Analysis Of Wesfarmers and Woolworths †MyAssignmenthelp.com

Question: Discuss about the Analysis Of Wesfarmers and Woolworths. Answer: Introduction: The performance of any commercial enterprise or an industry can be evaluated with the help of the top down analysis or the bottom up analysis, taking into account the broader perspective and from the point of view of company. The top down mechanism includes the breaking down of a system into its sub-components such that an insight about the sub-systems can be attained using backward calculations. The approach includes specifying and designing of an overview of the concerned organization (Petty et al. 2015). The component systems of a construct, under this approach are broken down to smaller sub-systems till the basic elements of the system are reached. Therefore, this approach starts with the system as a whole and breaks it down to parts and sub-parts in order to get a detailed insight about the activities of the enterprise. The report conducts these two analysis on two of the retail giants operating in the Australian supermarket and retail grocery industry, the names being Wesfarmer s and Woolworths (Heinrich 2012). Top down Approach: It is necessary to take into account the overall economic scenario of Australia in order to analyze the performances of the above-mentioned retail giants. Australia, being one of the leading economies in the global scenario, has been performing consistently well in more or less all the economic indicators and has shown a persisting economic growth for the last 26 years. The country being one of the primary mixed economies in the world, is known for the stability in its policy frameworks and in its inflation rate, unemployment and flexibility in the currency exchange rate (Brigham and Houston 2012). The overall consistent performance of the countrys economy can be seen from the above figure, according to which the GDP of the country in 2016 is seen to be USD 1.205 trillion. The inflation prevailing in the economy is also found to be moderate (1.9%). The rate of unemployment though shows an above moderate growth (5.6%), however, the employment is also seen to be growing at a 2% rate. In a generalized scenario, the overall economic growth of the country is seen to be 1.8%. Along with the stability in the economic growth, the country is also experiencing a high population growth, much of which can be attributed to the migration of job seekers and other from all parts of the world (Source: RBA 2017). This, taken together with the economic growth, creates a huge aggregate demand, which in turn, creates scope of increasing supply and overall productivity, thereby asserting the presence of opportunities of expansion and growth of the retail industries which includes the grocery retail and the supermarkets also. With the advent of globalization, international trade has also expanded a lot in the last few decades, which clubbed with the liberal trading strategies of the country has played a crucial role in the growth of the economy. Along with this the stable and low inflation statistics and the increasing employment generation also helps in raising the standard of living of the people by improving their purchasing power, which in turn increases the demand in the economy (Plumb, Kent and Bishop 2013). The flexible exchange rates in the country also facilitates trade and has helped in keeping the economy floating at the times of severe crisis like that of the Global Financial Crisis which occurred in 2007-2008. The Reserve Bank of Australia manipulated the exchange rate according to the export import demands of the country in order to make the economy more competent in the global commerce scenario. The economy enjoys high demand in domestic as well as in international markets, which in turn facilitates the industrial prosperity of the country (Huang, Zhou and Zhu 2012). One of the predominant players in the industrial scenario of Australia is the industry of retail grocery and supermarket, contributing almost 29% of the Australian GDP, with the two key supermarkets being Woolworths and Westfarmers. Together, these two giants enjoy the maximum share of the market. This can be seen as follows: As can be seen from the above figure, the highest share in the market is of the Woolworths (36.3%), which is immediately followed by the Coles (33.2%), Coles being the Wesfarmers supermarket wing. Together, these two giants occupy nearly 70% of the supermarket and grocery retail industry of the country (Dwivedi et al. 2012). Woolworths Supermarket: This chain, owed by the enterprise, Woolworths limited, was established on December 5, 1924. Listed as WOW in the Stock Exchange of the country, it has emerged as the leasing player in the market in the last few decades. With 1000 stores all over the country (968 supermarkets and 19 convenience stores), the company was seen to enjoy a revenue of 42.132 billion Australian Dollar in 2015. The enterprise employs around 111,000 people all over the country and thus is one of the primary employment creator in this market of the Australian economy (Woolworths.com.au 2017). . Much of the growth of this enterprise has been facilitated by the growth in the economy of Australia. As all the sections of the population, irrespective of economic status, age and gender are potential clients for the company, therefore, with the growth in the employment and the wage rate in the country and with more disposable income in the hands of the residents of the country, the company has experienced a growth in their productivity and employing capacity. The Wesfarmers: The enterprise mainly started as a farmers cooperative in Western Australia in 1914, is now one of the predominant companies in the country, and has its base of operations in many industries operating under this umbrella brand. The enterprise ventures in convenience stores, supermarkets, hotels and others. The industrial unit deals with chemicals, fertilizers and safety products and others. The business environment (both internal as well as external) of the country has helped a lot in catalyzing the growth of this cooperative with time in such a way that it could emerge as one of the super powers in the Australian market in the recent times (Wesfarmers.com.au, 2017). The supermarket chain under the umbrella of the Wesfarmers, the Coles, is currently one of the largest in its domain and it competes with the multi-national counterparts like those of Aldi and the Woolworths. The organizational structure of this enterprise is highly dynamic and adaptive and strives to achieve sustainability in growth and productivity with time. The company has significant implications on the employment generation scenario of the country as it employs nearly 220,000 people across the nation and plays a crucial role in increasing the purchasing power of the residents as a whole. The company is also one of the biggest tax-payers in Australia, thereby having implications on the overall social welfare of the country also (Biddle 2016). The business environment of these two commercial giants seems to be flourishing as the economy sees a continuous increase in the aggregate demand by the citizens, which in its turn is facilitated by the low rates of inflation prevailing in the country. Both the companies try to expand their business operations with an objective of catering to the ever-changing demands of the customers (Keith 2012). The Coles mainly lease smaller stores and arrangements in order to keep their loyal customers, but they can hardly move out from their old sites. The enterprise has taken the strategy of refurbishing their old retail sites in order to adapt to the changing economic pattern. The possibility of rebranding is present with the enterprise and they are also currently adding floor space to the business (Berg 2014). The enterprise keeps on monitoring, refurbishing, and restocking their inventories in order to keep up with the continuously changing taste and preference of their customers. This in t urn is a matter of huge investments on part of the company (Campbell 2017). Conclusion: As can be seen from the above discussion the growth in the concerned industry has largely been facilitated by the favorable economic conditions prevailing in the country. However, the welfare of this industry is highly dependent on the stability of the economic indicators and any fluctuation in the latter can have implications (both negative and positive) on the dynamics of the supermarket industry. If there is an increase in the currency exchange rate in the Australian economy, then imports will be affordable whereas the export market is expected to see a downfall. This in turn will also affect the concerned industry, as the export potential of the same will decrease whereas the imports by the enterprises will see a rise. The overall sales is expected to reduce. On the other hand, increase in unemployment can also adversely affect the revenue generation of these supermarkets as increase in unemployment signifies loss in the overall purchasing power of the residents which will result in a decrease in the aggregate demand in the economy as a whole and also specifically for the supermarkets. Bottom-Up Analysis of the two companies: In this section of the report, the bottom up analysis of the performance of the two concerned enterprises is conducted to see how well they are prospering. This can be seen as follows: Woolworth Limited- The enterprise poses as one of the predominant companies in the retail sector of not only Australia but also of New Zealand. The company on an average earns revenue worth 59 billion USD (2016), thereby emerging as the second largest player in the countrys retail industry from the aspect of revenue generation. The company operates in Bella Vista. Wesfarmers Limited- Since 1914, this conglomeration in the retail industry of Australia, has been operating successfully in Perth. The company also ventures in arenas of mining, safety products, chemicals and fertilizers and has a revenue generation of about 65.98 billion AUD, which is even more than that of the former enterprise, thereby making itself the largest revenue generator and one of the significant employment generators in the economy of Australia (Akbar and Ahsan 2014). In general, the performances of any commercial enterprise, in terms of the financial perspective depend on several key factors, which influence the performance not only in the short run but also in the long run. These factors can be broadly classified into Financial and Non-financial key factors (Damodaran 2016). The performance of an enterprise, in terms of the financial key indicators, comprises of factors like the profit, revenue, returns on equity and invested capital, cash flow (operating), net sales of the company, per share earnings, debt-to-net ratios of profit and others. In this report, in the following sections, the performances of the two concerned companies are analyzed based on the financial indicators mentioned above, with the help of the financial reports of the two companies. This is done in order to portray their trajectory of performance and their respective positions in the industry (Parmenter 2015). Current Financial performance of the two companies: Woolsworth: Revenue- The enterprise has recorded a total revenue of 58.27 million AUD in the recent year which has declined negligibly from 59 million AUD in the previous financial year. Sales- However, the sales of the enterprise has significantly declined from 58.81 million dollars in the last year to around 53.47 million dollars in the recent period. Net profit- Post tax deduction, the net profit of the enterprise, which was 2137.4 million dollars in the previous year, has come up to 2347.9 million AUD in 2016 implying that the commercial enterprise has experienced positive profits from its financial activities in the last year. Cash flow- There has been a significant fall in the operating cash flow of the company, from 3345.1 million AUD in 2015 to a mere 2357.5 million AUD in 2016 (Arli et al. 2013). Dividend payment- In 2016, the per share dividend payment is seen to be at 77.0 cents, which was 139.0 cents in the previous year. This indicates towards a drastic fall in this indicator, much of which may be due to the increase in the cost of production and fall in the revenue margins of the enterprise. Basic earnings- The per share basic earnings has also reduced remarkably from 170.8 cents to as less as 97.7 cents from the previous financial year to this year. Capital expenditure- This has grown from 45.24% (2015) to 57.96% (2016) for the enterprise. Current ratio- The current ratio has decreased from 0.41% in the previous year to 0.39% in the current year (Rajabian Tabesh, Batt and Butler 2016). Book Value per share- This was -271.03 cents in the previous year. However, it has decreased furthermore to -287.89 cents in the current financial year. Wesfarmers: Revenue- The revenue of this enterprise, which was 62.44 billion AUD in the last year, has experienced an increase to 65.98 billion AUD in 2016, thereby showing a growth of 5.6% in the revenue statistics of the company from the last financial year. Net profit- The post tax profit of the company has changed from that of $2440 million in 2015 to $2353 million in the current year, thereby showing a noticeable fall in the net profit statistics. Capital expenses- The capital expenses in the recent period was recorded to be 1899 million dollars in the recent period for the company, which 15.2% less than that incurred by the enterprise in the previous period, much of which may be attributed to the fall in the expenses of the new stores opened by the same (Kilroy and Schneider 2017). Returns on equity- This had been 9.8% in 2015 and is now 9.6%. This indicator shows the capability of the enterprise of profit generation from the shareholders equity. Also termed as the net asset, this indicator shows the usage of the investment funds by the enterprise and thus may be used to compare the profitability of the different enterprises in an industry. Higher value of this indictor implies higher returns on equity. Per share earnings- The per share earnings of the firm has decreased a little from 216.1 cents in 2015 to 209.5 cents in the current period. Cash flow- The operating cash flow has experienced a significant fall from 1893 million AUD in the previous financial year to 1233 million AUD in the current times. The per share cash flow has also decreased as a result from 335.1 cents to 299.2 cents for the enterprise. Dividend- The per share dividend of the company has also seen a decline from 200 cents in 2015 to 186 cents in the recent times thereby showing a decline in the returns of the shareholders of the enterprise (Carter 2015). Net Debt- This statistics show a remarkable increase from $6209 million to as high as $7103 million in one year. This huge increase has forced the firm into deficit financing. The net debt for equity has also increased by 2.31% from the last year. The deficit financing sources of the company are mainly the banks, domestic, Euro and the US bonds (Daley and Wood 2015). Non-Financial Performance Indicators: In order to get a clear view about the overall performance of any commercial enterprise, it is of utmost importance to take into account the non-financial indicator along with the financial ones. These indicators are generally not included in the financial statements issued by the commercial enterprises but their role cannot be neglected in the overall assessment of the companys performance in short run as well as in the long run (Collier 2015). Much of the success of an organization depend on non financial factors like the position of the company in the market, the goodwill it enjoys in the market, the image and recognition it has among the customers and the quality of the goods and services of the company. One key factor influencing the long term prospects and success of an enterprise is the relationship the same maintains with its clientele, which highly influences the sales figures of the enterprise. Indicators like employee turnover, number of loyal customers, number of new cust omers added and foot traffic are some of the significant non-financial yardsticks to measure the overall performance of any company. The parameter for measuring the performance of any organization in terms of its profitability and efficiency is the accounting ratio, which is based on the financial reports issued by the companies. This indicator can be used to compare between tow data points by establishing relationships between the two data points. The overall performance of any enterprise can be robustly gauged with the help of the analysis of this ratio (Horngren et al. 2012). In this context, taking reference to the financial statements issued by both the companies taken into account, it can be asserted that the accounting ratio for both of the concerned enterprises is high. The two firms, Wesfarmers and the Woolworths, are the only two Australian retail operators in the Retail report of Deloitte, published in 2017. As per top 250 operators (Down Under), the two enterprises has a 16% share of operations cumulatively, of the top 250 of the retailers in the global scenario and together they enjoy almost half of the retail market of the USA (Zhang et al. 2014). Conclusion: The report, as discussed above, deals with the overall assessment of the performances of the two retail giants, the Wesfarmers and the Woolworths, in the economy of Australia, with special emphasis on the performance of both of these commercial enterprise in the financial aspects. The detailed analysis conducted above shows that there has been a general trend of decline in the performance of both the enterprises in almost all the financial indicators from the previous year to the recent financial year. 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