Financial Analysis on Coles Myer & Woolworths

Topics: Financial ratios, Financial ratio, Wesfarmers Pages: 7 (1692 words) Published: November 28, 2006
Table of Contents


Financial Condition...........3

1. Overview............3

2. Liquidity..............3

3. Financial Leverage.......5

4. Assets Management....6

5. Profitability...........7






Coles Myer Limited (CML) and Woolworths Limited (WOW) are two major Australian companies with extensive retail interest and listed on the Australian Stock Exchange. They are Australian public companies which operate a number of retail chains.

CML is Australia's second largest retailer, behind WOW. It operates a number of chains of retail outlets which are including Coles Supermarkets, Bi-Lo, Liquorland, Pick 'n Pay Hypermarket, Kmart, Officeworks, Target, Harris Technology and Coles Express (Wikipedia, 2006) .

WOW is currently the largest retail company in Australia and New Zealand by market capitalisation and sales. WOW operates in Australia through several retail banners such as Woolworths and Safeway Supermarkets, BWS, Dan Murphy's, BIG W, Dick Smith Power House and Dick Smith Electronics (Wikipedia, 2006) .

The purpose of this report is to analyse financial performances of the two publicly listed companies in last 5 years by using series of calculation tools include horizontal analysis and financial ratios. Also as a recommendation, we will advise investors to buy or not buy the two companies' shares according to the results of the performance analysis.

Financial Condition

(See Appendix 1 & 2 for ratio details)

1. Overview

The WOW's revenue has increased every year, one year as great as 149.90 % in 2005 (see appendix 11 for details). In 2001, revenues were 20915.1 million while in 2005 revenue has increased to 31352.5 million. Since revenue increased, the net profit obviously has increased as well. Net profit rose 84.70% from 2001 to 2005. The Horizontal Analysis (Appendix 11 &; 14) indicates WOW is a very successful company and earning money. CML's revenue has increased 52% and the net profit rose 314% from 2001 to 2005, the growth was tremendous because it occurred in typical connection with the restructuring of the method of financing a foreign operation (Financial Report, 2005).

2. Liquidity

Current ratio

This ratio represents the financial liquidity of the company. 'The current ratio compares the assets a company can quickly convert to cash to the liabilities it must pay in the near term' (Vance, D. E. 2003). The higher the ratio, the more liquid the company is. For CML, there was a slight increase of 0.04 from 2001 to 2002. Then it followed by an obvious fall from 1.37 to 1.09 during period from 2002 to 2005. This represents that one-unit current liabilities is secured by 1.37 units of current assets in 2002 and 1.09 units, nearly one current asset for one current liability, in 2005. From the perspective of WOW, the ratio starts from 0.81 up to 0.84 then declined to 0.81 and finally dropped to 0.82 during this period of time. The current ratios are all less than one, indicating that one current asset will prepare for the payment of more than one unit current liability. That leads to high liquidity risk in the business operation. If there is an emergency to WOW, it will encounter the problem of repayment.

Quick ratio

Quick ratio is similar with current ratio, but more conservative than current ratio, because in numerator, inventory is excluded from current assets, and in dominator, bank overdraft is excluded from current liabilities. 'The quick ratio addresses the issue of whether current assets could cover current liabilities if inventory were found to be worthless' (Vance, D. E. 2003). WOW experienced a slight increase from 0.2 to 0.26 in this period of time. In contrast, CML experienced a modest fluctuation and end up with 0.28 in 2005, the lowest one in 5-year time and the highest one is 0.41 in 2003. Generally, the quick...

References: 1.Wikipedia 2006, Coles Myer Ltd, Wikipedia Free Source Organization, viewed 10 September 2006
2.Wikipedia 2006, Woolworths Ltd, Wikipedia Free Source Organization, viewed 10 September 2006
3.Financial Report, 2005, Coles Myer Ltd., pp 19
4.Vance, D.E. 2003, Financial Analysis and Decision Making, McGraw-Hill, United States of America
5.Harvey, D, McLaney, E and Atrill P 2001, Accounting for business, Butterworth-Heinemann, Oxford
6.Simpson, K. 2006, Market waits for higher Coles bit, The Age, 8 September 2006, front page of Business Section
7.News Release 2006, 'Coles Myer Acquires Pharmacy Direct ', Coles Myer Ltd., 31 March 2006
8.News Release 2006, 'Hedley Hotel Acquisition Complete ', Coles Myer Ltd., 14 June 2006
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