Financial Performance Analysis: A Comparison Of Wesfarmers And Woolworths In The Australian Retail Industry Essay.

This is a project proposal for MBA with Finance specialisation with AIB in Australia. Upon approval, there will be a 5500 word final report required. I have chosen a broader focus for the project and will be based on secondary data from online resources, hence there will not be a need for interviews, surveys, consents from organisations etc. The main focus of this research will be for analysing 'Financial performance in the XXX industry – comparing ZZZ and YYY organisations'. However, the actual topic is not set on stone. It is just an idea. I will attach all learning materials, project overview, assessment guidelines and requirements.

This research program will take an honest attempt to measure and compare the financial performance of two of the largest companies in the Australian retail industry named, Wesfarmers Limited and Woolworths Limited. Established in the year 1914, Wesfarmers has transformed into one of the largest listed corporations in Australia. The diverse business operations of Wesfarners include supermarket, liquor shops, hotels, convenience stores and others (wesfarmers.com.au 2017). Woolworths was founded in the year 1924. The major selling products of the company are vegetables, fruits, meat, packaged foods and others (woolworthsgroup.com.au 2017). Both Wesfarmers and Woolworths are the major marker giants of the Australian retail industry as both of these companies’ together holds 70% of the total market share of the retail industry. In the last year, the net profit after tax of Wesfarmers and Woolworths were AUS $1.4 billion and AUS $973 million respectively. Hence, it can be said that both Weesfaremers and Woolworths are the major two players of the Australian retail industry. With the help of analyzing the financial condition of these two companies, one can get idea about the whole retail industry of Australia. The reason is that these two companies are trend setters of Australian retail industry. Thus, these two companies are chosen for this reason.    

In the era of twenty-first centuries, the world of business in changing in a rapid pace.  In this kind of situation, the business organizations are facing some major problems regarding the financial performance of the businesses. It has been seen that the share prices of the big corporations in the retail industry are declining. The share prices of Wesfarmers have decreased by 0.69% to AUS $ 41.74 (wesfarmers.com.au 2017). On the other hand, the share prices of Woolworths have also decreased by 1.02% to AUS $26.26 (markets.ft.com 2017). These statistics indicate that there are some major problems involved in the financial performance of the companies of Australian retail industry.           

The main purpose of this project is to analyze the financial situation of the retail industry of Australia. In order to achieve this, the research process attempts to compare the financial position of the two retail giants, Wesfarmers and Woolworths. The financial position of these two companies will be compared by evaluating the various accounting and financial ratios in order to get the idea about the financial performance of the retail industry of Australia. Both Wesfarmers and Woolworths have chosen for this research project as examples. 

Based on the project problem and the project purpose, the following research questions are derived:

1. What is the current financial performance of Wesfarmers as compared to the last five financial years?
2. What is the current financial performance of Woolworths as compared to the last five financial years?
3. Compare and analyze the financial performance of Wesfarmers and Woolworths in order to find the least performing company and why.
4. What are the financial impacts of the financial position of these two companies on the Australian retail industry?

As per the above discussion, the major objective of this research project is to analyze the financial condition of the Australian retail industry by comparing the financial position of Wesfarmers and Woolworths. Hence, this research process has deep significance. This research report will be significantly important to analyze and evaluate the financial performance of the Australian retail sector. The research process will help to derive that name of the company among Wesfarmers and Woolworths that has a better financial condition. Apart from this, this research program will be helpful to spot the weak areas in the financial operations of these two companies so that effective steps can be taken to mitigate those problems. Hence, it can be said that the research process has its significance in determining the financial condition of these two companies along with the Australian retail sector.

Project Research Problem

The selection of the project topic is perfect for the academic course of the researcher. In the MBA course with finance specializations, the students use to study all the financial and accounting aspects. MBA in finance is a postgraduate level degree and the focus of this course is to know all the financial and accounting aspects on a higher level. There are some major focus areas of MBA in finance specialization; they are investment, strategy of investment, macro and microeconomics, merger and acquisition, financial risk analysis, various financial theory and others. Hence, it can be seen that all the major financial aspects are covered in the course of MBA with finance specialization. Apart from these above factors, some of the major topics that are covered in the MBA with finance specialization are management of corporate investment, portfolio management, management of hedge funds, management of small businesses and corporate finance, valuation of companies, measurement of the performance of the business organizations and others.

All of these above mentioned aspects are the crucial parts of finance and accountancy. The main aim of this course is to make the students financially sound so that they can arrange every kind of financial analysis and evaluation process. Hence, it can be said that there is a deep connection between the course of the researcher and the chosen topic. As per the requirement of the research topic, it is needs to analyze and evaluate the financial performance of Wesfarmers and Woolworths. For this purpose, it is needed to apply some of the financial knowledge like measuring the financial performance of the business organizations, the process of ratio analysis to measure the financial performance of the companies, the effect of various economic aspects on the organization and others. Thus, by the completion of the research project, the researcher will be able to practically execute most of his financial knowledge that he has been learning in the MBA course with finance specialization. Apart from the execution of knowledge, the research project will come to know some practical financial aspects at the time of conducting the research program. Hence, from the above analysis, it can be said that the chosen topic is correct for the researcher as per his course requirements.

Measurement of the financial performance of the business organizations is a complex task as one has to consider many crucial financial aspects in this process (Vogel 2014). Financial process can be considered as the process of identification of the strengths and weaknesses of the business organizations with the help of financial and accounting information. In this regard, one needs to consider the Profit & Loss account and the Balance Sheet of the organizations (Healy and Palepu 2012). This is the process of evaluation of the financial components of the business organizations in order to get better understanding about the financial position and performance of the organizations. In this regard, the process of ratio analysis is another important factor in performance measurement (Bodie 2013). With the help of ratio analysis, one can measure the relationship between the financial figures of the business organizations. Ratio analysis is considered as the most important factor to compare the financial performance of two business organizations (Higgins 2012). The results of the financial ratio analysis are derived from the information of the financial condition of the organizations, its financial operations and its attractiveness as an investment. For the purpose of financial ratio analysis, the financial statements of the companies are important aspects as all the necessary information of the ratio analysis comes from them. There is deep significance of the process of ratio analysis. The process of ratio analysis provides the clear and accurate picture of the financial position of the business organizations. Apart from this, ratio analysis of the business organizations is helpful to determine the future financial trends of the organizations (Brown 2012). Thus, it can be said that ratio analysis is a major tool to evaluate the financial position of the organizations.

Focus of the Study

The process of methodology draws the total methods of the research process. Two types of data are there; they are primary data and secondary data and major differences are there between these two kinds of data. Researcher himself/herself collects the primary data and secondary data collected by other persons. Primary data are original and unique where secondary data are not unique as they can be collected from different sources. Primary data are reliable than the secondary data as they are based on first hand field study. Biasness can be seen in primary data where secondary data are free from all biasness.  In order to carry on the research process, the research project will collect the secondary data. After the collection of the necessary data and information, they will be analyzed with the help of ration analysis. In order to do the part of ratio analysis, the project will use Microsoft Excel. With the help of ratio analysis, the financial performance of Wesfarmers and Woolworths will be measured (Irwin 2013). All the findings will be used to measure the performance of the Australian retail sector.

In order to answer the research questions of this project, the secondary data will be collected. The secondary data will be the financial and accounting information of the organization. For this reason, some of the major ratios need to be taken into consideration. They are profitability ration that is gross profit ration, net profit ration and return on assets ration; liquidity ratio that is current ration and quick ratio; efficiency ratio that is debt turnover ratio and inventory turnover ratio and solvency ratio that is debt to equity ratio. The analysis and evaluation of these ratios will determine the financial performance of Wesfarmers and Woolworths. In order to analyze the ratios, the data of last five years that is 2012 to 2016 will be taken into consideration. The necessary data for the ratio analysis will be taken from the financial statements of the companies from the company websites. Apart from financial statements, secondary data will be collected from various newspaper articles, journal articles and government websites that have information about these two companies.

At the time of collecting the secondary data, the researcher needs to make it sure that all the sources of secondary data are authentic and actual. Secondary data from any illegal cite cannot be used for the research program. Apart from this, the researcher should not make any manipulation with the research process to bring favorable results. Lastly, the researcher needs to make it sure that the research project will not be used for any kind of commercial purpose.   

                                                                  Figure 1: Timeline for Project Completion

                                                              (Source: Kerzner 2013)

References:

Bodie, Z., 2013. Investments. McGraw-Hill.

Brown, R., 2012. Analysis of investments & management of portfolios.

Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements. Cengage Learning.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Irwin, S., 2013. Qualitative secondary data analysis: Ethics, epistemology and context. Progress in Development Studies, 13(4), pp.295-306.

Kerzner, H., 2013. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Markets.ft.com. (2017). Woolworths Ltd, WOW:ASX forecasts - FT.com. [online] Available at: https://markets.ft.com/data/equities/tearsheet/forecasts?s=WOW:ASX [Accessed 6 Jun. 2017].

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.

Wesfarmers.com.au. (2017). Share price. [online] Available at: https://www.wesfarmers.com.au/investor-centre/your-shareholding/share-price [Accessed 6 Jun. 2017].

Wesfarmers.com.au. (2017). Who we are. [online] Available at: https://www.wesfarmers.com.au/who-we-are/who-we-are [Accessed 29 May 2017].

Woolworthsgroup.com.au. (2017). About Us - Woolworths Group. [online] Available at: https://www.woolworthsgroup.com.au/page/about-us/ [Accessed 29 May 2017].