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Business Analysis and Interpretation
You are required to calculate key financial ratios for an ASX listed company and its competitor and interpret this information in the context of your allocated competitor company over time.
You will be allocated two ASX listed companies to study for this assessment. You must do your allocated companies in the order they are allocated to you. You can look up your allocated companies under 'You/Competitor' in MyGrades in week 1.
Imagine you work for the FIRST of these companies. The second is one of your company's competitor.
Your boss has asked you to calculate and assess the company's key (your boss's opinion) ratios relative to that of its competitor and provide recommendations for improvement.
The key ratios you need to calculate for your company and your competitor are net profit margin, asset turnover, current ratio, quick ratio and debt ratio. Your boss also wants you to calculate the cash cycles. All workings for ratios and the cash cycles are required.
You focus your analysis on the companies' 2014, 2015 and 2016 ratios mentioned above firstly in terms of trend changes and also in comparison to your competitors ratios.
In making your assessment consider potential differences between your company and its competitor that could explain divergent results. Where relevant, these should be noted. (For example, although the companies may compete in some of the same markets, they may also have different areas of business).
Chapter 8 of your textbook will give you a background explanation on these ratios and you should in your own words explain the relevance of ratios, benchmarking and also the relevance of your particular identified ratios as part of your discussion.
To undertake this task you will need to get some background information on the companies and collect some data to create ratios. Information required is available from DatAnalysis found by following the links from the SCU homepage to the 'Library' and 'Databases'. For the calculation of ratios aspect of this assessment use the 'Financial Data icon and then across the top, Profit and Loss and also Balance Sheet as necessary.
Since your boss is a busy person and has little time to read lengthy reports, your submission for this task preferably should not exceed 1,000 words. Structure your submission as a very short report that excludes title and contents pages. Ensure you fully reference any non-text book or non DatAnalysis sources of data and information you use in this assessment.
Financial analysis reveals a company’s performance and stability with the assessment of its reported financial figures (Birt et al. 2016). The main aim of its analysis is to determine the effectiveness of past decisions and undertake planned decisions for future success. The profitability ratio is applied to determine the profit earned against the investments made. The efficiency ratios are calculated to reveal the effective management of assets. The company’s short-term commitments are understood using liquidity ratios. Similarly, the long-term sustainability of business operations is revealed through capital structure ratios. This report analyses the profitability, liquidity, efficiency and capital structure ratios of Woolsworths Limited with its Competitor Wesfarmers Limited.
1. Company Background
Woolworths Limited (WOW) is an Australia-based company founded in 1924. Currently, it is headquarters in Bella Vista and employs around 205,000 employees. The major business units of WOW are its Australian and New Zealand Food division, Endeavour Drinks, BIG W, and hotels (Bloomberg 2017). It also offers financial services through credit cards, reloadable MasterCards, and gift cards.
Wesfarmers Limited operates through a diversified portfolio ranging from retail, mining and exploration, fuel processing, distribution of industrial and safety supplies, chemicals and fertilizers manufacturing, and investment businesses (Bloomberg 2017). Its operations are primarily centred in Australia, New Zealand, the United Kingdom, with businesses located in other parts of the world. Founded in 1914, Wesfarmers is currently headquartered in Perth, Australia, employing around 220,000 employees.
It is observed that Wesfarmers’ has varying interests apart from retailing, representing it as a unique conglomerate with a different business portfolio, thereby making it a more diversified firm when compared to Woolworths (McArthur 2013). A comparison between these two companies is necessary, considering their size and market share in the supermarket arena (Akhtar & Akhtar 2016). The following table lists the major ratios and cash cycle of both companies.