Executive SummaryWoolworths Limited and Wesfarmers Limited have been performing on similar business model and have been successful as retail players. Their market has grown which is reflected by the growth in sales. There is even scope for the company to move further as this sector is showing improvement. The financial analysis also highlights some important fact related to liquidity and capital structure. The findings shows the positives and negatives of both based on financial analysis. The ratios like liquidity ensures to find liquidity and the capital financed by the company are demonstrated by capital structure ratios.
The efficiency ratio indicates the area where Wesfarmers need to work to stay ahead of Woolworths Limited. The capital market ratio indicates the companies which are favoured by shareholders and also help to look into the future prospects of the company. The recommendations highlights areas where both the companies need to improve which will help them face competition and help in proper strategy execution. The analysis shows that Wesfarmers performance has improved drastically in 2009. It still needs to work on certain areas to stay ahead of Woolworths as the company has shown stability and Wesfarmers need to inculcate those so that it is able to withstand competition and capture a bigger market.
IntroductionWesfarmers Limited is a retail giant. The company has a huge presence and deals in “home improvement, office supplies, insurance, food, liquor, coal and other products”. (Wesfarmers Website, 2010) The fact that the company deals in so many products and huge reach has given a wide market. The company has a presence in supermarkets, malls, departmental stores and provide the basic necessities for people thereby enabling them to grow. Woolworths Limited is also a retail giant.
The company deals in “liquor, hotels, petrol, consumer electronic, everyday requirements and home improvements”. (Woolworths Website, 2010) The wide range of product and dispersion has made it a huge success. The company with their policy to satisfy customers has grown and is able to capture a good market. The financial statement of both the companies reveals so. Even the share prices shows improvement. With more consumers moving towards supermarkets gives an opportunity to expand in overseas. Financial AnalysisFinancial analysis is very important for all business.
Analyzing the statement helps in “planning, budgeting, monitoring, forecasting and improving the financial performance by taking vital decision”. (Micro Strategy, 2010) Proper analysing helps a long way to “understand the financial health”. (Micro Strategy, 2010) It helps to identify trends and compare with competitors and industry to gain advantage. The following is the ratios for Woolworths Limited and Wesfarmers Limited. Liquidity RatiosThis ratio plays an important part and helps “to identify the firms ability to meet its short term obligations and plays a huge role in the performance”.
(Financial Modelling Guide, 2010) The ratios for Wesfarmers and Woolworths areCash Flow Ratio: It is defined as “the ability of the firm to meet the current liabilities out of its operating activities”. (Financial Modelling Guide, 2010) It is calculated as “Net Cash from Operating Activities / Current Liabilities X 100”. The ratios for both the companies are as follows