Student name: Suman Balla

Student ID: s0276219

Marking Criteria Sheet: ACCT20051 and ACCT20077

Word count

Allowed

Actual

1500
Marks

Marks

available

awarded

Knowledge and understanding

10

Reasoning and analysis

50

Profitability analysis: two ratios (1.25 marks for each ratio, 0.625
marks per year for correct figures)
Liquidity: two ratios (1.25 marks for each ratio, 625 marks per year
for correct figures)
Capital structure: two ratios (1.25 marks for each ratio, 625 marks
per year for correct figures)
Market performance: two ratios (1.25 marks for each ratio, 625
marks per year for correct figures)
Writing skills and presentation

10

Cohesiveness

10

Referencing, use of references and background reading

10

Submission requirements

10

Assignment total marks

100

Assignment Total out of 20 marks (20%)

20

ACCT20077: Accounting for Management Decision Making

Assignment 2

Submitted by:

Submitted to:

Suman Balla

Sudipta Bose

S0276219

Lecturer

Submitted on April 28th 2016

Word Count: 1500 (From executive summary to conclusion)

Executive Summary
Woolworths and Wesfarmers are two of the biggest names in retail market. Both of the
companies are almost at same status with former and latter having $2.45 Billion and $2.44
Billion of net profit after tax in 2015 respectively. Furthermore, both of them have almost
2

same number of employees. Clearly, they are comparable and this report does the same by
means of financial analysis methods to figure out which company is a better option for
investors.

Introduction:
Woolworths is a leading company in retail market with 190,000 plus employees and net profit
of $2.45 Billion after tax at present that provides wide range of products at possibly lowest
price at convenient locations (Woolworths 2015). Its scale, resources, profit, supply chain and
efficiency have contributed to provide itself with a competitive edge in this era of continual
challenges for sustainable returns.
Likewise, Wesfarmers is one of the largest listed companies in Australia with diverse business
operations covering supermarkets, home improvement office supplies (Wesfarmers 2015).
With more than 205,000 employees and $2.44 Billion of net profit after tax, it surely has wide
impact on the economy of Australia and is on toe-to-toe with Woolworths. A detailed trend
analysis for both of the companies has been presented below:

Suman Balla S0276219, Page 1 of 13

Note: The monetary figures used in this report are in Australian Million dollars
Woolworths Limited
1) Profitability
a) Return on asset =

Profit (Loss)
100
Average total assest

Total assets 2015

=
Total assets 2014
=
Total assets 2013
=
Average total assets in 2015

(Birt et al. 2014)

25,336.80
24,136.50
22,250.20
= (25,336.80 + 24,136.50)/2
= 24736.65

Average total assets in 2014 = (24,136.50+ 22,250.20) / 2

= 23193.35
Year
Profit (loss)
Average total assets
Return on assets (%)
b) Net profit margin =

2015
2,137.40
24736.65
8.64
Profit (loss)
100
Sales revenue

Year
Profit(loss)
Sales revenue
Net Profit Margin (%)

2015
2,137.40
60,868.40
3.51

2014
2,458.40
23193.35
10.60

(Birt et al. 2014)

2014
2,458.40
60,952.20
4.03

Return on assets decreased by 18.5% in 2015 due to investors withdrawal from

Masters, Woolworths home improvement business (Woolrich 2015). Besides, there
was increase in branch expenses and administration expenses. This eventually led to
decrease in profit and hence decrease in Net profit margin.
2) Liquidity:
Current Assets
a) Current Ratio = Current Liabilities
(Birt et al. 2014)

Year
Current assets
Current liabilities
Current ratio(x times)

2015
7,660.90
9,168.60
0.84

Suman Balla S0276219, Page 2 of 13

2014
7,106.10
7,489.50
0.95

b) Quick ratio =

Current AssetsInventory

Current Liabilities

Year
Current assets
Current liabilities
Inventories
Quick ratio(x times)

2015
7,660.90
9,168.60
4,872.20
0.30

(Birt et al. 2014)

2014
7,106.10
7,489.50
4,693.20
0.32

Current liabilities in 2014 was less as compared to 2015 although there is less difference
between current assets between two years. The liabilities increased in 2015 as there was more
borrowings and trade payables for this year. This resulted in decrease of current ratio in 2015.
Further, 2015 had more inventories than 2014 which caused decrease in quick ratio
eventually.
3) Capital Structure:
a) Debt to equity ratio =
Year
Total liabilities
Total equity
Debt to equity ratio (%)

b) Equity Ratio =

T otal liabilities
100
Total equity
2015
14,204.80
11,132.00
127.60

Total equity
100
Total asset

Year
Total equity
Total assets
Equity ratio (%)

Suman Balla S0276219, Page 3 of 13

2015
11,132.00
25,336.80
43.94

(Birt et al. 2014)

2014
13,611.10
10,525.40
129.32

(Birt et al. 2014)

2014
10,525.40
24,136.50
43.61

The Debt to equity ratio decreased by 1.33% from 2014 to 2015 as increase in
total equity is more than increase in total liabilities. But, equity ratio increased in
2015 as compared to 2014 as there is increase in total asset and equity.
4) Market Performance:
a) Earnings
per2014)
share =
(Birt et al.
Profit available

ordinary shareholders
=x cents/ share
Weighted no . of ordinary shares on issue
Year
Profit available to ordinary

2015
2146

2014
2451.7

shareholders
Weighted no. of ordinary

1256.6

1248

shares on issue
Earnings per share (in cents)

171

196

Earnings per share decreased by 12.8 % from 2014 to 2015. It is basically due to
decrease in overall profit available to normal shareholders. This is not in unison
with dividend per share which decreased by 2.2%.
b) Dividend per share =
Dividends paid
(Birt
et
al.
2014)

ordinary shareholderscurrent reporting

Weighted no . of ordinary shares on issue
x cents /share

Year
Dividends paid to ordinary shareholders in current

2015
1753.4

2014
1703.8

reporting
Weighted no. of ordinary shares on issue
Dividend per share (in cents)

1256.6
140

1248
137

Wesfarmers
1) Profitability
a) Return on asset =
Total assets 2015

Profit (Loss)
100
Average total assest
=

Suman Balla S0276219, Page 4 of 13

40,402

(Birt et al. 2014)

Total assets 2014

=
39,727
Total assets 2013
=
43,155
Average total assets in 2015 = (40,402 + 39,727) / 2 = 40064.5
Average total assets in 2014 = (39,727 + 43,155) / 2 = 41441
Year
Profit (loss)
Average total assets
Return on assets (%)
b) Net profit margin =

2015
2440
40064.5
6.09
Profit (loss)
100
Sales revenue

Year
Profit(loss)
Sales revenue
Net Profit Margin (%)

2014
2689
41441
6.49
(Birt et al. 2014)

2015
2,440
62,447
3.91

2014
2689
60,181
4.47

There is decrease in return on assets from 2014 to 2015 as there is relatively more
decrease in profit in subsequent year as compared to average total assets which was
triggered by sold off insurance along with dropping industrial gas business (Letts
2015) . Also, net profit margin decreased from 2014 to 2015 due to decrease in profit.

2) Liquidity:
a) Current Ratio =
Year
Current assets
Current liabilities
Current ratio(x times)

b) Quick ratio =

Year
Current assets

Current Assets

Current Liabilities
2015
9,093
9,726
0.93

Current AssetsInventory

Current Liabilities
2015
9,093

Suman Balla S0276219, Page 5 of 13

(Birt et al. 2014)

2014
9,311
8,229
1.13

(Birt et al. 2014)

2014
9,311

Current liabilities
Inventories
Quick ratio(x times)

9,726
5,497
0.37

8,229
5,336
0.48

There is decrease in current ratio by 21.5% from 2014 to 2015 as current liabilities increased
and current assets decreased in the subsequent year. Likewise, there is decrease in quick ratio
from 2014 to 2015 as inventories increased along with current liabilities from 2014 to 2015.
3) Capital Structure:
a) Debt to equity ratio =

T otal liabilities
100
Total equity

Year
Total liabilities
Total equity
Debt to equity ratio (%)
b) Equity Ratio =

2015
15,621
24,781
63.04

Total equity
100
Total asset

Year
Total equity
Total assets
Equity ratio (%)

2015
24,781
40,402
61.34

(Birt et al. 2014)

2014
13,740
25,987
52.87

(Birt et al. 2014)

2014
25,987
39,727
65.41

As opposed to debt to equity ratio of Woolworths, Wesfarmers saw increase in this

ratio from 2014 to 2015 as total equity decreased but total liabilities increased in
consequent year. Likewise equity ratio decreased by 6.2 % in 2015 as there is
large decrease in total equity but increase in total assets.
4) Market Performance:
a) Earnings per share =
Profit available
(Birt et al. 2014)

ordinary shareholders
=x cents/ share
Weighted no . of ordinary shares on issue

Year
Profit available to ordinary
shareholders
Suman Balla S0276219, Page 6 of 13

2015
2440

2014
2253

Weighted no. of ordinary

1040

shares on issue
Earnings per share (in cents) 235

1040
217

b) Dividend per share =

Dividends paid
(Birt etal. 2014)
ordinary shareholderscurrent reporting
Weighted no . of ordinary shares on issue
x cents /share

Year

2015

2014

Dividends paid to ordinary shareholders in current

2085

1979

Weighted no. of ordinary shares on issue

1040

1040

Dividend per share (in cents)

200

190

reporting

Unlike Woolworths, earnings per share increase from 2014 to 2015 by 8.3% for Wesfarmers
which is due to increase in profit available to ordinary shareholders while number of shares
remained constant. But, dividend per share increased in 2015 as overall dividends for
ordinary shareholders increased while the number of shares remained constant.
Comparison of Woolworths and Wesfarmers:
It is evident from profitability analysis that both Woolworths and Wesfarmers are declining
from 2014 to 2015. Rate of decrease of Return on asset and Net profit margin for Woolworths
is more than Wesfarmers although for 2015 overall profitability seems to be higher for
Woolworths.
Likewise, liquidity analysis proves current ratio and quick ratio decrease for both companies
in 2015 but this rate of decrease is higher for Wesfarmers. Also Capital structure suggests that
there is decrease in equity ratio for both companies in 2015 but debt to equity ratio decreases
for Woolworths and increases for Wesfarmers. Finally, market performance analysis suggests
that earning per share decreased for Woolworths and increased for Wesfarmers in 2015
whereas dividend per share decreased for both companies in 2015.

Suman Balla S0276219, Page 7 of 13

Conclusion and Recommendation:

Thus, it would be reasonable to recommend Wesfarmers instead of Woolworths for
investment options as the rate at which Woolworth is declining in terms of profitability is
higher than Wesfarmers. Moreover, the rate of decrease in liquidity is higher for Wesfarmers
as compared to Woolworths which is evident from liquidity analysis. Further, the earning per
share and total dividend per share is higher for Wesfarmers in 2015 as compared to
Woolworths which makes Wesfarmers a clear choice for investment among two companies.
Although there may be some degree of risk associated in both companies, it can be concluded
that Wesfarmers is better option for investment.

References
Birt, J, Chalmers, K, Maloney, S, Brooks, A & Oliver, J 2014, Accounting: business
Reporting for decision making, John Wiley & Sons.
Letts S 2015, Wesfarmers profit slides due to sold businesses; underlying earnings surge,
viewed 20 April 2016, http://www.abc.net.au/news/2015-02-19/wesfarmers-profit-slides-dueto-sold-businesses/6146534
Wesfarmers 2015, 2015 Annual Report, viewed 21 April 2016,
https://www.wesfarmers.com.au/documents/1472-2015-annual-report/file.html

Suman Balla S0276219, Page 8 of 13

Woolrich N 2015, Woolworths first-half profit falls to $1.3 billion on

Masters hardware struggles, viewed 25 April 2016,
http://www.abc.net.au/news/2015-02-27/woolworths-first-half-profit-fallsto-$1.3-billion/6267930
Woolworths 2015, Annual Report 2015, viewed 22 April 2016,
http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf

Suman Balla S0276219, Page 9 of 13