Financial Evaluation Of Woolworths Supermarkets Essay

Question:

Discusses how the firm's Balance Sheet, Income Statement and Cash Flow Statement could be used to support the decisions of a range of specific Stakeholders of the Firm.

Answer:

The present study is based on a financial evaluation of Woolworths Supermarkets by considering financial and nonfinancial factors of the company. Cited business is primarily engaged in retailing of groceries along with other household items. At present, the company is operating with more than 111,000 employees for delivering their vast product range inclusive of different levels of generic brands (Gibson, Michayluk & Van de Venter, 2013). The company prepares their financial statements by considering Australian Accounting Standards to assist stakeholders in making rational decisions. Further, viable assumptions had made regarding disclosure of their operational activities.

Financial analysis of the company shows that profitability of the company is significantly reducing due to which their return on assets and return on equity is adversely affected. Consequently, net worth has been reduced due to a reduction in worth of non-current assets. To cope up with the current financial issues; the company had modified their capital structure by increasing non-current debt and reducing debt (Gitman, Juchau & Flanagan, 2015). However; considered strategy is not viable as per their current business situation as they are facing losses. Thus the company is required to enhance equity to reduce their financial obligations and pay the financial cost as per their profitability status.

Through the analysis it has been identified that Plant, property and equipment were the key fixed assets of the company. Fixed Assets and investments worth $8371.3 million reduced, $1,793 million driven by important items. Closing inventory worth $4,558.5 million also reduced. Woolworths recognized impairment of plant, property and equipment of $201.3 million pertaining to significant items from continued operations, and $1431.8 million pertaining to discontinued operations. Woolworths also recognized a liability toward benefits that accrue to the employees regarding long service leave and annual leave (Woolworths Group, 2016). Property and plant are valued at cost minus amortization/accumulated depreciation and impairment losses. Inventories are measured at the lesser of net realizable value and cost


A similar result has been shown by ratio analysis of the company. Profitability ratios are showing declining trend which shows reducing profit earning capacity of the business. However, operational efficiency has been maintained by a company which can be noticed through receivable turnover and asset turnover ratio. The company had maintained stability in this ratio along with attaining slow pace growth (Woolworths Annual report, 2016). Further, presently company does not have appropriate working capital management strategies as their current ratio, and quick ratio is continuously reducing, and they are lower than ideal ratios. The company should improve their working capital strategies to improvise their liquidity position (van Duijn & et al 2016). Due to reducing profit, the company had reducing solvency ratios and had modified their capital structure.

The overall study shows that Woolworths is not financially performing well. However, this does not indicate their downfall as the company had developed a sustainable position in the market. Management of business entity is able to revive their business position with better operational strategies. Further, this is the ideal time for investors to purchase equity shares as same has been undervalued in comparison to their market worth. With this investment; investors will be able to attain capital benefits as there is the existence of strong probability regarding improvement in financial performance of the company.

References

Gibson, R. J., Michayluk, D., & Van de Venter, G. (2013). Financial risk tolerance: An analysis of unexplored factors. Financial Services Review.

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

van Duijn, A. P., Beukers, R., Cowan, R. B., Judge, L. O., van der Pijl, W., Ro?mgens, I., ... & Steinweg, T. (2016). Financial value-chain analysis (No. 2016-028). LEI Wageningen UR.

Woolworths Group. (2016). Annual Report. [Online]. Available through: < [Accessed on 23rd August 2017].

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