Woolworths Financial Perfomance Case study

Topics: Stock market, Stock, Balance sheet Pages: 6 (1608 words) Published: June 23, 2014
HSC Business Studies
Financial Statement Analysis
Task 1:

Liquidity – The current Ratio = - Current ratio = Current Assets/ Current Liabilities

2013:
Total current assets = 6226.1
Total current liabilities = 6866

Total current assets / Total current liabilities
=
6226.1/6866 = 0.9068016312
= 0.9 (1dp)

2012:
Total current assets = 5802.1
Total current Liabilities = 6766.2

Total current assets / Total current liabilities
=
5802.1 / 6766.2 = 0.8575123408
= 0.86 (2dp)

Liquidity levels have improved a satisfactory amount meaning Woolworths are readily available to pay off their short-term liabilities at a better easier.

Figures from: http://www.investing.com/equities/woolworths-limited-balance-sheet

Gearing (leverage) = - Debt to equity (gearing) ratio = Total liabilities/ Owners Equity

2013:
Total liabilities = 13221.8
Owners equity = 9028.4

Debt to equity (gearing) ratio = total liabilities / Owners Equity =
13221.8 / 9028.4 = 1.46446768
= 1.5% (1dp)

2012:
Total Liabilities = 13392.9
Owners Equity = 8188.2

Debt to equity (gearing) ratio = total liabilities / Owners Equity =
13221.8 / 8188. 2= 1.614738282
= 1.6% (1dp)

The gearing levels has deteriorated from 2012 to 2013 by 0.1% meaning there is less risk for investors but also less a chance of higher profits.

Figures from: http://www.investing.com/equities/woolworths-limited-balance-sheet

Profitability = - Gross Profit Ratio = Gross Profit/ Sales

2013:
Gross profit = 15603.8
Sales = 58674.1

Gross profit ratio = Gross profit / Sales
=
15603.8 / 58674.1 = 0.2659401678
= 0.26 (2dp)
= 26%

2012:
Gross profit = 14461.0
Sales = 54916.0

Gross profit ratio = Gross profit / Sales
=
14461.0 / 54916.0 = 0.2633294486
= 0.26 (2dp)
= 26%

The figures over the two financial years has remained the same meaning Woolworths has maintained its effectiveness of pricing, sales, discounts and valuation of stock. Figures from: http://www.investing.com/equities/woolworths-limited-income-statement

Efficiency = - Expense Ratio = Total Expenses/ Sales

2013:
Total expenses = 55459.3
Sales = 58674.1

Expense Ratio = Total Expenses/ Sales
=
55459.3 / 58674.1 = 0.945209215
= 0.95 (2dp)

2012:
total expenses = 51851.2
Sales = 54916.0

Expense Ratio = Total Expenses/ Sales
=
51851.2 / 54916.0 = 0.9441911283
= 0.94 (2dp)

The Expense ratio has had a slight improvement from 2012 to 2013 meaning the firm has improved its ability to use its resources effectively in ensuring financial stability and profitability.

Figures from: http://www.investing.com/equities/woolworths-limited-income-statement

Task 2:

Woolworths Limited (ASX: WOW) is hardly a company that needs an introduction to investors; as Australia's largest retailer with a market capitalisation of $42 billion (income statements 12/13) it is certainly on the radar of most investors. An analysis of Woolworths financial performance over the last two financial years show that the firm are improving their figures by raising or keeping their Liquidity, Gearing, Profitability or Efficiency consistent. This analysis can help provide insights on wether it is a smart choice to buy shares in Woolworths. Looking into the firm’s financial performance and proposed financial strategy an interpretation can be made on the risk and reliability of investing in Woolworths.

Liquidity matches with the capability of companies to deal with short-term cash requirements. The risk involved in investing into a company with low liquidity levels is that the business may experience cash flow problems. The inability for e.g. Woolworths not being able to pay their short-term liabilities could then later result in Woolworths becoming insolvent, meaning they are unable to pay debts altogether when they fall due. If Woolworths were unable to pay these debts, this would mean they would have to borrow money, which would affect (deteriorate) their...

References: Anon, (2014). .
finance, (2014). Should you buy Woolworths Limited in 2014?. [online] Available at: http://finance.ninemsn.com.au/newsbusiness/motley/8791060/should-you-buy-woolworths-limited-in-2014 [Accessed 22 Jun. 2014].
Hassan, N., Hassan, N. and profile, V. (2011). Maximising Shareholders Wealth: Cheap Debt or Equity Finance????. [online] Maximisingshareholderswealth.blogspot.com.au. Available at: http://maximisingshareholderswealth.blogspot.com.au/2011/04/cheap-debt-or-equity-finance.html [Accessed 22 Jun. 2014].
investing.com, (2014). Woolworths Ltd Balance Sheet | WOW Stock - Investing.com. [online] Available at: http://www.investing.com/equities/woolworths-limited-balance-sheet [Accessed 22 Jun. 2014].
Pettis, M. (2014). What Do Bank Share Prices Tell Us About Growth?. [online] Carnegie Endowment for International Peace. Available at: http://carnegieendowment.org/2014/02/16/what-do-bank-share-prices-tell-us-about-growth/h18j [Accessed 22 Jun. 2014].
Riffle-Lash, C. (2014). What Affects Stock Prices?. [online] Capitalexchangeblog.com. Available at: http://www.capitalexchangeblog.com/whataffectsstockprices/ [Accessed 22 Jun. 2014].
The Student Room, (2014). Revision:Gearing - formula and uses - The Student Room. [online] Available at: http://www.thestudentroom.co.uk/wiki/Revision:Gearing_-_formula_and_uses [Accessed 22 Jun. 2014].
Tutor2u.net, (2010). Q&A - Is there an optimal level of gearing?. [online] Available at: http://www.tutor2u.net/blog/index.php/business-studies/comments/qa-is-there-an-optimal-level-of-gearing [Accessed 22 Jun. 2014].
- Business Class Notes
- Woolworths income sheets / Balance sheet 2012-2013 (figures)
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