Business Report on Woolworths Limited
Background
The Australian company Woolworths was established in 1924, in Sydney. Its founding CEO was Perry Christmas, who laid the foundation of the company on the basis of one key principal and that is, every person who is either a child, woman or a man requires a place where things are available at cheap rates. The Woolsworth Company has approximately a total of 3000 stores not only in Australia but in New Zealand as well. The company has around 198000 employees who are contributing in its growth through consistent hard work. There are thousands of local manufacturers, farmers and producer who are considered as business partners by the Woolsworth. There are around 28.4 million customers who are served by the company in a time period of a week. Woolsworth is famous for providing liquor, grocery, petrol, hotels and home improvements to its customers (Woolsworth Limited, 2015).
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1.1 Environment
There are many strategic priorities that are set by the Woolworth limited which includes controlling the environment degradation. The sustainability strategy (2007-2015) of the company seeks to include 40% reduction in carbon emissions in 2015 and a decline of 25% emissions per carton which are delivered by the company trucks by 2012. It has also laid its emphasis on the need to recycle waste and reduce its carbon footprints. The Woolworth limited is a leader in the retail of Australian food, 96% of which is grown in the home country. It make sure that the efficient fittings and quality infrastructure reduce the wastage of water not only in the stores but also by its business partners as well i.e. local producers, farmers and manufacturers. With the diversion of 252000 tons or more from landfill, it makes the Woolworths limited one of the leading recyclers of material in Australia (Woolworth Limited, 2015).
Significant Priorities And Growth
In present period, the growth plan of the company has been developed around four key strategic priorities and they are
- Extension of leadership in food and liquor
- Taking actions according to the company’s portfolio for the sole reason and that is maximization of shareholders wealth.
- Keep on developing businesses that stem new growth.
For the purpose of development of a new period of growth, putting in place the enablers (Woolworths Limited, 2015).
1.2 Success
The year 2014 has turned out to be a major success for the company. The company has been able to shift the ongoing momentum that is associated with food and liquor by capturing the market share, improvement of comparable sales and last but not the least an increase in earnings before income tax. Moreover the promotional campaigns that were related to the main supermarkets were successful in providing savings to consumers which exceeded $750 million. The fresh market of the company is witnessing more growth than the groceries which is consistent with the company’s strategy concerning the development of businesses that stem new growth. Moreover the customers in New Zealand have responded positively to the Woolworths limited campaign of price lockdown and Price drop.
Significant Issues
1.3 Managing Director’s Report
The main concern while evaluating the Managing Directors report is that the operations of the company with respect to making wine and petrol makes it potentially liable for contamination and environmental degradation. More over the retail offers with respect to present and future, do not coincide with the demand of the customers. Furthermore, there is a speculation that the company’s new ventures that is home improvements and online services may eventually be a failure. The company is subject to a lot competition from the new entrants in the market as well as the old ones. The retail brands of the company are subject to damage or dilution. The inefficient management of the company’s inventory may lead the company to the impairment of the firm’s competitive position. Moreover, there has been failure on the behalf of Woolworths Limited in locating suitable store sites or refurbish the stores that are held by the company.
1.4 Chairman’s Report
The main cause of concern while looking at the Chairman’s report of Woolworths Limited is that it is primarily based on how well the company is doing in terms of financial growth for example the increase in the dividend per share, revenues and profits but there is no concern shown what so ever about the sustainable growth keeping in mind the ethical boundaries in which the company should operate.
1.5 Media Reports
Woolworths has been consistently under pressure to sign a voluntary safety accord because of the fire incident that occurred in the Bangladesh clothing factory in 2013, which killed nine people. There have been reports that Woolworths limited has been buying garments from Bangladesh though it has constantly denied the allegations in public (ABC, 2013). Furthermore, the company has been keeping an eye on the possibility of expanding its business operations in the fields of booze and gambling. The company believes that there is three times more profit in the business of booze and gambling than in grocery. Woolworths limited has been in a thought process of spending $60 million dollars in setting up seven hostels. This may quadruple their profits but the venture may not go well with the investors who are interested in investing in companies who are more ethically sound (News au, 2011). Furthermore, there has been reports that the local farmers have accused Woolworths that it has been forcing them to pay the cut for the celebrity endorsement that was done by famous chef Jamie Oliver for their produce. According to the report published by the ABC rural, the company has levied a 40% cut per crate on the vegetable growers. Senator Nick Xenophen and the Vegetable lobby group (Aus-Veg) has been pressing the ACCC (Australian Competition and Consumer Commission) for a thorough investigation in the matter (ABC, 2014).
Corporate governance snapshot
Woolworths Limited has adopted the corporate governance framework that is highlighted by the Board and its committees in the past financial year of 2014. The company is listed on Australian Securities Exchange (ASX) and is required to apply the ASX Corporate Governance Principles and Recommendations or disclose if any difference lies. Woolworths Limited protect the shareholders fund while enhance shareholder value. Corporate social responsibility and sustainability is approached by the company due to enhanced shareholder value which is protecting and enhancing the company’s reputation (Woolworths Limited, 2015). The continued growth and success of Woolworths Limited is dependent upon the ability to grab opportunities while reducing the risks. By managing the risks after analyzing them, Woolworth has provided the greater certainty and confidence for all of its stakeholders. However, Woolworths has also commissioned a comprehensive independent materiality assessment for the business (Woolworths Limited, 2015). The company reached out for its consumers, investors, shareholders, employees and focus groups to provide opinions on the issues that are important for them to be managed.
In order to manage the material issues, Woolworths categorized them into three categories i.e. take ownership which is about owning the issue for controlling it, take action in which all the risks and issues are categorized for which the company isn’t responsible but still can influence these issues and the last category is take interest in which all the issues which are not responsibility of the firm and are out of sphere of influence of Woolworths Limited are outlined. These concerns do have a long-lasting effect on the future of company (Woolworths Limited, 2015). During 2014, Woolworths Limited recognized following material issues that are relevant for its operations:
- Engaging with ethical sourcing and ethical suppliers
- Maintaining a fair, healthy and safe workplace for its employees
- Taking responsibility of service of gaming
- Minimizing the environmental impact particularly the carbon emissions
- Delivering the fresh, safe and affordable food for building healthier society
- Taking responsibility of the local sourcing by using market power
The survey conducted by Woolworths Limited flashed that for consumers and other key stakeholders, safe, fresh and healthy food as well as affordability of food and increased employment opportunities provision were found out to be most important (Woolworths Limited, 2015).
Woolworths Limited is also following a sustainability approach by implementing a long term strategy for 2007-2015 years (Woolworths Limited, 2015). The strategy is nearing completion this year while Woolworths Limited will be implementing new sustainability strategy after its completion to assess the material issues throughout the supply chain. Divisional management is chaired by CEO which has the responsibility of evaluating health and safety visions, principles, initiatives, standards, policies and procedures during the quarterly meetings of Safety and Health Executive Committee. This ensures that Woolworths Limited has strong corporate governance framework that is paving its way towards growth and success.
In terms of transparency, Woolworths Limited utilizes globally recognized framework that is developed up by Global Reporting Imitative (GRI) for setting out the principles and indicators for the organization as a whole (Woolworths Limited, 2015). This reporting framework helps Woolworths Limited to measure and report social, economic and environmental performance. Woolworth also participates in the Dow Jones Sustainability Indices and has outperformed well in past few years. For 2014 it achieved the overall score of 76 while economic dimension had highest score of 82 as compared to the other two dimensions i.e. environmental dimension with 76 score and social dimension with 69 score (Woolworths Limited, 2015). In 2014, Woolworths Limited was recognized as a leader for the food staples industry in Dow Jones Sustainability Indices for the second consecutive year. This shows the commitment of Woolworths Limited for ensuring strict governance codes and sustainability practices.
Key Financial Ratios
1.6 Profitability Ratios
1.6.1 Return on Assets
It can be calculated by using the formula as
ROA = (Peterson & Fabozzi, 1999)
| WoolWorths Limited | |||
| Years | Net Income | Average Total Assets | ROA |
| 2014 | 2,458.40 | 23228 | 11% |
The average total assets are computed by adding beginning and closing total assets and dividing them by 2. It is computed in the table below.
| WoolWorths Limited | |||
| Beginning Assets | Ending Assets | Average Total Assets | |
| 2014 | 22,250.20 | 24,205.20 | 23227.7 |
1.6.2 Net Profit Margin
It can be computed as
Net Profit Margin = (Peterson & Fabozzi, 1999)
| WoolWorths Limited | |||
| Years | Net Income | Net Sales | Net Profit Margin |
| 2014 | 2,458.40 | 60,772.80 | 4% |
1.7 Asset Efficiency Ratios
1.7.1 Inventory Turnover and Days Inventory
It can be calculated as:
Inventory Days = (White, Sondhi, & Fried, 2003)
Whereas inventory turnover is computed by:
Inventory Days = (White, Sondhi, & Fried, 2003)
The average inventory is computed by adding beginning and closing inventory and dividing it by 2. It is computed in the table below.
| WoolWorths Limited | |||||
| Years | Cost of Goods Sold | Average Inventory | Inventory Turnover | Days in Period | Inventory Days |
| 2014 | 44,474.60 | 4,449 | 10 | 365 | 37 |
| WoolWorths Limited | |||
| Beginning Inventory | Ending Inventory | Average Inventory | |
| 2014 | 4,205.40 | 4,693.20 | 4449 |
1.7.2 Receivable Turnover and Receivable Days
It can be calculated as:
Receivable Days =
Whereas inventory turnover is computed by:
Receivable Days =
The average receivables are computed by adding beginning and closing receivables and dividing it by 2. It is computed in the table below (White, Sondhi, & Fried, 2003).
| WoolWorths Limited | |||||
| Years | Sales | Average Receivables | Receivable Turnover | Days in Period | Receivable Days |
| 2014 | 60,772.80 | 62 | 974 | 365 | 0.37 |
| WoolWorths Limited | |||
| Beginning Receivables | Ending Receivables | Average Receivables | |
| 2014 | 16.6 | 108.2 | 62 |
1.8 Liquidity Ratios
1.8.1 Current Ratio
It can be calculated as:
Current Ratio = (Stickney, Brown, & Wahlen, 2004)
| WoolWorths Limited | |||
| Years | Current Assets | Current Liabilities | Current Ratio |
| 2014 | 7,174.80 | 7,558.20 | 0.95 |
1.8.2 Quick Ratio
It can be calculated as:
Quick Ratio = (Stickney, Brown, & Wahlen, 2004)
| WoolWorths Limited | |||||
| Years | Current Assets | Inventories | Current Assets – Inventories | Current Liabilities | Quick Ratio |
| 2014 | 7,174.80 | 4,693.20 | 2,482 | 7,558.20 | 0.33 |
1.9 Capital Structure Ratios
1.9.1 Debt to Equity Ratio
It can be calculated as
Debt to Equity Ratio = (Stickney, Brown, & Wahlen, 2004)
| WoolWorths Limited | |||
| Years | Total Liabilities | Total Equity | Debt to Equity |
| 2014 | 13,679.81 | 10,525.40 | 1.30 |
1.9.2 Debt to Total Assets Ratio
It can be calculated as
Debt to Total Assets Ratio = (Stickney, Brown, & Wahlen, 2004)
| WoolWorths Limited | |||
| Years | Total Liabilities | Total Assets | Debt to Assets |
| 2014 | 13,679.81 | 24,205.20 | 0.57 |
Evaluation of Woolworths Limited
By looking at the financial statements and financial ratios we can analyze that Woolworths Limited is going through a growth phase. The net profit for 2014 has improved from previous year i.e. profit of $2,264.6 million to $2,458.4 million in 2014. This year the company has cut off its other financial expenses by $132.3 million, however cost of sales have increased. Yet the incredible increase in the other operating revenue have outset the increase in branch expenses and cost of sales. Looking at the capital structure ratios we can see that creditors of Woolworths Limited provide $1.30 of assets for each $1 of assets provided by the stakeholders. This is considerably high debt to equity ratio and shows that the creditors have more stake in the assets of Woolworths as compared to the creditors. The debt to total assets ratio shows that $0.57 of every $1 asset is financed through debts and rest of $0.43 is financed by equity financing. This also indicate a risky situation as investors would like to invest in the company with lower debt to equity ratio and lower debt to total assets ratio.
However the current and quick ratios show a good liquidity position as for every $1 of current liabilities Woolworths Limited has $0.95 of current assets. This is considerably a good liquidity position, however the ratio equal to one or above one is a good indication. The inventory days and receivable days are 37days and 0.37days respectively which shows that the company convert its inventory into cash in 37days while receives the cash from debtors in 0.37days. This depends on the industry in which the company is operating yet it shows a strong position for Woolworths Limited as the cash conversion cycle is much smaller for it. The shorter the cash conversion cycle, the greater the profitability is (Stickney, Brown, & Wahlen, 2004).
Woolworths Limited is socially responsible company with strict adherence to code of conduct and corporate governance in its operations. It has already achieved a 25% reduction in carbon emission for the new supermarkets built in 2014 (Woolsworth Limited, 2015). Woolworths Limited also only source all its material from suppliers that have strong corporate social responsibility programs. It has partnered with OzHarvest and committed to eliminate the food waste that is sent to landfill by 2020 (Woolworths Limited, 2014). This step is taken to collect and distribute edible food to people who are in need across Australia. This socially responsible step by Woolworths Limited has brought it in limelight as it has committed to engaging their network of farmers, producers, employees and customers to help minimize food waste as well as support the educational campaigns for food wastage reduction. The initiative like “Think, Eat, Save” has also been taken with the partnership of United Nations Environment Program (Woolworths Limited, 2014). Such initiative along with Zero Food Waste by 2020 campaign are strong steps taken by Woolworths Limited which are worth appreciable. Soaring growth, increasing profits and strong social responsibility initiatives are all green signals for investors to invest in Woolworths Limited (Woolworths Limited, 2014).
References
ABC. (2013, 10 11). World Today. Retrieved 10 19, 2015, from ABC Australia: http://www.abc.net.au/news/2013-10-11/woolworths-pressured-to-sign-accord-after-fatal-factory-blaze/5017098
ABC. (2014, 6 6). ABC Rural. Retrieved 10 19, 2015, from ABC: http://www.abc.net.au/news/2014-06-06/nrn-ausveg-vs-woolworths/5505808
News au. (2011, 12 16). Finance: News Australia. Retrieved 10 19, 2015, from News au: http://www.news.com.au/finance/woolworths-betting-on-booze-profits-as-it-looks-to-expand-hotel-empire/story-e6frfm1i-1226223987450
Peterson, P. P., & Fabozzi, F. J. (1999). Analysis of financial statements (Vol. 54). John Wiley & Sons.
Stickney, C. P., Brown, P. R., & Wahlen, J. M. (2004). Financial reporting and statement analysis: A strategic perspective. South Western Publisher.
White, G. I., Sondhi, A. C., & Fried, D. (2003). The analysis and use of financial statements (Vol. 1). John Wiley & Sons.
Woolsworth Limited. (2015, 10 19). Who are we. Retrieved from Woolsworth Limited: http://www.woolworthslimited.com.au/page/Who_We_Are/
Woolworth Limited. (2015, 10 19). A Trusted Company. Retrieved from worlworth Limited Website: http://www.woolworthslimited.com.au/page/A_Trusted_Company/Environment/
Woolworths Limited. (2015, 10 19). Strategies And Objectives. Retrieved from Woolworths Limited: http://www.woolworthslimited.com.au/page/Who_We_Are/Strategy_and_Objectives/
