Woolworth Financail Analysis

Topics: Cash flow, Net present value, Weighted average cost of capital Pages: 31 (3958 words) Published: August 17, 2012
Table of contents

1. Introduction2
2. Woolworths business activities and its position in retail market.2 2.1. Woolworths status on stock Market3
3. Estimation of the cost of sources of finance of Woolworths group plc4 3.1. The cost of equity capital (KE)4
3.2. The cost of redeemable Debt capital (KD)5
4. Hypothetical Investment Proposal7
5. Strength and weakness of using cost of capital to evaluate the investment proposals8 Weakness of using WACC for NPV discount rate9
6. References10



1. Introduction

F.W. Woolworths, a subsidiary of its US parents, was found in UK in 1909 as part of its parent company’s global expansion plan. The first store opened in Liverpool, and than spread throughout UK. F.W.Woolworths was afterwards listed on the London Stock Exchange (LSE) with its US parent retailing a majority shareholding. The merchandise was concentrated on selective ranges, which remain at the core of the Woolworths product range today. During 1980s, management rationalised the offer further into clearly defined categories: entertainment, home, kids (toys and clothing) and confectionery. In the 1990s, the management extended the Woolworths brand into other retail formats and alternative channels to accelerate growth by taking advantage of changing retail trends. This resulted in the opening of the first big ‘W’ store in 1999 and Woolworths General Store in 2000.

2. Woolworths business activities and its position in retail market.

Woolworths Group plc is principally a UK retailer focused on the home, family and entertainment. It offers its customers value-for-money on a comprehensive range of products. Woolworths main-chain, which comprises 808 of the Group’s 911 retail stores, is a high street retailer for consumers everyday general shopping requirements. Its strategy is to tailor its product ranges and store sizes to meet the distinct market needs of customers in different locations. The group also operates the entertainment businesses like E.UK, VCI, MVC and Streets Online E.UK is Britain’s largest wholesale distributor of home entertainment products whilst VCI is an audio-visual publishing group. MVC is a specialist high street retailer of entertainment products with 85 stores. Street Online, one of the UK’s leading specialist online entertainment retailers, was acquired in December 2000 to add to the MVC high street store chain. The aggregate wholesaling, distribution and retail turnover for these entertainment businesses was in over £1 billion for the financial year ended 3 Feb 2001. The Group operates in the UK general merchandising market, which is both large and highly divided, with participants of varying sizes and covering different category mixes. The overall market in the UK targeted by the Group was estimated to be worth over £30 billion in 2000.

General merchandise category Category size % Compound
2000 annual growth rate (£ Billion) 2000 – 2005

Entertainment 4.9 8.2

Toys 2.5 5.9

Home/ house wares 9.5 5.7

Confectionery 10.5 3.5...
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