ACCT 20051/20077 Practical and Written Assessment Answers

ACCT 20051/20077 Practical Written Assessment Answers

ACCT 20051/20077 Practical and Written Assessment Answers

INTRODUCTION

Wesfarmers was founded in 1914. It is one of the Australia’s largest listed companies. It is operating into liquor, supermarkets, hotels and convenience stores; office supplies; home improvement; department stores and an industrials division with businesses in energy and fertilizers, chemicals, coal, industrial and safety products. It is currently employing 21,000 employees and has 500,000 shareholders (Wesfarmers, 2015). Whereas Woolworths Limited is the largest retail company is Australia in terms of sales and market capitalization. It is operating into liquor, hotel and poker machine.  It is the 19th largest retailer in the world (Woolworths limited, 2015).

FINANCIAL ANALYSIS

Wesfarmers

Balance sheet

ACCT 20051/20077 Practical and Written Assessment Answers
      Practical and Written Assessment Answers

                                                                 Figure 1
                                   Source (Wesfarmers Annual Report 2015)

According to the balance sheet of Wesfarmers, the current assets of company have reduced in year 2015 then in 2014. But total assets of company have increased in year 2015 then in 2014 due to increase in non-current asset in 2015.

Total liabilities including current and non-current liabilities have increased in year 2015 then in 2014. That has resulted into reduced net assets in 2015.
Total equity has reduced in year 2015 then in 2014 due to reduced issued capital, reserved shares, retained earnings and reserves.

Income statement

ACCT 20051/20077 Assessment Answers

Assessment Answers

                                                                           Figure 2
                                                  Source (Wesfarmers Annual Report 2015)

According comparison of income statement of Wesfarmers in years 2015 and 2014, revenues have increased but net income have reduced due to increased expenses.Cash flow statement

Practical and Written Assessment Answers

                                                                       Figure 3
                                             Source (Wesfarmers Annual Report 2015)
Cash flow statement of Wesfarmers includes cash flows from operating activities, investing activities and financing activities. Comparing the cash flow statement of year 2015 and 2014, it can be observed that net cash flow from operating activities have increased in year 2015,  net cash flow from investing activities have reduced in year 2015 and net cash flow from financing activities have reduced in year 2015.

Ratio Analysis

20051/20077 Practical and Written Assessment Answers

20051 Practical and Written Assessment Answers

Woolworths Limited

Balance sheet

ACCT 20051/Written Assessment Answers

ACCT 20051/20077 Assessment Answers

                                                                      Figure 4
                                           Source (Annual report of Woolworths Limited 2015)
As per the balance sheet of Woolworths Limited, total assets including current assets and non-current assets have increased in year 2015 than in 2014. Total liabilities including current liability and non-current liability have increased in year 2015 than in 2014. But net assets have increased in year 2015. Total equity has also increased in 2015 than in 2014 with increasing issued capital and retained earnings.
Profit and Loss Statement

Written Assessment Answers ACCT 20051/20077 Practical and

                                                                  Figure 5
                                         Source (Annual report of Woolworths Limited 2015)
According to profit and loss statement, revenues of Woolworths have decreased a little but gross profit has increased in year 2015 than in 2014. But net profit has decreased resulting into decreased EPS.
Cash flow statement

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                                                             Figure 6
                                  Source (Annual report of Woolworths Limited 2015)

Cash flow statement of Woolworths Limited includes cash flows from operating activities, investing activities and financing activities. Comparing the cash flow statement of year 2015 and 2014, it can be observed that net cash flow from operating activities have slightly decreased in year 2015,  net cash flow from investing activities have slightly increased in year 2015 and net cash flow from financing activities have decreased in year 2015.
 

Written Answers

Written Assessment

Assessment Answers

Comparison

Profitability

The ability of firm to earn profit is called profitability. Profit is left after paying all expenses from revenue.
Return on assets and net Profit margin
Return on assets ratio shows the efficiency of a company to manage its assets to produce profit.

Written

woolworths
Return on asset ratio shows that Woolworths Limited is managing its assets better to produce profit than Wesfarmers.
Net profit margin show how each value of money earned by the company is translated into business (McDonald and Morris, 1984). A low profit margin shows higher risk.

wesfarmers

woohworths limited

Woolworths Limited has lower net profit margin ratio than Wesfarmers, which shows that Woolworths Limited is having higher risk.

Liquidity

The availability of assets which can be easily converted into cash is called liquidity.

Current ratio and quick ratio

Current ratio indicates the capability of company to pay its debt. Acceptable ratio is 2:1. If current ratio is below 1, then the company may face problem in paying its debt.

Current ratio and quick ratio

ratio and quick ratio

The current ratio of Woolworths Limited is less than 1, thus company may face problem in paying its debt. Wesfarmers had current ratio more than 1 in year 2014 but in 2015 it has reduced less than 1.

Quick ratio indicates that the assets that can be quickly converted into cash are enough to cover the current liabilities. Acceptable ratio is 1:1.

7 wesfarmers

limited woolworths

The quick ratio of both Wesfarmers and Woolworths Limited is below the standard ratio 1:1. But quick ratio of Wesfarmersis better than Woolworths Limited.

Capital structure

The way a firm finances its operations by using different sources of funds is called capital structure.

Debt to equity ratio

A company’s financial leverage is indicated by debt to equity ratio.

Current ratio and

 and quick ratio

Debt to equity ratio of Woolworths Limited is better than Wesfarmers. Woolworths Limitedhas 1.27 times equity to pay its debt. Whereas Wesfarmers has 0.6 times equity to pay its debt i.e. equity is less than debt.

Market performance

The behavior of asset in market place is termed as market performance.

Earnings per share

It serves as an indicator of profitability.

Wesfarmers share

asas Limited

Earnings per share of Woolworths Limited are below Wesfarmers.

Recommendation

To improve financial position of a company it is important to analyze revenues and expenses. The financial position of a company can be analyses using profitability ratio, liquidity ratio, capital structure of company and market performance (Edmister, 1972). Wesfarmers and Woolworths Limited can improve its financial position by recovering outstanding debt, reduce their expenses, increase revenue by either attracting sales or increasing prices, etc. Both the companies should consider their debt before raising more funds. Companies may try to retain earning and reinvest in own company.

Conclusion

The financial position of a company is described by its assets and liabilities. Shareholder equity is also included in financial position of company (Largay and Stickney, 1980). All the information related to financial position of a company is disclosed in annual report of company. This report studies the financial position of two companies Wesfarmers and Woolworths Limited. It was found that Woolworths Limited is managing its assets better to produce profit than Wesfarmers. Woolworths Limited has 1.27 times equity to pay its debt whereas Earnings per share of Woolworths Limited are below Wesfarmers.Quick ratio of Wesfarmers is better than Woolworths Limited. On the basis of studying the comparison between financial position of Wesfarmers and Woolworths Limited, it can be concluded that it will be profitable to invest in Woolworths Limited as its profitability and market performance is better than Wesfarmers.

References

Edmister, R. O. (1972). An empirical test of financial ratio analysis for small business failure prediction. Journal of Financial and Quantitative analysis,7(02), 1477-1493.
Largay III, J. A., & Stickney, C. P. (1980). Cash flows, ratio analysis and the WT Grant Company bankruptcy. Financial Analysts Journal, 36(4), 51-54.
McDonald, B., & Morris, M. H. (1984). The statistical validity of the ratio method in financial analysis: An empirical examination. Journal of Business Finance & Accounting, 11(1), 89-97.
Wesfarmers (2015), Annual Report, last retrieved from https://www.wesfarmers.com.au/documents/...2015-annual-report/file on 23rd April 2015
Woolworths limited (2015), Annual Report, last retrieved from
www.woolworthslimited.com.au/icms.../182381_Annual_Report_2015.pdf on 23rd April 2015