This is a solution of Analysis of Financial Statements of the Business that describes about finance IT strategy can help your company cope with aging systems and limited resources that can lead to fragmented IT solutions.
It is the responsibility of every management team of an organization to analyze the financial performance of the business in an efficient manner so that long-term sustainability of the business can be ensured. Considering this fact the managements in most of the organizations focus on the financial performance analysis and management in every financial year. This study is going to focus on the financial analysis of one of the most popular retailers in the Australian market that is Woolworths Limited.
Background and Business
Woolworths Limited is one of the oldest retailers in the Australian market. This company has started working in the retail industry in the year of 1924. Currently it is operating under the Australian Security exchange (ASX). At present the company is operating mainly in the markets of Australia and New Zealand. Apart from Australia and New Zealand, currently the company is also operating its business in the Indian market. The product range of the company includes all types of supermarket products and along with that the company also deals with the products like, petrol, liquor and many others.
Financial statements, Current Financial performance, economic outlook
Financial statements are the sources that provide financial data related to a business. Considering the particular business case of Woolworths Limited, it can be stated that an idea about the financial position of the company can be better obtained by analyzing the financial statements of the business. The financial statements collected from the annual report of Woolworths Limited of 2017 are analyzed below:
Analyzing the profit and loss statement of Woolworths Limited:
The profit and loss statement of 2017 indicates that the financial performance of the company has improved from the last year that is 2016. The income level of the company has enhanced. In 2016 the company faced a huge net loss, which it has recovered in 2017. The following is the extract from the profit and loss statement of Woolworths in 2017:
(Source: Woolworthsgroup.com.au, 2018)
The above extract is clearly showing that the net operating revenue of the company has increased. However, the numeric is not showing many improvements in the revenue generation capacity of the business. However, sound improvements can be noted in EBIT and PAT of the company. The cost level of the business has also increased in 2017. If the scenario is critically analyzed, it will be very clear that the revenue has not increased by higher percentage because of the lack of product diversification. Since many years the company has not brought any innovative or new product in the market. The service quality of the company has also not changed much. However, due to higher amount of profit from the discontinued operations the profitability has increased.
Analyzing the statement of financial position:
The statement of financial position shows the assets, liabilities and equity positions of the company during a particular financial period. The following extract is showing the statement of financial position of Woolworths Limited in 2016 and 2017:
(Source: Woolworthsgroup.com.au, 2018 )
Considering the above extract is showing that the total assets of the business has decreased in 2017. Decreased total assets are showing that the financial position of the company has declined in 2017. However, if the comparison is made considering the total liabilities also it will be identified that the total liabilities of the company have also declined in 2017; hence, it can be stated that the financial position of the business has not declined much. However, the management of the company needs to take more care for increasing the total assets of the business. In this context it must be noted that compared to current liabilities the value of current assets of the business was low in 2016 and 2017, which means the liquidity position of the business was not that strong. The company might have suffered from working capital crisis. On the other hand, the value of total equity of the business has increased a bit in 2017. From the overall analysis of the statement of financial position it can be stated that the financial position of the company was not much sound. The company has availed higher amount of short-term loans. Moreover the current assets management of the business was poor, which has affected the liquidity position of the business.
Analyzing the cash flow statement of Woolworths Limited:
Cash flow statement indicates the cash position of a business during the entire financial period. The cash flow statement of Woolworths Limited for the year 2016 and 2017 are shown in the following mage:
(Source: Woolworthsgroup.com.au, 2018)
The cash flow statement of the company is showing that the cash inflow has reduced from 216 to 2017. Though the amount of cash from the operating activities has increased in 2017, the total cash outflow from the business has also increased in the contexts of investing and financing activities. Decrease in the cash inflow of the business indicates that the performance standard of the business has not improved. Decrease in the cash inflow also indicates that the working capital of the company has reduced and at the same time the liquidity of the business has reduced.
Therefore, from the overall analysis of the three different financial statements of the business it can be stated that the financial performance of Woolworths Limited in the year 2017 was not so sound. There were several flaws in the financial performance of the business. The cash flow of the business has declined and at the same time the total assets of the company has also reduced.
As the performance of the company was not that sound in 2017 the performance of the company in the current year is also hampered in 2018 or in the current year. Considering the last year’s financial reports it can be mentioned that in the current year the company needs to develop stronger competitive or financial strategies.
If the discussion is made from the economic point of view, it can be stated that as the company has increased its total income in the last financial year the economic contribution of the company has increased. The company has also paid higher amount of income tax in the financial year 2017, which is indicating high contribution of the company.
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