Company background

Woolworths Limited is regarded as one of the major Australian organization having extensive amount of retail interest across the regions of Australia and New Zealand. Woolworths Limited is regarded as the second largest company in Australia following the Perth Based retail company of conglomerate Wesfarmers. In addition to this, Woolworths Limited is regarded as the largest takeaway retailer of liquor in Australia with largest gaming poker machine operator and hotel in Australia. The company opened its first store in the old imperial arcade of Pitt Street located in Sydney.

During its initial opening the nominal capital of the company stood £185,000. Although the company offered 85,000 shares in the market to the public but only 81,707 shares were subscribed by the 619 people including its five founders. During the year 2012, Woolworths Limited placed as many as 69 shopping center owned by the company to the real estate investment trust named as the shopping center Australasia group, which is separately listed on the Australian stock exchange during the year 2012. A large number of the location comprises of the Woolworths Limited owned store as the medium of anchor talent. As a result, the trust generates a large of the rental income from the stores of Woolworths Limited.  

Considering the ownership governance structure of Woolworths Limited, none of the shareholders is holding more than 20% of the Woolworths Limited shareholdings. Perpetual investment management ltd holds 4.92% of the Woolworths Limited shareholdings with BlackRock Fund Advisors holding 2.77% of the share for Woolworths Limited. The shareholdings for Woolworths Limited represents that the shareholders of the Woolworths Limited lower than the mark of 5%.

The structure of the board comprises of the independent non-executive directors with the chief executive officer having the mix of skills to offer the obligatory depth of knowledge needed to meet the accountabilities and objectives.  

An important element of the governance structure of Woolworths Limited states the company is centrally focused on the maintaining the good corporate governance structure approach to improve the long-term value of the shareholders. The corporate governance statement of the Woolworths Limited states that the key governance practice is focused on serving the interest of the shareholders. The governance structure comprises of the responsibilities towards the shareholders regarding the review of the strategic decision and approval of business.

The governance structure for Woolworths Limited comprises of the risk management framework that is accountable for overseeing the effectiveness of the risk management and compliance. The corporate governance structure is accountable for reviewing and monitoring the organizations policies of corporate governance and practices. The relationship between the board of directors and the chief executive officer states that the board approves the corporate governance objectives, duties and accountabilities of the chief executive officer. 

Ownership and governance structure

The above stated tabular presentation provides the computation of the performance ratio. The performance ratio that are taken into the consideration are the return on assets, return on equity and the debt ratio. The total assets is classified as (TA) whereas the ordinary equity is classified as (OE). Both the total assets and the ordinary equity is interrelated which would help in generating the return on asset and return on equity. Rise in the return asset signifies that the organization is making an adequate usage of the asset used in the business.

Consequently, effective utilization of the asset represents that the business has been generating sufficient amount of net income with higher percentage of total asset (Scott, 2015). An important assertion that can be bought forward by stating that an increase in the total asset with income staying at sufficient level the total amount of reportable debt owned by the firm would untimely fall. Whenever there is an instance of an organization reporting a lower amount of debt ratio there result in higher amount of return on equity. It is worth mentioning that the value of the return on equity and return on asset is ascertained through the total amount of reported asset and equity.     

As evident from the above stated computation, an assertion can be bought forward by stating that the return on equity, which is reported during the financial year of 2014, stood 23.36% while in the following year of 2015 the return on equity stood 19.20%. In the subsequent year of 2016 the return on equity for Woolworths Limited took a significant dive as it negatively stood 26.74%. The return on equity gained grounds in the year 2017 where the Woolworths Limited reported a positive figure of 16.13%. Significantly, the return on asset for the financial year of 2014 stood 10.19 while in the subsequent year of 2015 it stood 8.44%. However, in the following year of 2016 Woolworths Limited reported a negative return on asset of 9.99%, which gained grounds in 2017 to a positive figure of 6.95%.

The analysis represents that the efficiency of Woolworths Limited has been effective even though the return on asset and return on equity stood negatively during the financial year of 2016 but extensive effort were put in by the management to gain ground in 2017 with positive reporting of figures. As a sign of healthy business the figures of return on equity generally stays higher than the return on equity (Schaltegger & Burritt, 2017). However, in case of Woolworths Limited the return on asset has been marginally lower. An assumption can be bought forward in this regard by stating that the equity has been proportionately higher than the assets reported by Woolworths Limited.

Financial performance analysis

The graphical representation of the stock price movement represents that comparison of the stock price of Woolworths Limited against the all order index. As evident from the above chart, the stock price for Woolworths Limited has been relatively higher in the earlier instances. Woolworths Limited have reported a higher movement in their stock price against the all order index during the quarter of March. However, the evidences from the graphical representation suggest that Woolworths Limited stock price on few occasions have fell behind the all order index.

During the month of April in 2016, the stock price of Woolworths Limited fell behind the all order index and stood negatively however in the following month of May the stock price movement for Woolworths Limited represented a positive change with stock price soaring as high as 12% (Warren & Jones, 2018). The evidences that has been presented from the movement in the stock price for Woolworths Limited suggest that the stock price has been moderate. Besides reporting a higher amount of stock price, the company has reported a decline in the stock of price on few occasions below the ordinary index.

Over the recent couple of months, Woolworths Limited witnessed a significant amount of volatility in their share price. The company reporting the prices of share rising as high as A$27.5 and significantly declining to as low as A$24.92. Therefore, such kind of high level of volatility provides the investors with the opening of entering in the stock of Woolworths Limited and probably purchasing the shares at a lower price. The primary question influencing the share price of Woolworths Limited is whether the company is presently trading at A$27.27 states the original value of being considered as the large-cap or presently undervalued with the hope of providing the investors with the opportunity of purchasing shares.

Analytically the stock price of Woolworths Limited is currently being traded at A$27.21 this represents that the share price of Woolworths Limited is presently overvalued by 43% in respect to the intrinsic value of A$19.07. An important assertion in this respect is that the opportunity for purchasing has potentially disappeared currently. Additionally, Woolworths Limited the share prices of the company at present appears to be stable in comparison to the share prices prevailing in rest of the market with low beta reported by the company.

An important factor that should be considered by the investors is that if they have believe that the share price would eventually reach the true value; given the low beta reported by the company suggest that it is not likely to happen currently with the share prices relatively being stable (Hoyle et al., 2015). Furthermore, the market analysis suggest that it is hard currently for the investors to fall down into the attractive purchase range.

Stock price analysis

Outlook is regarded as the important factor in undertaking the decision of purchasing the stock particular if the individual is the investors and it is looking for growth portfolio. Taking into the considerations relating to the rationale for conservative investment is the organization future anticipations. Purchasing the share of better with the robust outlook at a lower price is always regarded as the better investment prospect (Warren & Jones, 2018). In context of the Woolworths Limited, the earnings of the company over the next few years is projected to increase by 38.79% reflecting a greater positive prospect ahead. This could result in higher influx of strong cash flow, stimulating into the greater value of share. The shares of Woolworths Limited are less prone to variations and investing looks a brighter prospect.     

Debt ratio can be defined as the important financial ratio that helps in gauging into the percentage of assets held by firm through debt. Debt ratio usually represents both the long and short-term debt. Based on the debt ratio for the past two years for Woolworths Limited it is noticed that the company reported a debt ratio of 0.626 and 0.525 respectively (Hoyle et al., 2015). Gauging in to the debt ratio an assertion can be bought forward by stating that the debt ratio for the firm has been falling slowly. Initiative have been undertaken by Woolworths Limited to reduce the burden of debt on total capital and asset. The debt ratio of the firm is marginally declining reflecting a positive initiative by the Woolworths Limited.

During the year 2017, on 23 August the board of directors of Woolworths Limited has declared a final dividend of 50 cents per share at a fully franked tax rate of 30%. The amount of dividend declared by the company was paid on 6 October and with total dividend value of $647.2 million. The dividend declared marks an increase in the previous reported figure of $422 million during the financial year of 2016.

In response to the above stated analysis, I would to draw your attention regarding the recommendation of investment in Woolworths Limited. As evident from the analysis, the stock price of the company has been less volatility and on most of the occasion has been stable. The figures of beta obtained from the analysis stood relatively lower. The price of Woolworths Limited share has gone passed the true value. This represents that there is no existence of upside from the mispricing. A positive outlook seems to be encouraging for the Woolworths Limited. Therefore making an investment in the shares of Woolworths is worth jumping deeper into the supplementary reasons to take the benefit of the next price drop. The company has also declared higher dividend for its shareholders in last two years,

Therefore, as a matter of recommendations it is worth making an investment in the stock of Woolworths Limited. This might cause in greater inflow of strong cash flow, inspiring into the superior value of share. The shares of Woolworths Limited are less likely to deviations and capitalizing looks an optimistic prospect.

References list:

Au.finance.yahoo.com. (2018). ^AORD Historical prices | ALL ORDINARIES Stock – Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/%5EAORD/history?period1=1432751400&period2=1501353000&interval=1mo&filter=history&frequency=1mo [Accessed 23 Jan. 2018].

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.

Lombardo, Micheal and Simply St., Is It Too Late To Buy Woolworths Group Limited (ASX:WOW)?(2018) Finance.yahoo.com https://finance.yahoo.com/news/too-buy-woolworths-group-limited-043448907.html?.tdata-src=rss

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.