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Accounting concepts & practices Woolworths project report

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Raheel Butt

This document is the table of contents for Woolworths Limited's 2011 annual report. It outlines the company's core businesses which include supermarkets, liquor outlets, petrol stations, general merchandise stores, and hotels. It also summarizes key points from the Chairman's report, which discussed issues like low consumer spending and natural disasters. Additionally, it provides an overview of the calculations of various financial ratios performed on Woolworths' 2011 data, including liquidity, profitability, and gearing ratios. The document serves to introduce the topics that will be further analyzed in Woolworths' full annual report.

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Table of Contents 0.Executive Summary:................................................................................................................... 2 1.Introduction:............................................................................................................................. 3 2.Main Body:................................................................................................................................ 3 2.1.Woolworths core business:......................................................................................................3 2.1.1.Liquor outlets:...................................................................................................................... 3 2.1.2.Petrol stations:..................................................................................................................... 3 2.1.General Merchandise:............................................................................................................. 4 2.1.4.Hotels:.................................................................................................................................4 2.2.Chairman’s and Managing Director’s Report:............................................................................ 4 2.3. Ratios calculations:................................................................................................................. 5 2.3.1. Liquidity Ratios.................................................................................................................... 5  Current ratio......................................................................................................................... 5  Quick ratio............................................................................................................................ 5  Receivable turnover.............................................................................................................. 6  Inventory turnover................................................................................................................ 6 2.3.2.Profitability Ratios................................................................................................................ 7  Profit margin......................................................................................................................... 7  Gross profit margin................................................................................................................ 7  Expense ratio........................................................................................................................ 8  Asset turnover...................................................................................................................... 8  Return on assets.................................................................................................................... 9  Return on equity ................................................................................................................... 9  Earnings per share............................................................................................................... 10  Payout ratio........................................................................................................................ 10 2.3.3Gearing Ratios..................................................................................................................... 11  Debt to total assets ratio...................................................................................................... 11  Cash debt coverage............................................................................................................. 11 3.corporate governance and corporate social responsibility:......................................................... 12 4. Assessment & Recommendations: ........................................................................................... 13 5.Conclusion:.............................................................................................................................. 14 6. Bibliography ................................................................................. Error! Bookmark not defined.
2 | P a g e Executive Summary: The purpose of this report is to summaries Woolworth annual report 2011 taking in consideration a description of the core business and the operating activities of the company, the discussion of critical issues mentioned in the Chairman’s and Managing Director’s Report, a discussion of the corporate governance and corporate social responsibility and a calculation of key financial ratios of 2011. The key findings of this report are: Woolworth Limited is not only a supermarket/grocery chain, but also liquor outlets, petrol stations, general merchandise and hotels. According the Chairman’s and Managing Director’s Report we found that the company have 3 issues: natural disasters, a successful CEO retiring and low spending rate from the customers. Woolworths has created a comprehensive corporate governance framework which is particularly strong in the critical areas of compliance and financial reporting. Plus it is represented in almost every community in Australia and New Zealand We done a calculation of the key financial ratios of Woolworth limited, and we found out through one of calculation that average earnings per issued ordinary share have almost doubled over the two years, which is really good news for investors. In the due course you will find in this report overall assessment, recommendation and conclusion based on current consolidated woolies annual report 2011
3 | P a g e 1. Introduction: Woolworth is a well known Australian supermarket/ grocery chain operating in Australia New Zealand and India. In this report, which is based on the information taken from Woolworth Limited annual report 2011, we are going to discuss the company’s core business which not only about Supermarket/ grocery but multiple other businesses. Plus we are going to look at some issues that occurred in the Chairman’s and Managing Director’s Report. And also the corporate governance and corporate social responsibility along with a calculation of the key financial ratios for 2011, and finally we are going to give an overall assessment of the company and mention about our recommendation to invest in Woolworth. 2. Main Body: 2.1. Woolworths core business: Woolworths Limited is a giant Australian supermarket/grocery chain, its main business is linked with the sales of food product mainly groceries, and as at the end of the financial year 2011 they have 840 supermarkets operating around Australia, and they also own 156 supermarkets in New Zealand (excluding franchisees). However food/grocery are not the only type of product that Woolworth sells, they also own a number of other product which are (woolies, 2012): 2.1.1. Liquor outlets: At the end of the year 2011 Woolworth operate 1250 liquor retail outlet and 140 of them are Dan Murphy’s stores. (woolies, 2012) 2.1.2. Petrol stations: The supermarket giants at the end of 2011 have 581 petrol stations counting 132 Woolworth/Caltex alliance locations, plus all the sites are operated by convenience stores. (woolies, 2012)
4 | P a g e 2.1. General Merchandise: o Big W: is a department store in Australia. Traditionally Big W stores deliver the lowest prices on a large range of quality and branded product daily including well known brands such as “Mambo” and “Apple” and also exclusive contemporary varieties such as “Man and Women by Peter Morrissey”. Furthermore Big W operates 165 stores as from the end of 2011. o Consumer Electronics: provides a wide range of electronics with their experts through “Dick Smith, Tandy and TATA stores “in 3 countries:  Australia and New Zealand have a total of 390 Dick Smith stores and 4 Tandy stores at the end of 2011.  India has a total of 64 TATA retail stores operating under the Croma brand as from the end of 2011. (woolies, 2012) 2.1.4. Hotels: There was no mention of names of the hotels in the Woolworth Limited annual report 2011. However they own a total number of hotels and clubs of 282 and a combined total of 1319 accommodation rooms. (woolies, 2012) 2.2. Chairman’s and Managing Director’s Report: There were multiple significant issues that we spotted while reading the chairmen and the managing director’s report. First the report mentioned multiple times about consumer confidence stayed historically low because of the rise of utility cost, interest rate and global financial uncertainty during the first half of the year, which forced people to save money instead of spending. (woolies, 2012) The second issue was the unpredictable occurrence of natural disasters especially in New Zealand after Christchurch earthquake and the aftershocks which was the reason behind shutting down of seven Countdown and franchise stores. Even though customers continued shopping at other close by stores but sales were negatively affected. (woolies, 2012) The third and last issue was the announcement of the retirement of CEO Michael Luscombe at the end of September. The retirement of CEO is always an issue in a company especially
5 | P a g e and according the report he was a really successful leader and during his 5 years at Woolworths Limited, the company doubled its profit. Overall he set a very good example for the entire employee with his modesty, hard work and care for individuals. (woolies, 2012) 2.3. Ratios calculations: 2.3.1. Liquidity Ratios  Current ratio A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties (liquid ratio, N/A) (Keryn Chalmers, 2010). Current ratio=Current Assets/Current Liabilities For Woolworths the ratios are: 2011……….. 0.795458659 2010……….. 0.726787262 2009……….. 0.757521903 After calculating 2011 current ratio of woollies it is concise & clear that it has improved keeping in view 2010.  Quick ratio It measures the firm's capacity to pay off current obligations immediately. It allows you to see just how many times the company can cover its short term liabilities with the cash,
6 | P a g e marketable securities, and accounts receivables (Quick ratio analysis, N/K) (Keryn Chalmers, 2010). Quick ratio= (Cash + short term investment +Receivable)/Current Liabilities For Woolworths the ratios are: 2011………… 0.318738463 2010………… 0.227891632 2009………… 0.222430081 Quick ratio had declined from 2009 to 2011.  Receivable turnover Receivables turnover ratio measures company's efficiency in collecting its sales on credit and collection policies. A high receivables turnover ratio implies either that the company operates on a cash basis or that its extension of credit and collection of accounts receivable are efficient. Also, a high ratio reflects a short lapse of time between sales and the collection of cash, while a low number means collection takes longer (receivable turnover ratio ) (Keryn Chalmers, 2010). Receivable turnover=Net credit sales/Average net receivables For Woolworths the ratios are: 2011……. 53.1073075 2010……. 65.3944339 2009…… 149.3369467 Woollies have improved its receivable turnover.  Inventory turnover
7 | P a g e The inventory turnover ratio measures the efficiency of the business in managing and selling its inventory. This ratio gauges the liquidity of the firm's inventory. It also helps the business owner determine how they can increase their sales through inventory control (inventory turnover ratio, N/K; Keryn Chalmers, 2010). Inventory turnover=Cost of sales/Average inventory For Woolworths the ratios are: 2011…. 11.16321269 2010….. 11.37971299 2009…… 11.70037762 2.3.2. Profitability Ratios  Profit margin The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per dollar of sales and thus is a measure of efficiency of the company (Profit margin, N/K) (Keryn Chalmers, 2010). Profit margin=Profit/Net Sales For Woolworths the ratios are: 2011…… 0.039431093 2010……… 0.039355178 2009…… 0.037426204  Gross profit margin
8 | P a g e This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products, and subsequently it pass on the costs to its customers. The larger the gross profit margin, the better for the company (Gross profit margin, N/K) (Keryn Chalmers, 2010). Gross profit margin=Gross profit/net sales For Woolworths the ratios are: 2011…………. 0.259641301 2010…………. 0.258639601 2009………….. 0.256015357  Expense ratio The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising, and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's total assets will be used to cover expenses. (Keryn Chalmers, 2010). Expense ratio=Expenses (excluding tax)/net sales For Woolworths the ratios are: 2011…………….. 0.203446974 2010…………. 0.202584542 2009………….. 0.202348997  Asset turnover The asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets (asset turnover, N/K) (Keryn Chalmers, 2010). Asset turnover=Net sales/Average assets For Woolworths the ratios are:
9 | P a g e 2011………… 2.742649399 2010…………. 2.911532039 2009……….. 3.034294541  Returnon assets The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets. The return on assets ratio is related to the asset management category of financial ratios (Peavler, N/k) (Keryn Chalmers, 2010). Return on assets=Profit/average assets For Woolworths the ratios are: 2011…………. 0.202924933 2010……………. 0.220475678 2009……………… 0.21773613  Returnon equity Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet (Kennon, 2001) (Keryn Chalmers, 2010). Return on equity=Profit/Average equity For Woolworths the ratios are: 2011........ 0.273285026 2010............. 0.274016807 2009............... 0.527113769
10 | P a g e  Earnings per share The earnings per share gives the investing public a means of determining the amount the business earned on its stock share investments. In other words, earnings per share tell investors how much net income the business earned for each stock they own (Financial ratio analysis-earning per share, 2011) (Keryn Chalmers, 2010). Earnings per share=profit/weighted average ordinary shares issued For Woolworths the ratios are: 2011........... 1.759825687 2010.............. 1.654086519 2009............ 1.527093596 The good news for investors here is that the average earnings per issued ordinary share have almost doubled over the two years. So this really is a good result as profits available for shareholders must have increased significantly too  Payout ratio A very law payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio the more secure the dividend, because smaller dividends are easier to pay out than larger dividends (Pyout ratio) (Keryn Chalmers, 2010). Payout ratio=cash dividends/profit For Woolworths the ratios are: 2011............... 3.547726954 2010.............. 3.714622179 2009................ 3.662634409
11 | P a g e 2.3.3Gearing Ratios  Debt to total assets ratio It measures the portion of the assets of a business which are financed through debt. Debt ratio ranges from 0.00 to 1.00. Lower value of debt ratio is favourable and a higher value indicates that higher portion of company's assets are claimed by its creditors which means higher risk in operation since the business would find it difficult to obtain loans for new projects. Debt ratio of 0.5 means, that half of the company's assets are financed through debts (debt ratio) (Keryn Chalmers, 2010). So as we see from the calculation, half of Woolworth’s assets are financed through debts. Debt to total assets ratio=total debt/total assets For Woolworths the ratios are: 2011.......... 0.628064187 2010........... 0.577131328 2009............ 0.586927638  Cash debt coverage This ratio indicates a company's ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets used in operations (Cash debt coverage ratio, N/K) (Keryn Chalmers, 2010). Cash debt coverage=Net cash flows from operating activities/average liabilities For Woolworths the ratios are: 2011.............. 0.250109749 2010........ 0.265929691
12 | P a g e 2009............ 0.267580453 3. Corporate governance andcorporate social responsibility: Corporate Governance: Woolworths has created a comprehensive corporate governance framework which is particularly strong in the critical areas of compliance and financial reporting. Woolworths follows the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations (second edition). Its directors are committed to the ethical pursuit of shareholders’ best interests. (woolies, 2012)  Directors: The board’s principal objective is to maintain and increase shareholder value while ensuring Woolworths’ overall activities are properly managed.  Board Committees: The board has established a number of committees to support it in matters that require more intensive review.  Privacy Policy: Woolworths complies with the National Privacy Principles for the Fair Handling of Personal Information that sets standards for collection, use and disclosure, access, storage and destruction of personal information that we collect as part of our business operations. (woolies, 2012) Social Responsibility: Woolworths is represented in almost every community in Australia and New Zealand. In many towns, they are often the largest local employer, as well as the place where residents shop for their food and everyday needs. As a member of those communities they understand that they have a duty to be more than just a retail outlet, but to also make a positive impact on the societies that they serve. (woolies, 2012)  Community: Woolworths' businesses support these communities through their work with a range of partners and through fundraising and charitable partnerships.  Reconciliation Action Plan: is a far reaching strategy to create new employment and education outcomes for Aboriginal and Torres Strait Islander Australians.  Health & Safety: Woolworths is committed to managing its operations so as to take appropriate measures to protect the safety, health and wellbeing of its employees, contractors, customers, suppliers and the wider community.
13 | P a g e  Vision: achieving Safety and Health vision is described as ‘Destination ZERO’ zero harm to its people, environment and community. (woolies,2012) 4. Assessment & Recommendations: According the annual report of 2011 of Woolworth Limited 2011, we found that the company is not only a supermarket/grocery chain but has also multiple other services which are: Liquor outlets, petrol stations, general merchandise, and hotels. And we could find that there was A 5.1% increase in earnings from 2010 which brings a profit of $2,124.o million in 2011and an 6.5% increase in earnings per share which is 174.6 cents, and also 6.6% increase in earnings before interest, tax, depreciation and amortisation, and a 4.7% increase in sales which is $54.143 million and finally a 6.1% increase in dividends. Plus we found out through one of calculation that average earnings per issued ordinary share have almost doubled over the two years, which is really good news for investors. (woolies, 2012) Wesfarmers' Coles supermarket and liquor chain beat Woolworth, posting a 5.9 per cent gain in sales and an 18.3 per cent rise in earnings before interest and tax (EBIT) compared with an 8.1 per cent EBIT rise at Woolworth' food and liquor division. Woolworth said that it boosted earnings before interest and tax by 6.3 per cent to $3.27 billion in the June year, and that looked pretty pedestrian beside the 21.2 per cent EBIT rise that its biggest rival, Coles, unveiled inside the profit its parent, Wesfarmers announced last week. (coles-woolies, 2012) The Woolies supermarkets and food and liquor businesses lifted their EBIT by 7.9 per cent to $2.79 billion, and generated 6.63 cents of EBIT for every dollar they collected from customers. Even after its strong rise in EBIT for the year, Coles only kept 4.2 cents in the sales dollar as EBIT. For investors, however, the trend is friendly and there’s no doubt that in the supermarket business, Coles has the momentum. It looks to have shut down the lead that Woolies had in the discount store sector, too. Wesfarmers’ Kmart discount stores, another of the retail chains that Wesfarmers took over with its acquisition of the Coles group in late 2007, lifted its EBIT by 5.8 per cent, and
14 | P a g e boosted its EBIT to sales margin from 4.7 per cent to 5 per cent to get its nose in front of Big W, on that measure. Wesfarmers' discount store chain, Kmart, also outperformed, boosting EBIT by 13 per cent while Woolies' Big W chain suffered a 17.1 per cent slide in EBIT, to $125 million. (coles- woolies, 2012) 5. Conclusion: According the annual report of 2011 of Woolworth Limited 2011, we found that the company is not only a supermarket/grocery chain but has also multiple other services which are: Liquor outlets, petrol stations, general merchandise, and hotels. On the other hand Wesfarmers is showing that it is a tough competitor. It won't have escaped you that Woolies was valued most highly for its growth prospects just as Wesfarmers was bedding down its takeover of the Coles group, including the Coles, Kmart, Target and Officeworks chains. It’s very difficult to predict future profit, growth and market share but still we think Woolies in the long run will escalate it stake holders, shareholders and number of customer due to its consistent policies & procedure. Last but not the least we will conclude that woollies will embark for future profits on its existence expansions strategic business units that will come to break even in next couple of years and later they could enrich from these investments. Bibliography (n.d.).Retrievedfromhttp://www.accounting4management.com/liquid_ratio.htm. (n.d.).Retrievedfromhttp://www.accounting4management.com/liquid_ratio.htm#RatiosAnalysis. assetturnover.(N/K).Retrievedfrominvestinganswers: http://www.investinganswers.com/financial-dictionary/ratio-analysis/asset-turnover-ratio-2339 Cash debtcoverageratio.(N/K).Retrievedfromventureline: http://www.ventureline.com/accounting-glossary/C/cash-debt-coverage-ratio-definition/
15 | P a g e coles-woolies.(2012). Retrievedfromtheage:http://www.theage.com.au/business/coles-pulls-back- woolies debtratio. (n.d.).Retrievedfrom http://accountingexplained.com/financial/ratios/debt-ratio. Expenseratio.(n.d.).Retrievedfromhttp://en.wikipedia.org/wiki/Expense_ratio. Financialratio analysis-earning pershare.(2011, april tuesday).Retrievedfrom http://plusstuff.com/2011/04/financial-ratio-analysis-earning-per-share/. Gross profitmargin.(N/K).Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm inventory turnoverratio.(N/K).Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/f/Inventory_Turnover_Ratio.htm Kennon,J.(2001). Return on equity.Retrievedfrombeginnersinvest: http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-return-on- equity.htm KerynChalmers,J.J.(2010). FinancialAccounting . JonWiley& SonsAustralia,Ltd. liquid ratio.(N/A).Retrievedfromwww.accounting4management: http://www.accounting4management.com/liquid_ratio.htm Peavler,R.(N/k). Useprofitabilityratiosin financialratio analysis.Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm Profitmargin.(N/K).Retrievedfromcreditguru:http://www.creditguru.com/ratios/ratiopg3.htm Pyoutratio.(n.d.).Retrievedfrominvestopedia: http://www.investopedia.com/terms/p/payoutratio.asp#axzz1wLdDZa00 Quick ratio analysis.(N/K).Retrievedfromaccounting4management: http://www.accounting4management.com/liquid_ratio.htm#RatiosAnalysis receivable turnoverratio . (n.d.).Retrievedfromccdconsultants: http://www.ccdconsultants.com/documentation/financial-ratios/receivables-turnover-ratio- interpretation.html ROS.(N/K).Retrievedfrominvestopedia: http://www.investopedia.com/terms/r/ros.asp#axzz1wLdDZa00 Swatan.(2010, 10 25). Price Earnings Ratio Analysis . Retrievedfrom http://www.wikicfo.com/Wiki/Default.aspx?Page=Price%20Earnings%20Ratio&NS=&AspxAutoDetec tCookieSupport=1. Swathen.(2011, 6 22). Time InterestEarned Ratio Analysis.Retrievedfrom http://www.wikicfo.com/wiki/Ratio%20Analysis%20Time%20Interest.ashx.
16 | P a g e woolies.(2012). woolworthslimited.Retrievedfromwoolworthslimited: www.woolworthslimited.com.au Woolworth.(2011). Woolworthannualreport.

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Accounting concepts & practices Woolworths project report

  • 1. Table of Contents 0.Executive Summary:................................................................................................................... 2 1.Introduction:............................................................................................................................. 3 2.Main Body:................................................................................................................................ 3 2.1.Woolworths core business:......................................................................................................3 2.1.1.Liquor outlets:...................................................................................................................... 3 2.1.2.Petrol stations:..................................................................................................................... 3 2.1.General Merchandise:............................................................................................................. 4 2.1.4.Hotels:.................................................................................................................................4 2.2.Chairman’s and Managing Director’s Report:............................................................................ 4 2.3. Ratios calculations:................................................................................................................. 5 2.3.1. Liquidity Ratios.................................................................................................................... 5  Current ratio......................................................................................................................... 5  Quick ratio............................................................................................................................ 5  Receivable turnover.............................................................................................................. 6  Inventory turnover................................................................................................................ 6 2.3.2.Profitability Ratios................................................................................................................ 7  Profit margin......................................................................................................................... 7  Gross profit margin................................................................................................................ 7  Expense ratio........................................................................................................................ 8  Asset turnover...................................................................................................................... 8  Return on assets.................................................................................................................... 9  Return on equity ................................................................................................................... 9  Earnings per share............................................................................................................... 10  Payout ratio........................................................................................................................ 10 2.3.3Gearing Ratios..................................................................................................................... 11  Debt to total assets ratio...................................................................................................... 11  Cash debt coverage............................................................................................................. 11 3.corporate governance and corporate social responsibility:......................................................... 12 4. Assessment & Recommendations: ........................................................................................... 13 5.Conclusion:.............................................................................................................................. 14 6. Bibliography ................................................................................. Error! Bookmark not defined.
  • 2. 2 | P a g e Executive Summary: The purpose of this report is to summaries Woolworth annual report 2011 taking in consideration a description of the core business and the operating activities of the company, the discussion of critical issues mentioned in the Chairman’s and Managing Director’s Report, a discussion of the corporate governance and corporate social responsibility and a calculation of key financial ratios of 2011. The key findings of this report are: Woolworth Limited is not only a supermarket/grocery chain, but also liquor outlets, petrol stations, general merchandise and hotels. According the Chairman’s and Managing Director’s Report we found that the company have 3 issues: natural disasters, a successful CEO retiring and low spending rate from the customers. Woolworths has created a comprehensive corporate governance framework which is particularly strong in the critical areas of compliance and financial reporting. Plus it is represented in almost every community in Australia and New Zealand We done a calculation of the key financial ratios of Woolworth limited, and we found out through one of calculation that average earnings per issued ordinary share have almost doubled over the two years, which is really good news for investors. In the due course you will find in this report overall assessment, recommendation and conclusion based on current consolidated woolies annual report 2011
  • 3. 3 | P a g e 1. Introduction: Woolworth is a well known Australian supermarket/ grocery chain operating in Australia New Zealand and India. In this report, which is based on the information taken from Woolworth Limited annual report 2011, we are going to discuss the company’s core business which not only about Supermarket/ grocery but multiple other businesses. Plus we are going to look at some issues that occurred in the Chairman’s and Managing Director’s Report. And also the corporate governance and corporate social responsibility along with a calculation of the key financial ratios for 2011, and finally we are going to give an overall assessment of the company and mention about our recommendation to invest in Woolworth. 2. Main Body: 2.1. Woolworths core business: Woolworths Limited is a giant Australian supermarket/grocery chain, its main business is linked with the sales of food product mainly groceries, and as at the end of the financial year 2011 they have 840 supermarkets operating around Australia, and they also own 156 supermarkets in New Zealand (excluding franchisees). However food/grocery are not the only type of product that Woolworth sells, they also own a number of other product which are (woolies, 2012): 2.1.1. Liquor outlets: At the end of the year 2011 Woolworth operate 1250 liquor retail outlet and 140 of them are Dan Murphy’s stores. (woolies, 2012) 2.1.2. Petrol stations: The supermarket giants at the end of 2011 have 581 petrol stations counting 132 Woolworth/Caltex alliance locations, plus all the sites are operated by convenience stores. (woolies, 2012)
  • 4. 4 | P a g e 2.1. General Merchandise: o Big W: is a department store in Australia. Traditionally Big W stores deliver the lowest prices on a large range of quality and branded product daily including well known brands such as “Mambo” and “Apple” and also exclusive contemporary varieties such as “Man and Women by Peter Morrissey”. Furthermore Big W operates 165 stores as from the end of 2011. o Consumer Electronics: provides a wide range of electronics with their experts through “Dick Smith, Tandy and TATA stores “in 3 countries:  Australia and New Zealand have a total of 390 Dick Smith stores and 4 Tandy stores at the end of 2011.  India has a total of 64 TATA retail stores operating under the Croma brand as from the end of 2011. (woolies, 2012) 2.1.4. Hotels: There was no mention of names of the hotels in the Woolworth Limited annual report 2011. However they own a total number of hotels and clubs of 282 and a combined total of 1319 accommodation rooms. (woolies, 2012) 2.2. Chairman’s and Managing Director’s Report: There were multiple significant issues that we spotted while reading the chairmen and the managing director’s report. First the report mentioned multiple times about consumer confidence stayed historically low because of the rise of utility cost, interest rate and global financial uncertainty during the first half of the year, which forced people to save money instead of spending. (woolies, 2012) The second issue was the unpredictable occurrence of natural disasters especially in New Zealand after Christchurch earthquake and the aftershocks which was the reason behind shutting down of seven Countdown and franchise stores. Even though customers continued shopping at other close by stores but sales were negatively affected. (woolies, 2012) The third and last issue was the announcement of the retirement of CEO Michael Luscombe at the end of September. The retirement of CEO is always an issue in a company especially
  • 5. 5 | P a g e and according the report he was a really successful leader and during his 5 years at Woolworths Limited, the company doubled its profit. Overall he set a very good example for the entire employee with his modesty, hard work and care for individuals. (woolies, 2012) 2.3. Ratios calculations: 2.3.1. Liquidity Ratios  Current ratio A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties (liquid ratio, N/A) (Keryn Chalmers, 2010). Current ratio=Current Assets/Current Liabilities For Woolworths the ratios are: 2011……….. 0.795458659 2010……….. 0.726787262 2009……….. 0.757521903 After calculating 2011 current ratio of woollies it is concise & clear that it has improved keeping in view 2010.  Quick ratio It measures the firm's capacity to pay off current obligations immediately. It allows you to see just how many times the company can cover its short term liabilities with the cash,
  • 6. 6 | P a g e marketable securities, and accounts receivables (Quick ratio analysis, N/K) (Keryn Chalmers, 2010). Quick ratio= (Cash + short term investment +Receivable)/Current Liabilities For Woolworths the ratios are: 2011………… 0.318738463 2010………… 0.227891632 2009………… 0.222430081 Quick ratio had declined from 2009 to 2011.  Receivable turnover Receivables turnover ratio measures company's efficiency in collecting its sales on credit and collection policies. A high receivables turnover ratio implies either that the company operates on a cash basis or that its extension of credit and collection of accounts receivable are efficient. Also, a high ratio reflects a short lapse of time between sales and the collection of cash, while a low number means collection takes longer (receivable turnover ratio ) (Keryn Chalmers, 2010). Receivable turnover=Net credit sales/Average net receivables For Woolworths the ratios are: 2011……. 53.1073075 2010……. 65.3944339 2009…… 149.3369467 Woollies have improved its receivable turnover.  Inventory turnover
  • 7. 7 | P a g e The inventory turnover ratio measures the efficiency of the business in managing and selling its inventory. This ratio gauges the liquidity of the firm's inventory. It also helps the business owner determine how they can increase their sales through inventory control (inventory turnover ratio, N/K; Keryn Chalmers, 2010). Inventory turnover=Cost of sales/Average inventory For Woolworths the ratios are: 2011…. 11.16321269 2010….. 11.37971299 2009…… 11.70037762 2.3.2. Profitability Ratios  Profit margin The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per dollar of sales and thus is a measure of efficiency of the company (Profit margin, N/K) (Keryn Chalmers, 2010). Profit margin=Profit/Net Sales For Woolworths the ratios are: 2011…… 0.039431093 2010……… 0.039355178 2009…… 0.037426204  Gross profit margin
  • 8. 8 | P a g e This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products, and subsequently it pass on the costs to its customers. The larger the gross profit margin, the better for the company (Gross profit margin, N/K) (Keryn Chalmers, 2010). Gross profit margin=Gross profit/net sales For Woolworths the ratios are: 2011…………. 0.259641301 2010…………. 0.258639601 2009………….. 0.256015357  Expense ratio The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising, and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's total assets will be used to cover expenses. (Keryn Chalmers, 2010). Expense ratio=Expenses (excluding tax)/net sales For Woolworths the ratios are: 2011…………….. 0.203446974 2010…………. 0.202584542 2009………….. 0.202348997  Asset turnover The asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets (asset turnover, N/K) (Keryn Chalmers, 2010). Asset turnover=Net sales/Average assets For Woolworths the ratios are:
  • 9. 9 | P a g e 2011………… 2.742649399 2010…………. 2.911532039 2009……….. 3.034294541  Returnon assets The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets. The return on assets ratio is related to the asset management category of financial ratios (Peavler, N/k) (Keryn Chalmers, 2010). Return on assets=Profit/average assets For Woolworths the ratios are: 2011…………. 0.202924933 2010……………. 0.220475678 2009……………… 0.21773613  Returnon equity Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet (Kennon, 2001) (Keryn Chalmers, 2010). Return on equity=Profit/Average equity For Woolworths the ratios are: 2011........ 0.273285026 2010............. 0.274016807 2009............... 0.527113769
  • 10. 10 | P a g e  Earnings per share The earnings per share gives the investing public a means of determining the amount the business earned on its stock share investments. In other words, earnings per share tell investors how much net income the business earned for each stock they own (Financial ratio analysis-earning per share, 2011) (Keryn Chalmers, 2010). Earnings per share=profit/weighted average ordinary shares issued For Woolworths the ratios are: 2011........... 1.759825687 2010.............. 1.654086519 2009............ 1.527093596 The good news for investors here is that the average earnings per issued ordinary share have almost doubled over the two years. So this really is a good result as profits available for shareholders must have increased significantly too  Payout ratio A very law payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio the more secure the dividend, because smaller dividends are easier to pay out than larger dividends (Pyout ratio) (Keryn Chalmers, 2010). Payout ratio=cash dividends/profit For Woolworths the ratios are: 2011............... 3.547726954 2010.............. 3.714622179 2009................ 3.662634409
  • 11. 11 | P a g e 2.3.3Gearing Ratios  Debt to total assets ratio It measures the portion of the assets of a business which are financed through debt. Debt ratio ranges from 0.00 to 1.00. Lower value of debt ratio is favourable and a higher value indicates that higher portion of company's assets are claimed by its creditors which means higher risk in operation since the business would find it difficult to obtain loans for new projects. Debt ratio of 0.5 means, that half of the company's assets are financed through debts (debt ratio) (Keryn Chalmers, 2010). So as we see from the calculation, half of Woolworth’s assets are financed through debts. Debt to total assets ratio=total debt/total assets For Woolworths the ratios are: 2011.......... 0.628064187 2010........... 0.577131328 2009............ 0.586927638  Cash debt coverage This ratio indicates a company's ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets used in operations (Cash debt coverage ratio, N/K) (Keryn Chalmers, 2010). Cash debt coverage=Net cash flows from operating activities/average liabilities For Woolworths the ratios are: 2011.............. 0.250109749 2010........ 0.265929691
  • 12. 12 | P a g e 2009............ 0.267580453 3. Corporate governance andcorporate social responsibility: Corporate Governance: Woolworths has created a comprehensive corporate governance framework which is particularly strong in the critical areas of compliance and financial reporting. Woolworths follows the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations (second edition). Its directors are committed to the ethical pursuit of shareholders’ best interests. (woolies, 2012)  Directors: The board’s principal objective is to maintain and increase shareholder value while ensuring Woolworths’ overall activities are properly managed.  Board Committees: The board has established a number of committees to support it in matters that require more intensive review.  Privacy Policy: Woolworths complies with the National Privacy Principles for the Fair Handling of Personal Information that sets standards for collection, use and disclosure, access, storage and destruction of personal information that we collect as part of our business operations. (woolies, 2012) Social Responsibility: Woolworths is represented in almost every community in Australia and New Zealand. In many towns, they are often the largest local employer, as well as the place where residents shop for their food and everyday needs. As a member of those communities they understand that they have a duty to be more than just a retail outlet, but to also make a positive impact on the societies that they serve. (woolies, 2012)  Community: Woolworths' businesses support these communities through their work with a range of partners and through fundraising and charitable partnerships.  Reconciliation Action Plan: is a far reaching strategy to create new employment and education outcomes for Aboriginal and Torres Strait Islander Australians.  Health & Safety: Woolworths is committed to managing its operations so as to take appropriate measures to protect the safety, health and wellbeing of its employees, contractors, customers, suppliers and the wider community.
  • 13. 13 | P a g e  Vision: achieving Safety and Health vision is described as ‘Destination ZERO’ zero harm to its people, environment and community. (woolies,2012) 4. Assessment & Recommendations: According the annual report of 2011 of Woolworth Limited 2011, we found that the company is not only a supermarket/grocery chain but has also multiple other services which are: Liquor outlets, petrol stations, general merchandise, and hotels. And we could find that there was A 5.1% increase in earnings from 2010 which brings a profit of $2,124.o million in 2011and an 6.5% increase in earnings per share which is 174.6 cents, and also 6.6% increase in earnings before interest, tax, depreciation and amortisation, and a 4.7% increase in sales which is $54.143 million and finally a 6.1% increase in dividends. Plus we found out through one of calculation that average earnings per issued ordinary share have almost doubled over the two years, which is really good news for investors. (woolies, 2012) Wesfarmers' Coles supermarket and liquor chain beat Woolworth, posting a 5.9 per cent gain in sales and an 18.3 per cent rise in earnings before interest and tax (EBIT) compared with an 8.1 per cent EBIT rise at Woolworth' food and liquor division. Woolworth said that it boosted earnings before interest and tax by 6.3 per cent to $3.27 billion in the June year, and that looked pretty pedestrian beside the 21.2 per cent EBIT rise that its biggest rival, Coles, unveiled inside the profit its parent, Wesfarmers announced last week. (coles-woolies, 2012) The Woolies supermarkets and food and liquor businesses lifted their EBIT by 7.9 per cent to $2.79 billion, and generated 6.63 cents of EBIT for every dollar they collected from customers. Even after its strong rise in EBIT for the year, Coles only kept 4.2 cents in the sales dollar as EBIT. For investors, however, the trend is friendly and there’s no doubt that in the supermarket business, Coles has the momentum. It looks to have shut down the lead that Woolies had in the discount store sector, too. Wesfarmers’ Kmart discount stores, another of the retail chains that Wesfarmers took over with its acquisition of the Coles group in late 2007, lifted its EBIT by 5.8 per cent, and
  • 14. 14 | P a g e boosted its EBIT to sales margin from 4.7 per cent to 5 per cent to get its nose in front of Big W, on that measure. Wesfarmers' discount store chain, Kmart, also outperformed, boosting EBIT by 13 per cent while Woolies' Big W chain suffered a 17.1 per cent slide in EBIT, to $125 million. (coles- woolies, 2012) 5. Conclusion: According the annual report of 2011 of Woolworth Limited 2011, we found that the company is not only a supermarket/grocery chain but has also multiple other services which are: Liquor outlets, petrol stations, general merchandise, and hotels. On the other hand Wesfarmers is showing that it is a tough competitor. It won't have escaped you that Woolies was valued most highly for its growth prospects just as Wesfarmers was bedding down its takeover of the Coles group, including the Coles, Kmart, Target and Officeworks chains. It’s very difficult to predict future profit, growth and market share but still we think Woolies in the long run will escalate it stake holders, shareholders and number of customer due to its consistent policies & procedure. Last but not the least we will conclude that woollies will embark for future profits on its existence expansions strategic business units that will come to break even in next couple of years and later they could enrich from these investments. Bibliography (n.d.).Retrievedfromhttp://www.accounting4management.com/liquid_ratio.htm. (n.d.).Retrievedfromhttp://www.accounting4management.com/liquid_ratio.htm#RatiosAnalysis. assetturnover.(N/K).Retrievedfrominvestinganswers: http://www.investinganswers.com/financial-dictionary/ratio-analysis/asset-turnover-ratio-2339 Cash debtcoverageratio.(N/K).Retrievedfromventureline: http://www.ventureline.com/accounting-glossary/C/cash-debt-coverage-ratio-definition/
  • 15. 15 | P a g e coles-woolies.(2012). Retrievedfromtheage:http://www.theage.com.au/business/coles-pulls-back- woolies debtratio. (n.d.).Retrievedfrom http://accountingexplained.com/financial/ratios/debt-ratio. Expenseratio.(n.d.).Retrievedfromhttp://en.wikipedia.org/wiki/Expense_ratio. Financialratio analysis-earning pershare.(2011, april tuesday).Retrievedfrom http://plusstuff.com/2011/04/financial-ratio-analysis-earning-per-share/. Gross profitmargin.(N/K).Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm inventory turnoverratio.(N/K).Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/f/Inventory_Turnover_Ratio.htm Kennon,J.(2001). Return on equity.Retrievedfrombeginnersinvest: http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-return-on- equity.htm KerynChalmers,J.J.(2010). FinancialAccounting . JonWiley& SonsAustralia,Ltd. liquid ratio.(N/A).Retrievedfromwww.accounting4management: http://www.accounting4management.com/liquid_ratio.htm Peavler,R.(N/k). Useprofitabilityratiosin financialratio analysis.Retrievedfrombizfinance: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm Profitmargin.(N/K).Retrievedfromcreditguru:http://www.creditguru.com/ratios/ratiopg3.htm Pyoutratio.(n.d.).Retrievedfrominvestopedia: http://www.investopedia.com/terms/p/payoutratio.asp#axzz1wLdDZa00 Quick ratio analysis.(N/K).Retrievedfromaccounting4management: http://www.accounting4management.com/liquid_ratio.htm#RatiosAnalysis receivable turnoverratio . (n.d.).Retrievedfromccdconsultants: http://www.ccdconsultants.com/documentation/financial-ratios/receivables-turnover-ratio- interpretation.html ROS.(N/K).Retrievedfrominvestopedia: http://www.investopedia.com/terms/r/ros.asp#axzz1wLdDZa00 Swatan.(2010, 10 25). Price Earnings Ratio Analysis . Retrievedfrom http://www.wikicfo.com/Wiki/Default.aspx?Page=Price%20Earnings%20Ratio&NS=&AspxAutoDetec tCookieSupport=1. Swathen.(2011, 6 22). Time InterestEarned Ratio Analysis.Retrievedfrom http://www.wikicfo.com/wiki/Ratio%20Analysis%20Time%20Interest.ashx.
  • 16. 16 | P a g e woolies.(2012). woolworthslimited.Retrievedfromwoolworthslimited: www.woolworthslimited.com.au Woolworth.(2011). Woolworthannualreport.