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Table of Contents

Executive Summary.

Key performance indicators.

a) Liquidity.

b) Profitability.

c) Efficiency.

d) Overall financial performance and financial status.

Conclusion.

References.

Executive Summary of Wesfarmers Limited

Wesfarmers Limited offers a wide range of portfolio of products and services to its customers. It has earned revenue of $19.27 billion. Approximately 105000 people are currently being employed by the company and 484000 shareholders (Annual Report, 2019). It operates in New Zealand, Australia and UK and has its headquarters in Perth. It has divided its operations into retail division where it carries out operations with regard to departmental stores, office supplies and hardware. Under industrial division, it manufactures and supplies fertilizers and chemicals to the various agricultural, mining and industrial sectors of the economy. Other division includes its collaboration with Coles Group Limited which is the leading retailers of household consumable items and groceries. In this report, various financial factors of Wesfarmers Limited have been analyzed to help to help the shareholders in making effective investment decisions.

Key Performance Indicators of Wesfarmers Limited

a) Liquidity

Particulars

2019

2018

Current ratio

1.22

0.87

Quick ratio

0.35

0.23

Financial leverage

1.84

1.62

Debt/Equity

0.27

0.13

There is a rise in current ratio from 0.87 in 2018 to 1.22 in 2019 which shows that the company has sufficient amount of assets to pay off its current liabilities. Therefore, liquidity position is good. It ensures safe and healthy environment to its workers and make successive efforts to build strong relationship with its suppliers and carry outs its operations in ethical and sustainable manner. This helps in achieving adequate support necessary for growth and survival of business.

b) Profitability

Particulars

2019

2018

Tax rate %

30.69

32.36

Net margin %

19.81

1.80

Asset turnover (Average)

1.01

1.73

Return on Assets %

19.94

3.11

Financial Leverage (Average)

1.84

1.62

Return on equity %

33.67

5.13

Return on invested capital %

28.15

4.73

Interest coverage

16.99

19.25

Stakeholders must use financial ratios such as profitability ratios in order to measure the performance of the company in an effective and efficient manner as it takes into account the total amount of revenue, operating costs incurred by the company and also the shareholders’ equity of a specific period of time (Sroufe & Sroufe, 2018). There is a rise of 4.3% in overall revenue of the company amounting to $27.9 billion and offered $2.78 as dividend per share in 2019 (IBIS World, 2020).Tax rate ratio shows the capability of the company to make timely payments of income tax. This ratio has been decreased to 30.69 in 2019 from 32.36 in 2018. Net margin ratio is rising which indicates that the cost of goods sold is declining which might be resulting due to increased sales, favorable purchase of intermediate materials, efficient promotion policies and so on. There is an increment in return on assets ratio from 3.11 in 2018 to 19.94 in 2019 (Morningstar, 2020). The organization, Wesfarmers Limited is considered to be an asset-intensive company as it is involved in manufacturing and retailing type of business. Rise in return on equity and return on invested capital indicates that the company is competent enough in proving high returns to the shareholders. Less amount of taxes lead to the saving in profits and thus raises the ability of the company to pay more as dividends to the shareholders. Thus, it would be beneficial for the investors to invest in this company to earn adequate amount of returns on regular basis.

c) Efficiency

Particulars

2019

2018

Days Sales Outstanding

15.08

7.26

Days inventory

108.57

50.06

Payables period

107.56

52.52

Cash conversion cycle

16.10

4.81

Receivables turnover

24.20

50.24

Inventory turnover

3.36

7.29

Fixed assets turnover

4.53

7.46

Asset turnover

1.01

1.73

Efficiency ratios help in achieving the better understanding of the use of assets by the company (Arkan, 2016). Wesfarmers Limited is one of the leading organizations that derive its revenue by carrying out diversified range of operations comprises of office supplies, departmental store retailing, hardware, apparel stores, manufacturing of chemical and fertilizers, processing and distribution of gas and various industrial safety products. Wesfarmers Limited is using its assets efficiently and undertaking improvement measures to generate high amount of profitability. There is a significant decline in receivables turnover ratio from 7.46 in 2018 to 4.53 in 2019 which shows that assets are being used in an optimum manner by Wesfarmers Limited (Morningstar, 2020).

d) Overall financial performance and financial status

Particulars

2018

2019

Current

Dividend per share

0.83

0.98

0.46

Trailing dividend yield

7.60

0.95

4.03

Buyback yield

------

------

-----

Total Yield

7.60

0.95

4.03

Pay-out ratio

96.45

127.79

101.17

Wesfarmers Limited is currently making payment of $0.98 as dividend to their shareholder which is higher than the amount paid in 2018. Trailing dividend yield has declined from 7.60 in 2018 to 0.95 in 2019. In order to provide satisfaction to its shareholders’ need, it is making huge payment of returns. There is a significant rise in dividend payout ratio from 96.45 to 127.79 in 2019.

Conclusion on Financial Analysis Report - Wesfarmers

It can be concluded that the company would be highly beneficial for the potential investors as it is generating and paying large amount of dividends. The net margin ratio is rising which indicates that the cost of goods sold is declining which might be resulting due to increased sales, favorable purchase of intermediate materials, efficient promotion policies and so on. It has a low cost structure which enables it to generate output at a low cost and provide them to the customers at a lower rate. It is making substantial efforts to make effective relationship with its suppliers and laid emphasis on promoting its products and services. The financial position of the company is strong as it is earning large amount of profits and providing effective returns to its shareholders in the form of dividend. The solvency position is also good as it has large asset base. It invests large amount of funds in providing effective training to its employees to make efficient use of resources and thereby, reduce the overall cost of production. The shareholders can invest largely in its stock in order to generate positive returns on the investment.

References for Financial Analysis Report - Wesfarmers

Annual Report. (2019). Wesfarmers Annual Report. Retrieved from https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2019-annual-report.pdf?sfvrsn=0

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia79(1), 13-26.

IBIS World. (2020). Wesfarmers Limited – Premium company report Australia. Retrieved from https://www.ibisworld.com/au/company/wesfarmers-limited/69/

Morningstar. (2020). Wesfarmers Ltd ADR. Retrieved from https://financials.morningstar.com/ratios/r.html?t=0P0000P7JH&culture=en&platform=sal

Morningstar. (2020). Wesfarmers Ltd ADR. Retrieved from https://www.morningstar.com/stocks/pinx/wfafy/quote

Sroufe, R. P., & Sroufe, R. P. (2018). Value Creation for Stakeholders and Shareholders', Integrated Management.

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