Comparative analysis of the annual reports in WOOLWORTHS and WESFARMERS in recent three years

1. Introduction
Annual Report mainly transferred the company's financial performance and financial condition and other financial information. However, in recent years more and more signs indicated that the Annual Report does not necessarily reflect a company's "real" financial situation, it needs people http://www.400190.com/dissertation_writing/ with critical eye to look at. People often expressed great concern about the following items: the nature and amount of loans, operating leases such balance-sheet financing, the liabilities included in the owner's equity, short-term debt included in long-term debt, and the company's complex level of assets structure.

In this report, the author will select two listed companies, WOOLWORTHS and WESFARMERS from Australia to assess the annual report from the perspective of investor. The author will use trend analysis and ratio analysis to evaluate the two companies’ situation in the last three years, to determine whether the analysis report reflects the early warning signals of financial difficulties, and finally assess the financial situation for whether the non-financial factors and these qualitative factors can help investors understand the business.

2. Main body

2.1 Background of two companies
WOOLWORTHS is a large retail company registered in Australia, the company's total share capital reached 2.9478 billion AUD, and employed 175,000 employees. Its main business scope includes supermarket chains, electrical appliances, furniture, clothing, liquor, and petrol businesses. The supermarket operated by WOOLWORTHS is one of Australia's largest supermarket chains.

WESFARMERS is one of Australia's largest retailers, was founded in 1914, formerly known as the Western Australian Farmers Cooperative, headquartered in Perth, Australia. WESFARMERS is involved in retail, mining, insurance, home improvement and other fields, employs 200,000 people. Now it is one of the private companies with the largest number of employers in Australia.

2.2 Financial structure
The changes of inventory and accounts payable in 2002-2004 are relatively stable, the structure is more reasonable, but since 2005 the indicators are simultaneously increased, especially the investment in fixed assets and intangible assets has particularly the rapid growth, mergers and acquisitions brought a large number of invisible assets - goodwill increases, but the uncertainty of changes in intangible assets will affect the change in total assets, which shows WOOLWORTHS company grew very fast in recent years investment.
Asset-liability ratio in 2010 was 68.1%, compared with the ration of 77.21% in 2009 it decreased a lot, but still remained high to be further optimized. In 2006, the company maintained the continuous business growth, while in the year carried out a series of large-scale acquisitions. The acquisitions have become the main source of revenue growth in 2010. The increase in intangible assets increased the company's net assets significantly. In 2010, the rate of change of intangible assets has exceeded the changes in net assets, goodwill increased significantly.#p#分頁標題#e#

Changes in the company's sales revenue and accounts receivable from 2006 to 2010 are as follows:

From 2006 to 2010 the company's sales revenue sustained growth. Increase in accounts receivable was much more than sales growth. But the number of accounts receivable turnover in 2010 was 547.36 times, which had certain decrease compared to the number of 634.70 in 2009, indicating the company's credit policy was less reasonable, control of money recovered has regressed over the previous year, and needed to be improved.
The current ratio, quick ratio, tangible asset-liability ratio, asset-liability ratio and equity ratio are as follows:
 

Current Ratio Quick Ratio Tangible asset-liability ratio Asset-liability ratio Equity ratio
2009 0.81 0.272 1.007 77.2% 3.387
2010 0.845 0.346 1.058 68.1% 2.134
The current ratio and quick ratio in 2010 more increased than that in 2009, short-term solvency has improved over 2009. The improvement in these two indicators indicated that the company's short-term solvency improved, because the two indicators are less than 1, indicating the total current assets are less than the amount of current liabilities, the company’s short-term solvency there are certain problems. The asset-liability ratio and equity ratio in 2010 are lower than that in 2009, long-term solvency enhanced. Tangible asset-liability ratio in 2010 compared to 2009 increased, which can be attributed to the impact of the intangible assets - goodwill formed due to mergers and acquisitions.

2.3 Operating conditions
Company's gross profit margin in 2010 was 25.03%, slightly increased 0.14% that higher than gross profit margin in 2009, but EBIT margin data over the previous year rose 0.41% to 4.76%. The main reason is that the company strengthened the control of expenses, the ratio of administrative expenses to income declined significantly, which greatly improved the company's profitability.

The main business income, EBIT, earnings per share and dividends per share from 2006 to 2010 are as follows:

EBIT growth rate from 2006 to 2010 is lower than the main business growth, reflecting the decrease in profitability in recent years. Substantial increase in financial expenses is mainly caused by the impact.

Sales gross margin and net sales in 2010 were as follows: 25.03% and 2.72%, which were improved compared to 24.89% and 2.60% in 2009.
Earnings per share and dividends per share for the distribution have steady growth each year, of which the earnings per share in 2010 grew 14.8% over 2009, reaching 90.9 cents per share, dividends per share in 2010 compared to 2009 also increased by 15.7 %, up 59 cents per share.

2.4 Cash flow
Calculated from the annual report, the cash ratio and cash flow debt ratio in 2009 and 2010 are as follows:#p#分頁標題#e#
 Cash ratio Cash flow debt ratio Cash flow / sales ratio
2009 40.72 0.3212 0.038
2010 38.92 0.3498 0.045
The net cash flow generated in operating activities in 2010 is positive, cash flow from operations moves more normal, indicating the business activities http://www.400190.com/dissertation_writing/ in WOOLWORTHS is normal; the cash flow / sales ratio in 2010 was 4.50%, over the previous year of 3.80% has increased, indicating the company's ability for sales into cash increased; but in 2010 the company acquired the large goodwill generated, resulting in great increase in asset size, and sales and net cash flow generated from sales were not synchronized growth, cash ratio and cash flow debt ratio have little changes, the net cash flow brought by sales revenue in 2010 was better than in 2009.