Describe about the Business Accounting for Investment Business Factors.
The following report highlights different aspects of investment factors in view of the performance and sustainable factors of the listed company. Investment decision is taken by considering the organization’s efficiency to maximize profit, maintain sustainable growth and corporate social responsibility. For the purpose of this report, Woolworths Limited has been selected by discussing its progress against its strategic priorities as well as evaluating the six capitals in creating organizational values (Nesterenko et al., 2015). The other part of the report highlights the significant issues by considering the report of the Chairman, Managing Director as well as Corporate Responsibility Report. For the purpose of evaluating the overall performance of the company, key financial ratios for the accounting year 2015 has been measured that includes profitability ratios, performance ratios and investment ratios. Further, the analysis on the company’s performance is to be done by considering the statement of income, statement of financial position and statement of cash flow for the accounting year 2015 (De Harlez & Malagueño, 2016).
Description of core business of the company
Woolworths Limited is one of the major and second largest companies in Australia founded by Percy Christmas, Ernest Williams on September 22, 1924 having its headquarters at Bella Vista, New South Wales, Australia. The company operates in retailing industry listed on the Australia Stock Exchange serving different regions across the world. The company’s current operating income records at $1.6 billion while the recorded revenue was $59 billion having its operating divisions in supermarkets, general merchandise and other products. It has been observed that company operates to create the long- term value for its stakeholders with respect to the return on capital, investment returns and maximizing the profitability. During the year, increase in net profit after tax reported to 0.1% whereas the net profit reflected a decline at 12.5% on statutory basis. However, the report group sales of the organization were $60.7 billion during the current year with the increase in revenue by 2.5% excluding the sales from the product of petrol (Woolworths Limited., 2016).
Company’s progress against its strategic priorities
Objectives of business strategy are ranked by the significance in terms of achieving the business goals with respect to finance, resource planning, optimum business production and sales and marketing. Considering the financial statement of Woolworths Limited for the accounting year 2015, strategic priorities are with respect to the financing activities, customer benefits, business operational activities and other stakeholders’ benefits (Vishnevskiy, Karasev & Meissner, 2015). It has been noted that the organizations group sales reported at $60.7 billion which declined by 0.0% compared to that of the result of previous year 2014. However, the net profit after tax reflected increase by 0.1% during the year 2015 while the earnings per share reported $195.2 during the financial year 2015, which was declined by 1.5%. It has been observed that the strategic priorities in case of financial and operational activities the company disclosed progress in the earnings from the operating activities before interest, tax, depreciation and other administrative expenses. The results of the financial information disclosed 6.0% increase from the income on rent whereas increase of 3.1% in the payment of dividend (Abdulrahman, et al., 2015).
Additionally, the strategic priorities with respect to the customer benefits cover the expansion of sales to the existing consumers as well as to the prospect customers. Woolworths Limited is best known for maintaining the strong relationship with the consumers by achieving the required sustainability measures, social responsibility measures and returns on investment (Longoni & Cagliano, 2015). Moreover, in case of operational and internal strategic objectives, the organization improves the retailing strategies by maintaining the infrastructure, product quality, manufacturing processes and better technology. It has been noted that in case of learning strategic objectives, Woolworths Limited improved the training and communication session for the employees that assist in increasing the work quality to achieve the business goals (Mandzila & Zeghal, 2016).
Significant issues from the Chairman’s Report
Report of the chairperson of an organization states the overall performance of the business activities that is included in the financial reports during the accounting year. The report presents the summary of organizational operating activities, activities of the board members and management as well as the personal standpoint with respect to the future of the company (Dexter et al., 2015). The report of chairperson of Woolworths during the year 2015 reflects certain significant issues along with the favorable issues for its performance. One of the major issues reflected in the chairman’s report is the decrease in revenue by 12.5% that was based on the statutory activities. On the contrary, company experienced decline in-group sales by 0.2% during the financial year 2015 yet it paid higher dividends to the shareholders. It can be observed that company paid 137 cents as dividend per share in the year 2014 whereas 139 cents during the year 2015 indicating the increase in payout ratio and decrease in retention ratio. Further, the organization experienced retirement of a director served the directorship for more than four years along with the retirement of non- executive director that formed a part of suitable transition during the year 2014 (Knudsen, Moon & Slager, 2015).
Other significant issues in the Chairman’s report have been observed with respect to the change in the senior management team. In order to find an eligible and efficient leader for maintaining the organizational operations the Board of Directors conducted search on the global basis (Orlitzky et al., 2015). It has been noted that many efficient followers retired from the management team that became the problem to find the suitable and efficient replacement during the financial year 2015. However, the employee strength of the organization was noted at 190,000 known to serve the consumers with their hard and efficient work for the growth of Woolworths Limited during the financial year 2015 (Knudsen, Moon & Slager, 2015).
Significant issues from the Managing Director’s Report
Managing Director’s report of the company states the scale of business, business network, supply chain and the capability to remove the operating efficiency that helps in providing better competitive advantages. The report of the managing director not only focuses on the operational and financial activities but also the business activities that create the business values in different products in different regions (Lins, Servaes & Tamayo, 2015). It has been noted that Woolworths Limited is one of the leading organizations in the retailing industry with 30% more than the competitors. One of the significant issues noted in the managing director’s report was change in the market environment due to strong competition and change in the consumer’s shopping behavior. Essential challenges noted in the report with respect to the consumers’ experience for shopping in the supermarkets of Australia with the investment of around $200 million. In order to outperform the business in the products of liquor, Woolworths noted to face the challenges on access to the market share in the financial year 2015. Additionally, the organization found it difficult to add new ranges of the products along with the changes in the structure of the store for the leading brands across the globe (Campopiano & De Massis, 2015).
It has been noted that the company had returned 72% of the profit from the significant items in the form of dividend amounted to $1.8 billion. The issue with regard to the dividend distribution is maintenance of retention ratio that is relevant for the growth and expansion of the business (Morris, 2015). On the contrary, Woolworths reported to be the largest retailer by 30% in the liquor product compared to the other organizations in the same industries. It was observed that the company invested around 56000 hours during each week indicating a larger employment in the retailing industry.
Significant issues from the Corporate Responsibility Report
Corporate Responsibility report presents the integrity, due diligence and ethical practice of business activities for the benefit of consumers, society and other group of stakeholders. It covers the highlight and discusses the involvement of people, planet and prosperity for the growth of business activities. Considering the corporate responsibility report of Woolworths, it can be said that the company maintained the integrity, accountability and transparency while operating the business activities (Stender, Astrup & Dyerberg, 2016). However, there are certain issues noticed in the report during the financial year 2015 that disclosed the percentage of women employees is around 39% and the company invested $28.2 million for the training of employees. Moreover, the company experienced the reduction of 42% in the form of carbon emissions from the operational facilities.
In view of the achievement of significant business targets, it was noted that the strategy on the business sustainability was achieved at 91% compared to the commitment from the year 2007 to the year 2015. Similarly, the company managed to save only $172 million from the operating activities with respect to the investment in energy department (Cotton & Daly, 2015). Considering the prosperity of the business values of for the contribution in the economy of Australia the recorded amount was $114 billion against which the wages paid valued to $7.4 billion. Contribution to the partners of the organization and community reflected the amount of $36 million that affects the investment and distribution to the investors. Payment of taxes amounted to $2.4 billion during the financial year 2015 indicates the earning capacity from the operational activities and administrative activities (Woolworths Limited., 2016).
Key Financial Ratios for the year 2015
Financial ratio is measured by considering two relative terms from the financial statements of the organization. The ratios on profitability, performance, investment and employment of funds determine the efficiency of the company for the benefit of the different group of stakeholders. In view of the financial statements of Woolworths for the year 2015, the profitability ratios and performance ratios have been measured to compare the standards of the industry. Performance ratio is measured to determine the return on sales and profitability ratio including the earnings per share and return on assets. For the year 2015, gross profit ratio of Woolworths is 27.14% whereas the net profit margin is 3.51% which indicates that the organization’s earning capacity 27.14% to pay off the cost of sales while 3.51% to pay off the other administrative expenses. Observing the earning per share of Woolworths for the year 2015 cents 170.8 was reported that indicates return to the shareholders on each share of investment is 17% (Woolworths Limited., 2016).
Moreover, the statement of financial position of Woolworths, reflects the working capital ratio during the year 2015 ($7,660.9/$9,168.6) = 0.83 which is less than the standard ratio two. Hence, it indicates that the current assets employed by the organization are only 0.83 times to pay off the current liabilities. However, return on assets of the company is ($2,137/ $25,336.8) = 8.43% which indicates that the company’s sources of funds in the form of total assets is efficient to generate 8.43% profits. In case of financing the business of organization, debt asset ratio is measured for the year 2015 i.e. ($3,079.3/ $25,336) = 12.15% which indicates that the company’s sources of funds to pay off its debts is 12.15%. It can be said that the company’s operational activities and sources of funds are efficient to pay off the organizational expenses and liabilities (Woolworths Limited., 2016).
Evaluation of the company’s value creation in terms of “six capitals”
Capital is one of the major and essential sources to operate the business functions effectively and efficiently to maximize the profitability and sustainability. However, capital is not limited to the financial capital but there are various other forms of capital relevant to the operation of business. Accordingly, there are six capitals that form the entire business activities known as financial capital, manufacturing capital, human capital, social capital and relationship capital. These capitals together assist in creating the business values along with the profitability and sustainability (Lins, Servaes & Tamayo, 2015). In view of the business information from the annual report of Woolworths Limited, financial capital indicates the capital employed in form of securities. It has been noted that the issued capital during the year 2015 was $5,064 million, which was increased from that of the year 2014. Return on capital i.e. $3,322/$5,064 = 65.00% which indicates that Woolworths is employing its capital effectively for the benefit of the shareholders. Further, manufacturing capital of the organization reflects the material and infrastructure that distributes the quality production. In case of Woolworths, the company has reported substantial improvement in the infrastructure that by reforming the store structure to create business values to the consumers (Stender, Astrup & Dyerberg, 2016).
Additionally, human capital is one of the key capital factors that create the business values since; the organizational growth highly depends on the employee strength and their efficiency to work. Hence, the human capital i.e. 190,000 employees of Woolworths Limited is the second highest in Australian region as well as provides hard work to for the benefit of consumers and shareholders. On the contrary, social capital and relationship capital indicates the business values with the respect to the society and communities for their benefits, advantages and safety. Woolworths Limited’s progressive activities towards the society and customers create the leadership in the industrial market and one of the largest retailing organizations (Campopiano & De Massis, 2015).
In view of the financial information analysis, Woolworths Limited reported decrease in the net income during the year especially in the petrol business. Further, the working capital also reflected 0.83%, which is less than the standard ratio considering the entire retailing industry. Therefore, it is recommended that Woolworths Limited should improve its sales revenue from the business of petrol while the related expenses should be declined. Apart from that, Woolworths is suggested to maintain the retention ratio rather than increase in payment of dividend to the shareholders. Moreover, company’s cash used in the investing activities reflected decreased balance compared to the previous year 2014, which indicates that Woolworths is not utilizing its funds in investment. Therefore, it is recommended that the company should manage its investment that helps in expanding the organizational business in different regions. Further, fall in the income from operating activities indicates inefficient business operation in manufacturing the products. Hence, it is suggested that the management of the company should manage the cost of finance paid as well as other administrative costs.
In view of the above discussion on the investment factors of Woolworths Limited, it can be concluded that the company is efficient in various business aspects. Though the sales revenue from certain businesses reflects decrease compared to the year 2014, it has been observed that the business values and strategy are strong. Further, the company is efficient generating revenues from the sources of funds as well as from the cost of sales. Additionally, the company is efficient in employing its different capital that creates the business values with respect to the company’s finance, production, employment and society. Hence, it can be said the company provides better investment opportunity since the return on capital as well as earnings on shares are also high.
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