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Evaluating the Woolworths balance sheet, income statement, and cash flow statement

Discuss about the Woolworths for Accounting and Financial Management.

This study deal with an Australian Listed Company named as Woolworths Limited. This particular retail organization was founded in the year 1924 in Sydney ("Woolworths Supermarket - Buy Groceries Online", 2016). CEO of Woolworths Limited, Percy Christmas brought forward the key principles, “Every man, woman and child needs a handy place where good things are cheap”. Woolworths Limited current business growth plan mainly focus on four key strategic priorities. They majorly extend its leadership in food as well as liquor. They act on portfolio on maximization of shareholder value. They aim at maintaining record of accomplishment for building various new growth businesses in new era of growth in the upcoming financial year ("Woolworths Supermarket - Buy Groceries Online", 2016). Woolworths Limited has strong lead towards corporate responsibility as well as excellent progress in achievement in reaching sustainability targets. This particular retail organization continues in driving for positive changes for business, society as well as community. Woolworths Limited committed towards continuous transparency as well as improvement and accountability at the same time. Woolworths recruits more than 198300 staff members at stores, distribution centers and support offices. They focus mainly on talent development as well as potential of deserving people at workplace ("Woolworths Supermarket - Buy Groceries Online", 2016). In the year 2013, Woolworths employed more than 2790 trainees as well as apprentices. This particular retail organization believes in diverse workforce for retaining in the global marketplace.

Evaluating the Woolworths balance sheet, income statement, and cash flow statement:

Depicting the Horizontal analysis of the income statement of Woolworths form, 2014 to 2015

Figure 1: Depicting the Horizontal analysis of the income statement of Woolworths form, 2014 to 2015

(Source: As created by author)

With the help of figure 1, the overall horizontal analysis for the income statement could be effectively analyzed. In addition, the decrease in cost of revenue could be effectively analyzed from figure 1, which is mainly increasing profitability of the company. Moreover, branch expenses and general administrative expenses for the company is have exponentially increased to 3.09% and 8.16%. This increased administrative expense has mainly decreased the overall net profit of the company for 2015. Rasoto et al. (2013) stated that decrease in cost of revenue mainly helps companies to generate a higher gross profit margin, which could be used in maintaining a higher liquidity of the firm. On the other hand, Hörmann & Schabert (2015) criticizes that increased administrative expenses might reduce overall net profit of the company and hamper its retained earnings. In addition, the rising administrate expanses of Woolworths from 2014 to 2015 has mainly decreased the ability of the company to maintain higher profits. The total profit for 2015 mainly decreased due to the rising administrative expenses conducted by the company during 2015 fiscal year.     

Total Asset analysis of Woolworths

Depicting the Horizontal analysis of the income statement of Woolworths form, 2014 to 2015

Figure 2: Depicting the Horizontal analysis of the income statement of Woolworths form, 2014 to 2015

(Source: As created by author)

Moreover, with the help of figure 2, the overall horizontal analysis of the income statement, which has been generated by Woolworths from 2014 to 2015, can be effectively evaluated. In addition, the total revenue financing cost and net profits for the company mainly decreased in 2015 in comparison to 2014. The decrease in total revenue mainly indicates the ability of the company to generate adequate demand among potential customers. However, an increase in other income and gross profit of the company mainly indicates the efficiency of the company to reduce its total cost of revenue. Jimenez & Ongena (2012) mentioned that evaluation of income statement mainly helps investors to evaluate the financial stability of the company to support its future endeavors. On the contrary, Del & Sims (2015) criticizes that some companies use unethical measures in inflating their balance sheet, which might reduce efficiency of horizontal and vertical analysis. 

Depicting the Horizontal analysis of the Balance sheet statement of Woolworths form, 2014 to 2015

Figure 3: Depicting the Horizontal analysis of the Balance sheet statement of Woolworths form, 2014 to 2015

(Source: As created by author)

From analysis of the balance sheet statement of Woolworths Company, it was gathered that in comparison to the year 2014, total current assets have increased in the year 2015 by 7.81%. Total current assets of the company have increased by 3.79% in the year 2015 as compared to the year 2014. The balanced sheet statement analysis of Woolworths Company also indicated that total current liabilities increased by 22.42% in the year 2015 in comparison to the year 2014 (Woolworthslimited.com.au, 2016). The graph above depicts that total current liabilities of the company has increased by a great percentage than the components in the balance sheet. From the evaluation of the total stockholder’s equity in the balance sheet of the company it was gathered that it increased by the percentage of 5.76% in the year 2015 in comparison o the year 2014. However, most of the aspects in Woolworth Company’s balance sheet indicated a positive increase. However, from the evaluating of the total non-current liabilities it was observed that the total non-current liabilities of the company decreased by 17.73% in the year 2015 in contrast to the year 2014 (Woolworthslimited.com.au, 2016). 

Evaluating the Woolworths key assets, liabilities, equity classes, incomes and expenses:

Total Asset analysis of Woolworths considers as everything that a business owns.  It is the total of long-term assets owned by particular firm for specified time. Assets are listed in the balance sheet as well as value-based depending upon purchasing prices and current market value. Woolworths Limited is the sum of tangible asset and intangible asset amounting to 24.18 billion (Woolworths Supermarket - Buy Groceries Online", 2016). This figure is 208.7% higher in comparison with other services sector. It is 89.74% higher in comparison with Grocery Stores industry (Woolworths Supermarket - Buy Groceries Online", 2016). Total assets of all the stocks involves 63.75% considers higher than the company (Woolworths Supermarket - Buy Groceries Online", 2016).

Liabilities that impact the firm’s reported position and financial performance

The liabilities that impact the firm’s reported position and the financial performance include – net repayable debt and other financial liabilities. The net repayable debt includes the borrowing, cash, liabilities and hedge assets. All these decreased from $ 664.3 million to $ 3067.3 million in the year 2015 (Woolworths Supermarket - Buy Groceries Online", 2016). It has been found that this total amount has been driven by $ 925.4 million of proceeds from the property sale and the investments (Woolworths Supermarket - Buy Groceries Online", 2016). Detailed analysis has found that primarily the sale of 54 freehold hotel sites took place in the particular year (Woolworths Supermarket - Buy Groceries Online", 2016). On the other hand, it has been found that the other financial liabilities increased from $ 95.6 million to $ 976.1 million in the year 2015 (Woolworths Supermarket - Buy Groceries Online", 2016). This increase primarily reflects the movement of the value of the Lowe’s put option in the Home Improvement business.

Equity classes of Woolworths Limited increases at $ 581.7 million to $10834.2 million reflect upon the profits generation from payment of dividends (Woolworths Supermarket - Buy Groceries Online", 2016). These policies and strategies develop in ensuring measurable progress in making genuine black economic development. Woolworths Limited good business journey aims at setting for perfect plan of action for the next five years. It advances equity ownership and meeting employment equity targets at senior leadership level (Kemp & Waybright, 2013). It helps in creating skills pipeline for providing necessary momentum for change for future analysis purpose. This particular empowerment transaction involves all employees based upon equity classes of the company.

It has been found from the annual report of the firm that the total income of the firm in the year 2015 was $ 60679.1 million which decreased from the year 2014 i.e. $ 60772.8 million (Woolworths Supermarket - Buy Groceries Online", 2016). It has also been found that the total earnings of the organization Woolworths Limited have also been decreased from $ 3775.2 million in 2014 to $ 3322.5 million in the year 2015 (Woolworths Supermarket - Buy Groceries Online", 2016).  

There are various techniques that are applied to forecast the demand of the human resources within the company Woolworths Limited. These include – managerial judgment, Delphi model, ratio trend analysis, work study technique and econometric models. However, for analyzing the demand of the human resources within the organization Woolworths Limited, the managerial judgment technique has been implemented. This particular method helps to understand the requirement of the human resources for the overall organization on the basis of the proposals of the departmental heads and the line managers. As per the annual report of the particular company Woolworths Limited for the year 2015, there are total eight members in the Group’s Board of Directors. The members of the Groups’ Board of Directors are – Gordon Cairns, Grant O’Brien, Jillian Rosemary Broadben, Christine Cross, Carla Hrdlicka, Allan Douglas Mackay, Scott Redvers Perkins and Michael James Ullmer (Woolworths Supermarket - Buy Groceries Online", 2016). The management board of the particular company is consisted of eleven members – Grant O’Brien, Richard Dammery, David Marr, Brad Banducci, David Guise, Peter McConnell, Matt Stanton, Matt Tyson, Penny Winn, James Goth and Martin Smith (Woolworths Supermarket - Buy Groceries Online", 2016). Therefore, it can be said that the demand forecast of the human resources within the various departments of the organization Woolworths Limited are settled by the company’s Board of Directors and management board. The people policy committee of the governance of the company Woolworths Limited is composed of people strategy, performance management and succession planning, remuneration policies, compliance and shareholder reporting (Weaver, 2012). Thus, it can also be said that the Board assists to comply with the regulatory and legal requirements that are associated with the remuneration matters and the human resources. This Top-down approach helps the specified firm Woolworths Limited to understand and forecast the demand of the human resources within the organization.        

Conclusion

At the end of the study, it is concluded that Woolworths has the ability in retaining its position in the upcoming financial year. The above study successfully brings out the financial analysis of Woolworths Limited by conducting horizontal and vertical analysis. The amount is extracted from income statement, balance sheet and cash flow statement that needs urgent attention as far as possible. Further, it explains regarding the accounting conventions of managerial judgment involving various financial concepts in relation with Woolworths Limited. In this particular assignment, emphasis was made to clearly bring out the facts underlying increase or decrease of particular figures for the given year 2014 and 2015.

Reference

Aysun, U., & Hepp, R. (2013). Identifying the balance sheet and the lending channels of monetary transmission: A loan-level analysis. Journal of Banking & Finance, 37(8), 2812-2822.

Canales-Krijlenko, M. C., Dabán, T., García-Escribano, M., Liedorp, F., Rennhack, R., Romeu, R., ... & Vera-Martín, M. (2014). Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems. A Guide to IMF Stress Testing: Methods and Models, 229.

Cetorelli, N., & Goldberg, L. S. (2016). Organizational complexity and balance sheet management in global banks (No. w22169). National Bureau of Economic Research.

Del Negro, M., & Sims, C. A. (2015). When does a central bank׳ s balance sheet require fiscal support?. Journal of Monetary Economics, 73, 1-19.

Gambacorta, L., Hofmann, B., & Peersman, G. (2014). The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Crossâ€ÂCountry Analysis. Journal of Money, Credit and Banking, 46(4), 615-642.

Hörmann, M., & Schabert, A. (2015). A monetary analysis of balance sheet policies. The Economic Journal, 125(589), 1888-1917.

Jiménez, G., & Ongena, S. (2012). Credit supply and monetary policy: Identifying the bank balance-sheet channel with loan applications. The American Economic Review, 102(5), 2301-2326.

Kemp, R. & Waybright, J. (2013). Financial accounting. Boston: Pearson.

Rasoto, A., da Silva Maciel, B. A., Cunha, G., Tonn, R., & Rasoto, V. I. (2013). ). the main differences among the static and dynamic balance sheet analysis-a brazilian company case study.Tourism & Management Studies, 923-936.

Weaver, S. (2012). The essentials of financial analysis. New York: McGraw-Hill.

Woolworths Supermarket - Buy Groceries Online. (2016). Woolworths Online. Retrieved 26 August 2016, from https://www.woolworths.com.au/

Woolworthslimited.com.au. (2016).Woolworthslimited.com.au. Retrieved 26 August 2016, from https://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports/

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