Analysis Of Equity, Debt And Cash Flow Statements Of Wesfarmers And Woolworths
- December 22, 2023/ Uncategorized
Owners’ Equity
Corporate accounting is a branch of the accounting which deals with the preparation of the final accounts and the cash flow statements. The corporate accounting also deals with the analysis and the interpretation of the companies and the financial results and the accounting treatment of the events like the amalgamation. The companies like Wesfarmers and the Woolworths are of large volume and therefore it is necessary to observe the financial statements.
Owners’ Equity
Shareholder’s Equity |
|||||
Wesfarmers |
Woolworths |
||||
Share Capital |
|||||
Ordinary Share capital |
22268 |
5615 |
|||
Other Equity Instruments |
|||||
Reserves |
190 |
113.8 |
|||
Retained profits |
1509 |
3797.2 |
|||
23967 |
9526 |
Ordinary Share capital
Ordinary share capital represents the equity of the company and the equity is comprised of the several components such as Share capital, reserves and the retained profits. The share capital of the Wesfarmers firm is $22268 and that of the Woolworths is $5615. From the results above it can be interpreted that the Wesfarmers has the greater share capital portion in relation to the Woolworths. The annual report downloaded showcases the huge difference in case of the Woolworths as the Equity raised from 5252.20 to 5615 in the year 2017.
On the other hand the ordinary share capital of the Wesfarmers accelerated from 21937 to 22268 (Wesfarmers, 2018).The possible reasons are the increase in the interest of the investors towards the share price of the company. Moreover in comparison to the market the sales growth have been 7.2% more in comparison to the previous year. Due to turnaround potential in case of the Woolworths the investors are investing more in the largest retailer company of the Australia.
Reserves
Reserves which are also known as the retained earnings are the portions set aside by the company in the anticipation of the fact that it can strengthen the position of the company. The reserves are generally are used for the purpose of the purchasing of the fixed assets to repay the debts or it funds the bonus and the expansion and the payment of the dividend. The reserves of the Wesfarmers are 190 and that of the Woolworths are 113.8, and in both the case the reserves have been increased (Woolworths, 2017).
Retained profits
Retained profits are the amount which has been earned till date less any dividends or the other amount of the distributions paid to investors. Undistributed profits generally club themselves in the company’s equity which is owned by the investors and the shareholders. There are different names for the same terms as the retained profits are also known as the accumulated or undivided profits. The major reason for the increase in the retained earnings is the increase in the amount of the revenue more than the ones that are expensed out and when the income is readily steady. The Retained profits of the Wesfarmers are $1509 and $3797 in case of the Woolworths (Wesfarmers, 2017).
Comparative Analysis
The comparative analysis of the shareholder equity will eventually give the company an analysis of the fact that how much portion of the share and the debt for the part of the capital structure and the funds which are invested by the investors and the shareholders (Campbell, 2015). The data presented in the report id of the past three years and in case of the Wesfarmers and the Woolworths the share capital of both the companies has increased overall from $22949 to $23941 and $8781.9 to $9876.21 respectively (Wesfarmers, 2018).
Comparative Analysis
Cash flow statements
Operating Activities
Operating activities fall under the category of the direct activities which have been a part of the business right from the start. In simpler words the ordinary activities are basically those activities which are associated with the supply of the goods and services to the market. The core activities such as procurement of the raw materials and the distribution and marketing are certain examples of the operating activities (McInnis, Yu and Yust, 2018).
Funds from operations
In the cash flow statement the amount form the funds from the operations the are used by the real estate investment trusts mainly represent the cash flow from the different and variety of the areas. The FFO is calculated by subtracting the profit on sale and the addition of the depreciation value (Talebnia, Jaberzadeh and Salehi, 2015).
Changes in the Working Capital
The working capital is basically the difference between the assets and the liabilities of the current nature. A change in the figure of the working capital reflects the decision making capacity of the investors and therefore it is very important to analyse the cash flow statements (Suzuki, 2015).
Net Operating Cash Flow
The net operating cash flow is the cash amount generated by the company to perform the normal activities of the business. The operating cash flow indicates whether the company is having the sufficient amount of the cash to maintain and grow its operations which may also be required for the purpose of the external expansion (Weber, 2018).
The investing activities are basically those activities which are represented in the cash flow statement and report the aggregate change in the cash position of the company. The factors that help in determining the same are purchase of the machinery of the equipment, the gain or loss from the purchase of the investments and reflects the changes in the amount spent by the owners (Agrawal and Cooper, 2017).
Capital Expenditures
The capital expenditure of the company are the expenditures that will provide the long term benefits to the company and the benefits can be monetary as well as the non-monetary. The capital expenditure of the Wesfarmers have increased from -229 to -105 whereas in case of the Woolworths the same has been improved from -1910 to -1848 (Watson, 2015).
Net Assets from Acquisitions
The net assets from the acquisition is the basically the amount of the assets which have been purchased by the company instead of the stock. The net assets will assist the investors and the shareholders with the information of the net assets so that they can determine the amount of the assets and utilise the same instead of the inventory (Manova, Wei and Zhang 2015).
Sale of Fixed Assets & Businesses
The sale of the fixed assets is necessary and this is an item of the investing activity. The amount received from the sale of the fixed assets is a kind of an income for the company. Under the sale of the fixed assets it also involves the transfer of the business and the possession of the asset to another party (Ehrhardt and Brigham, 2016).
Cash Flow Statements
Purchase/Sale of Investments
Any change in the amount of the cash which is occurring due to the change in the purchase and sale of investments fall under the category of the investing activities. The investments are an assets which are taken for the purpose of securing the company if the company goes cashless. The right market price will fetch the right amount of the revenue in return (Borio and Disyatat, 2015).
Financing Activities
Financing activities are those activities which can be found in the cash flow statements that typically accounts for the external activities. It enables the firm to raise the capital. In addition to the raising of the capital the financing activities also involve in the process of the repaying the investors, issuance of more stock, and the addition and disbursement of loans are also some of the examples that fall under the umbrella of the financing activities.
Cash Dividends
Cash dividend is the amount which is paid to the stockholders, normally from the current earnings or the accumulated profits of the company. Not all companies are in favour of payment of the dividend. The decision of the dividend is taken by the board of the directors in lieu of whether the dividend is necessary or not (Firth, Gao, Shen and Zhang, 2016).
Common Dividend
A common stock dividend is the dividend is the amount paid to the common shareholders and the stockholders out of the normal profits incurred by the company. Under the scenario of the common dividends the method of the payment is either in the form of cash or stock. The dividend decides the reward associated with it. The higher the dividend, higher will be the reward. Therefore it can be inferred that there is a direct relationship between the dividend and the reward (Amess, Stiebale and Wright, 2016).
Long term debt
Having too much of the debt reduces the flexibility of the operations and reducing the long run can help a business proceed it in a long run. Long term is cumulatively inclusive of the borrowings and the payments. The prospective analysts are also interested in the debt component to gain an understanding the debt position of the company and whether it is able to pay back its debts on time utilising the income and assets.
Net Change in Cash
The net change in cash determines the rise and fall of the cash and the cash equivalents in the period of one financial year. the net change is calculated on the basis of all the adjustments made in the cash flow from different activities such as ordinary, investing and the financing.
Free Cash Flow
The free cash flow is a kind of a metric that depicts the ability of the company to generate the cash after paying off all the capital expense such as the buildings or the equipment. Once the cash is generated it can be sued for the various purposes such as the expansion, reduction of the debt by repayment and for other purposes as well such as tax payment (Free cash flow, 2017).
- IV)
Cash flow Statements of Wes farmers |
Cash flow Statement of Woolworths |
|||||||
|
2018 |
2017 |
2016 |
Fiscal year is July-June. All values AUD Millions. |
2018 |
2017 |
2016 |
|
Net Income before Extra ordinaries |
407 |
2440 |
2689 |
Net Income before Extra ordinaries |
1795 |
1593 |
-2311 |
|
Net Income Growth |
-0.8332 |
-0.0926 |
– |
|||||
Net Income Growth |
0.1268 |
1.6892 |
-2.0814 |
|||||
Depreciation, Depletion & Amortization |
1296 |
1219 |
1123 |
|||||
Depreciation and Depletion |
1162 |
1101 |
1033 |
Depreciation, Depletion & Amortization |
1103 |
1061 |
1076 |
|
Amortization of Intangible Assets |
134 |
118 |
90 |
Depreciation and Depletion |
1085 |
1043 |
1053 |
|
Deferred Taxes & Investment Tax Credit |
-347 |
6 |
-40 |
Amortization of Intangible Assets |
18 |
18 |
23 |
|
Deferred Taxes & Investment Tax Credit |
98 |
122 |
-362 |
|||||
Deferred Taxes |
-347 |
6 |
-40 |
|||||
Deferred Taxes |
98 |
122 |
-362 |
|||||
Other Funds |
2179 |
11 |
-350 |
|||||
Other Funds |
-52 |
362 |
2075 |
|||||
Funds from Operations |
3535 |
3676 |
3422 |
|||||
Changes in Working Capital |
-170 |
115 |
-196 |
Funds from Operations |
2944 |
3138 |
477 |
|
Changes in Working Capital |
-10 |
-12 |
1884 |
|||||
Receivables |
-12 |
17 |
54 |
|||||
Receivables |
-142 |
3 |
29 |
|||||
Inventories |
-444 |
-128 |
-266 |
|||||
Inventories |
-60 |
305 |
204 |
|||||
Accounts Payable |
259 |
219 |
-91 |
|||||
Accounts Payable |
129 |
323 |
-172 |
|||||
Income Taxes Payable |
-31 |
-106 |
-35 |
|||||
Income Taxes Payable |
28 |
45 |
-60 |
|||||
Other Assets/Liabilities |
58 |
113 |
142 |
|||||
Other Assets/Liabilities |
35 |
-688 |
1882 |
|||||
Net Operating Cash Flow |
3365 |
3791 |
3226 |
|||||
Net Operating Cash Flow Growth |
-0.1124 |
0.1751 |
– |
Net Operating Cash Flow |
2934 |
3126 |
2361 |
|
|
|
Net Operating Cash Flow Growth |
-0.0614 |
0.3242 |
-0.2953 |
|||
Net Operating Cash Flow / Sales |
0.0511 |
0.061 |
0.0539 |
|
|
|||
Capital Expenditures |
-1899 |
-2239 |
-2233 |
Net Operating Cash Flow / Sales |
0.0515 |
0.0568 |
0.044 |
|
Capital Expenditures |
-1848 |
-1910 |
-1983 |
|||||
Capital Expenditures (Fixed Assets) |
-1794 |
-2010 |
-2111 |
|||||
Capital Expenditures (Fixed Assets) |
-1848 |
-1910 |
-1938 |
|||||
Capital Expenditures (Other Assets) |
-105 |
-229 |
-122 |
|||||
Capital Expenditures (Other Assets) |
– |
– |
-45 |
|||||
Capital Expenditures Growth |
0.1519 |
-0.0027 |
– |
|||||
Capital Expenditures Growth |
0.0325 |
0.0368 |
0.0874 |
|||||
Capital Expenditures / Sales |
-0.0288 |
-0.0361 |
-0.0373 |
|||||
Capital Expenditures / Sales |
-0.0324 |
-0.0347 |
-0.037 |
|||||
Net Assets from Acquisitions |
-748 |
-339 |
-36 |
|||||
Net Assets from Acquisitions |
-38 |
-6 |
-23 |
|||||
Sale of Fixed Assets & Businesses |
563 |
687 |
1017 |
|||||
Purchase/Sale of Investments |
-1 |
80 |
2541 |
Sale of Fixed Assets & Businesses |
372 |
481 |
737 |
|
Purchase/Sale of Investments |
– |
– |
-1 |
|||||
Purchase of Investments |
-2 |
-44 |
-100 |
|||||
Purchase of Investments |
-251 |
– |
-1 |
|||||
Sale/Maturity of Investments |
1 |
124 |
2641 |
|||||
Other Uses |
-47 |
-87 |
-337 |
Sale/Maturity of Investments |
251 |
– |
– |
|
Other Uses |
– |
– |
– |
|||||
Other Sources |
– |
– |
– |
|||||
Net Investing Cash Flow |
-2132 |
-1898 |
952 |
Net Investing Cash Flow |
-1514 |
-1435 |
-1270 |
|
|
|
|
|
|||||
Net Investing Cash Flow Growth |
-0.1233 |
-2.9937 |
– |
Net Investing Cash Flow Growth |
-0.0551 |
-0.13 |
0.0513 |
|
|
|
|
|
|||||
Net Investing Cash Flow / Sales |
-0.0324 |
-0.0306 |
0.0159 |
Net Investing Cash Flow / Sales |
-0.0266 |
-0.0261 |
-0.0237 |
|
Cash Dividends Paid – Total |
-2270 |
-2597 |
-2160 |
|||||
Cash Dividends Paid – Total |
-724 |
-541 |
-1185 |
|||||
Common Dividends |
-2270 |
-2597 |
-2160 |
|||||
Common Dividends |
-724 |
-541 |
-1185 |
|||||
Change in Capital Stock |
1 |
-860 |
-581 |
|||||
Change in Capital Stock |
– |
56 |
108 |
|||||
Repurchase of Common & Preferred Stk. |
– |
-864 |
-585 |
Sale of Common & Preferred Stock |
– |
56 |
108 |
|
Proceeds from Stock Options |
– |
56 |
108 |
|||||
Sale of Common & Preferred Stock |
1 |
4 |
4 |
Issuance/Reduction of Debt, Net |
-280 |
-1222 |
– |
|
Other Proceeds from Sale of Stock |
1 |
4 |
4 |
|||||
Issuance/Reduction of Debt, Net |
936 |
208 |
-703 |
Change in Long-Term Debt |
-280 |
-1222 |
– |
|
Change in Long-Term Debt |
936 |
208 |
-703 |
Issuance of Long-Term Debt |
4 |
184 |
– |
|
Reduction in Long-Term Debt |
-284 |
-1406 |
– |
|||||
Issuance of Long-Term Debt |
2360 |
930 |
888 |
|||||
Reduction in Long-Term Debt |
-1424 |
-722 |
-1591 |
Other Funds |
-56 |
-22 |
-32 |
|
Other Funds |
– |
– |
– |
Other Uses |
-56 |
-22 |
-32 |
|
Other Uses |
– |
– |
– |
Net Financing Cash Flow |
-1060 |
-1729 |
-1475 |
|
|
|
|||||||
Net Financing Cash Flow |
-1333 |
-3249 |
-3444 |
Net Financing Cash Flow Growth |
0.3869 |
-0.1723 |
0.0844 |
|
|
|
|
|
|||||
Net Financing Cash Flow Growth |
0.5897 |
0.0566 |
– |
Net Financing Cash Flow / Sales |
-0.0186 |
-0.0314 |
-0.0275 |
|
|
|
|||||||
Net Financing Cash Flow / Sales |
-0.0202 |
-0.0523 |
-0.0575 |
Exchange Rate Effect |
– |
-1 |
7 |
|
Net Change in Cash |
-100 |
-1356 |
734 |
Net Change in Cash |
360 |
-39 |
-377 |
|
Free Cash Flow |
1571 |
1781 |
1115 |
Free Cash Flow |
1086 |
1216 |
422 |
|
Free Cash Flow Growth |
-0.1179 |
0.5973 |
– |
Free Cash Flow Growth |
-0.1069 |
1.8788 |
-0.6534 |
|
Free Cash Flow Yield |
– |
– |
– |
Free Cash Flow Yield |
0.0093 |
– |
– |
|
Operating Activities
V) From the similar examination of both the organizations which are the Wesfarmers and the Woolworths, the investigation in the form of the comparative cash flow is essentially attempted to get an understanding of the financial performance between the factors more than at least two detailing periods. The most ideal approach to discover the situation in the market is to compare the market performance of both the firms and to provide a brief look over the cash flows. Besides there are numerous competitive strategies through which the benefit can be expanded but in certain situations the cash flows fails to solve the questions of the shareholders.
The monetary investigators not only compares the income statemnetas nf the balance sheet rather they additionally examine the cash flow and each of the category and different set of the activities which are the cash flow from the financing activities, the cash flow from the investing as well as the operating activities. The contrast between the various years can be accounted for, with the assistance of the correlation explanation and the information is additionally displayed in terms of the figures as well as percentages. Further the cash is the major criteria which will determine the position of each of the firms.
From the above comparison it can be stated that the cash flow statements of both the Wes farmers and the Woolworths are reported for the period of the three years and it can be interpreted that in case of the net cash the Woolworths have performed better but the firm is not having enough free cash flows left and the situation is vice versa in case of the Wesfarmers.
The net cash flows from the operating activities in case of the Wesfarmers is 3365 and that of the Woolworths 2934. The net cash from the investing activities is negative in case of the Wesfarmers which is -2132 and in case of the competitive bank the same has been -1514 which is less risky (Wesfarmers, 2018). Lastly from the financing activities the amount achieved is -1333 in case of the Wesfarmers and that of the Woolworths is -1060.
Comprehensive Income statement
- VI) The statement of the comprehensive income depicts the items that may be reclassified to the profits or loss or the opposite of the same. The transactions of the special nature are recorded in the comprehensive income such as the foreign currency translation reserve, cash flow hedge reserve, and at last there is an adjustment of the retained earnings. The total income is distributed to the members of the parent. In case of the Wesfarmers the comprehensive income changed and improved form (78) to 18 and in case of the Woolworths the income fell down drastically from the 188.6 to 2.3. The tax component of the Wesfarmers is same and the Woolworths decreased from 1.7 to 1.0.
VII) The items of the comprehensive income is taken by the organisation to reflect the interest of the owners’ in the business. The Comprehensive income is normally listed separately which include the changes in the foreign currency translations and the other reporting incomes and the expenses. The tax component accumulated has also been shown.
In case of the smaller businesses these kind of the expense occur rarely and in case of the larger corporations the comprehensive income is reported differently to showcase the individual affect which gets merged if it has been added in the income statement.
VIII) From the above image it can be analysed that the total comprehensive income of the Woolworths is 1593.4 and that of the Wesfarmers is 2873. The comparative analysis is carried out to report the changes after infusing the accounting policies and the recording it separately.
Investing Activities
The retained earnings are defined under the items that are not required to be reclassified and this is same for the past two years in case of the Wesfarmers. The gain or loss on the hedging instruments is high in case of the Wesfarmers has transferred to the net profit. In comparison to Wesfarmers, Woolworths hedging reserve increased form (2.7) to 3.8. If these items were presented in the income statement the amount of the net income will change and the investors will not be able to get the entire idea and reflection of each item as they have to be clubbed (Huang, Lin and Raghunandan, 2015).
- IX) The comprehensive has its own set of the importance and it is usually to help the GAAP merge more closely whit the IFRS standards that require the presentation of the comprehensive income in the financial statements. Analysing the OCI can uncover other potentially major items and the performance of any manger or the supervisors are linked to the transparency they are able to maintain with their team internally and the clients externally. There is an indirect relation of the employee’s performance and henceforth, it is important to recognise the OCI (Graham and Lin, 2018).
- Accounting for Corporate Income Tax
Accounting for Corporate Tax |
|
Wesfarmers |
Woolworths |
Tax Expense |
1265 |
650 |
|
Income tax expense |
1265 |
650 |
|
Earnings before Tax |
4402 |
2132.4 |
|
Effective Tax rate |
29% |
30% |
|
Deferred Tax Assets/Liabilities (17) |
971 |
372.3 |
|
2016 |
1042 |
497.7 |
|
Deferred tax assets increase |
|||
Increase/ Decrease |
-71 |
-125.4 |
|
Income tax provision |
1743 |
1470.6 |
|
Increase/Decrease in Deferred Tax |
-71 |
-125.4 |
|
Total taxes |
1672 |
1345.2 |
|
Other income |
288 |
244.2 |
|
Tax paid on other Income |
0.83 |
0.74 |
|
Unlevered Taxes |
1671 |
1344 |
|
Earnings Before Income tax |
4402 |
8661 |
|
Cash Tax Rate |
38% |
16% |
|
Income Tax Provision |
3960 |
1010 |
|
Deferred Tax |
971 |
372.3 |
|
Total Taxes |
4931 |
1382.3 |
|
Interest Income |
2873 |
1593 |
|
Tax paid |
8.26 |
4.86 |
|
Cash Tax Amount |
4923 |
1377 |
|
X) The tax expenses represented in the last year of both the companies are A$1265 and A$650 respectively for the Wesfarmers and Woolworths (Faulkender, Hankins and Petersen, 2018).
- XI) The effective tax rate of Woolworths is higher at 30% in comparison to the Wesfarmers (Creedy and Gemmell, 2017)
XII) The deferred tax expense can be utilized by the organization to diminish the assessable taxable income and it is appeared under the head of the current assets in the financial statement commonly known as balance sheet. Deferred tax liability on the other hand imposes obligation with a specific end goal to discover how much risk the organization will pay in future in view of the present changes (Kahng, 2015).
XIII) The deferred tax asset/liabilities of the Wesfarmers decreased by A$71 and the liabilities decreased by A$125.4 in case of the Woolworths.
XIV) The cash tax amount for the Wesfarmers is A$4923 and that of the Woolworths is A$1377 (Wesfarmers, 2018).
- XV) The cash tax rate of the Wesfarmers is higher in comparison to the Woolworths at 38% (Wesfarmers, 2018). The cash tax rate of the Woolworths is 16%.
XVI) There are the temporary and the long term differences which occurred due to the practice adopted by the IRS of not equating the pre-tax and the pre taxable income in the books of accounts. Therefore there is a difference in the numbers. Short term difference results into the deferred tax whereas the permanent changes results in the effective tax rate.
Conclusion
From the above analysis it can be concluded that the financial statements and the cash flow analysis is necessary to get the overview of the entire position of the company and with the assistance of the accounting and the corporate practice helps the investors to make the nice decisions before making the investment.
References
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