
9%
Administration expenses
-3,176
-3,222
-2,931
-2,709
-2,615
21%
EBIT
2,326
1,495
3,323
3,775
3,595
-35%
Financing costs
-194
-246
-255
-260
380
-151%
PBT
2,132
1,249
3,068
3,515
3,215
-34%
Income tax expense
-650
-486
-930
-1,057
-960
-32%
Net Income
1,482
763
2,137
2,458
2,255
-34%
Net Income Margin (%)
2.7%
1.4%
3.5%
4.0%
3.8%
Profit/(Loss) attributable to:
Equity holders of the parent entity
1,534
-1,235
2,146
2,452
2,250
-32%
Non-controlling interests
60
-1,113
-9
7
10
518%
1,593
-2,348
2,137
2,458
2,259
-29%
Earnings Per Share (EPS) attributable to equity holders of the parent entity
Basic EPS
119.4
-97.7
170.8
196.5
181.8
-34%
Diluted EPS
119.1
-97.7
170.3
195.6
181
-34%
Analysis:
· It can be observed that over the five year period covering from year 2013 to 2017 total revenues has decline by 5% every year with a significant increase in cost of sales and this has resulted in negligible growth in gross profits of company (Woolworths, 2017). The gross profit has increased marginally with an increase in other income.
· The expenses associated with branch and administrative expenses have increased significantly and this has resulted in major decline in operating income. It can be observed that the net profit after deducting the income taxes expenses have decreased around 34% and this a major issue of concern for the company as the expenses needs to be controlled referring to these five year periods (Grant, 2015).
· The net income margins have decreased from 3.8% in 2013 to 2.7% in 2017. It is mainly on account of increasing operating costs and stiff competition that the industry is facing over the last few years. The company needs to diversify its operations into high margin business to improve its margins and sustain in the competition
· The interest costs have been increasing as the company adds on leverage to expand its operations and meet its expenditures. The increasing branch and administrative expenses have been financed with increasing debt and that has negatively impacted its net income.
b. Ratio Analysis
1. Return on total assets
Particulars
2017 $M
2016 $M
2015 $M
2014 $M
2013 $M
Net income
1,482.00
762.9
2,137.40
2,458.40
2,254.90
Total...