Financial Analysis of Woolworths Ltd

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Financial Analysis of Woolworths Limited

10 October 2011

By: Huatong (Claire) Liu

To: Potential investors

Executive Summary

The primary purpose of this report is to determine whether Woolworths Limited is an appropriate and profitable company to invest in. Specific objectives include analysis of annual reports of Woolworths and its competitors (Wesfarmers) as well as interpretation of relevant government and industry statistics, stock exchange, market information and media comments. Further, Woolworths’s financial strengths and weaknesses are identified. The potential growth prospects for Woolworths, the future of the food and staples retailing industry, and the risks versus the benefits of investing in Woolworths are all considered to determine whether Woolworths is profitable for potential investors.

Based on relevant information and detailed analyses, Woolworths Limited is considered as the best company in the food and staples retailing industry with high efficiency, low risk and great return to shareholders. In the face of a down economy, the company’s growth rate has been significantly low since 2009. Therefore, the recommendation for potential investors is not to buy Woolworths’ shares at the moment but wait till later.

TABLE OF CONTENTS

Executive Summary …………………………………………………………………...i Table of contents……………………………………………………………………...iv 1. Introduction……………………………………………………………………1 2. Conclusion
3. Recommendation
4. Discussion
1. Profitability
2. Efficiency
3. Financial risks
4. Market-based ratios
5. Relevant information about Woolworths
5. Bibliography……………………………………………………………. …. 6. Appendices
Woolworths Ltd (WOW)
Appendix A.1: Ratio analysis of WOW
Appendix A.2: Common-Size Statement of Comprehensive Income for WOW Appendix A.3: Common-Size Balance Sheet for WOW
Appendix A.4: Common-Size Statement of Cash Flows for WOW Appendix A.5: WOW Statement of Comprehensive Income Trend Analysis Appendix A.6: WOW Balance Sheet Trend Analysis
Appendix A.7: WOW Statement of Cash Flows Trend Analysis Annual Report 2011
Appendix A.8: WOW Statement of Comprehensive Income 2011 Appendix A.9: WOW Balance Sheet 2011
Appendix A.10: WOW Statement of Cash Flows 2011

Wesfarmers Ltd (WES)
Appendix B.1: Ratio analysis of WES
Appendix B.2: Common-Size Statement of Comprehensive Income for WES Appendix B.3: Common-Size Balance Sheet for WES
Appendix B.4: Common-Size Statement of Cash Flows for WES Appendix B.5: WES Statement of Comprehensive Income Trend Analysis Appendix B.6: WES Balance Sheet Trend Analysis
Appendix B.7: WES Statement of Cash Flows Trend Analysis Annual Report 2011
Appendix B.8: WES Statement of Comprehensive Income 2011 Appendix B.9: WES Balance Sheet 2011
Appendix B.10: WES Statement of Cash Flows 2011

Introduction

Founded in 1924, Woolworths Limited is a retailer which has operations in the area of food, grocery, and liquor as well as minority operations covering petrol, general merchandise, consumer electronics and hotels. At present, Woolworths employs more than 191,000 people and have a total group of 3,241 stores across Australia and New Zealand[1]. Since re-listing in 1993, Woolworths has been one of Australia’s most successful retailers with more than 420,000 shareholders

The objective of this report is to evaluate whether Woolworths is an appropriate choice for potential investors. A range of detailed analyses will be conducted throughout this report examining the profitability, efficiency, financial risks and stock valuation of Woolworths, including ratio analysis, trend analysis and common-size statements. The performance of Wesfarmers Ltd, Woolworths’ toughest rival, and the average outcome of the food and staples retailing industry are served as important benchmarks for...
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