Case Analysis
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Financial Ratios Analysis and Interpretation
Abstract
The purpose of the study is to analyse the financial ratios report to present to the Board of Directors of the Company that contains analyses and evaluation of the Company’s financial performance and financial position for the financial year ended 30 June 2020 along with the financial year 2018 and 2019. It will provide suggestions as to what strategies the Board could consider adopting to address any areas of concern.
Introduction
     Wools Worth Inc is one of the largest Australian company which deals in the retail sector and also known to provide the second largest revenue growth in New Zealand. The company background is as strong as a century old, and perfectly managed     
Gordon Cairns (chairman) and the Bradford Banducci (CEO) from Bella Vista, New South Wales, Australia. The company runs with a strength of around 215,000 employee and divisions like Supermarkets (Woolworths, Woolworths Online, Countdown) General and Merchandise (Big W) and Finance (Woolworths Finance).
Evaluation of the Company’s financial performance
The Report is being evaluated in terms with the ratios which provide a percentage value of the results achieved and processed. The financial ratio will help in supporting whether the interrelated items actually show the correct and justified position of whether the books are being build without fictitious and malice intention.
Profitability Ratio
The ratio which are explained are the
1) Gross Profit Ratio which is computed as Gross Profit / Sales
2) Net Profit Ratio which is computed as Net Profit / Sales
    Financial Ratio
    2018
    2019
    2020
    GROSS PROFIT MARGIN
    29.03
    29.08
    29.16
    NET PROFIT MARGIN
    3.04
    4.49
    1.83
    
    
    
    
    Changes in Financial Ratio
    2018
    2019
    2020
    GROSS PROFIT MARGIN
    0
    0.17%
    0.28%
    NET PROFIT MARGIN
    0
    47.70%
    -59.24%
(Woolworth Group, 2021)
The three years analysis shows that the company has shown an improvement in its gross profit , however it is evident that the net profit margin has been reduced by more than twice which means that the net profit has reduced more than the twice the margins. It means that the loss is more than 100 percent.
(Easton, and Sommers, 2018)
Understanding the current situation of the profit ratios the most evident answer is that the revenue and the expenses are not balanced. Mainly due to the current pandemic situation the revenue growth has definitely reduced and also the buying power of the individual leading to raise concern in connection with the factor that the profits have reduced and so has the margin pointers on a larger basis. The other evident factor is that the company is still doing reasonable well as compared to its competitors and mainly the downfall is while comparing intra value and not while comparing market and the industry standards as the years of comparison mainly compresses of the pandemic year a not at all of the business environmental level.
Liquidity Ratio
The ratio which are explained are the
1) Current Ratio which is computed as Current Assets / Current Liabilities
2) Liquid Ratio which is computed as Current Assets – Less prepaid – less inventory / Current Liabilities
    Financial Ratio
    2018
    2019
    2020
    Current Ratio
    0.78
    0.73
    0.62
    Liquid Ratio
    0.28
    0.21
    0.27
    
    
    
    
    Changes in Financial Ratio
    2018
    2019
    2020
    Current Ratio
    0
    -6.41%
    -15.07%
    Liquid Ratio
    0
    -25.00%
    28.57%
(Woolworth Group, 2021)
(Woolworth Group, 2020)
(Woolworth Group, 2019)
Looking at the Both the liquidity ratio it is very much evident that the trend definitely leads to a level of on a very high risk portion which ensures that the even though the margin is a reasonable factor but still the risk is high mainly because of the factor that the small changes may bring massive level of changes under the statement of profit as well as the overall percentage issue and value (Zhang, Hu and Ji, 2020). Even though being a crucial level of the factor where the whole cash position as well as the future planning depends on the liquidity factor and how the assets pays off its liabilities in quick fast manner.
The ratio shows that the...