Wesfarmers : Financial Analysis

Wesfarmers Financial Analysis Wesfarmers main point is very simple but an effective objective of providing a satisfactory snuff it to its shareholders. The beauty of this objective is that it is measurable, and they seek to achieve a renovation on fairness, which ranks Wesfarmers in the top 20 percent of Australias listed companies and able to contest the portfolio of businesses which make up the host with strong fiscal focus (Australian Securities Exchange,2008). The ongoing success of Wesfarmers is domiciled on shareholder focus, financial disciplines and seemliness and thence it has achieved signifi lott financial return in the preceding 6 years.It is a diversified Australian group, provides home rectifyment products, building supplies, coal mining, gas, industrial and safety products, food, groceries, apparel, forwardice products and insurance (Business Review, 2008). Wesfarmers key strategy is to grow through with(predicate) acquisitions. In line with the strategy , Wesfarmers made several acquisitions everywhere the years which deepen their financial position and stability. everyplace the years the group acquired Linde Gas, which is a study(ip) provider of gas to the Australian Industrial foodstuff.In 2003 Wesfarmers finalized the acquisition of Lumley Australian and New Zealand insurance business which helped diversify Wesfarmers business trading operations and at last in 2007, Wesfarmers acquired the Coles group (Greenhalgh, 2008). Table 1 Major Acquisitions BusinessPriceEBIT ($m)EV/EBIT multiple OAMPS7255812. 5 Linde Gas5007313. 5 Coles Group19,3001,15016. 8 Source www. wesfarmers. com. au The most common course of study of financial analysis is undertaken using ratios, using the data from financial statements and some other related sources.By analyzing and calculating the figures obtained from the Wesfarmers financial statements of the preceding 5-6 years we can develop an insight to the success and growth of the high society ( accounting text book). Over the years Wesfarmers has grown significantly both physically and financially. In 2003 the group achieved a result with illuminate amplifications reaching $538 million, with an after measure cyberspace profit of 16 percent. Earnings per share before goodwill amortization were up by nine percent and shareholders received an development in dividends by up to 14 percent.The total operating gross increased five percent a revenue of 7. 8 one thousand thousand when compared to the previous year, and a 20 percent increase in net operating cash flow payable to a strong focus on working capital and preceding years higher(prenominal) profit (Wesfarmers 2003). Over the last 4 years Wesfarmers net revenues kept up hook dramatically from 7. 54 billion in 2005 to close to 8. 71 billion in 2007. With the acquisition of Coles retail assets in 2007, the scale of Wesfarmers retail operations increased extensively with operations from over 3,200 stack aways throug hout Australia and total sales of $39. billion in the year 2007. This substantially demonstrates the significant buying effect with suppliers manufactures and obtains benefits associated with dedicated ne cardinalrks and shareholder goodwill (Wesfarmers, 2007). There was a significant rise in net profit margin 7. 65% in 2004 to 9. 85 % in 2006. further 2008 being a difficult year due to the global financial crisis there has been a drop in net profit margin. There has always been a constant increase in the Return on asset from 8. 60% in 2004 to 12. 2 % in 2006 and excessively large increase on the return on equity a tremendous increase to 26. 15% in 2006. This demonstrates the overall growth and performance over the years (FinAnalysis,2009). As organizations grow and expand successfully they are as well as faced with a lot of challenges. Given the novel acquisition of Coles, Wesfarmers financial policies and liquidity position has changed significantly. Until 2008 Wesfarmers ha s a strong train over their assets, and the ability of the company to meet short bound obligations were high.However off late their liquidity position is considered to be weak, considering the significant level of short term debt they have acquired, although a portion of it was paid off by the end of 2008, there is still a segment of it which is moreover to be completely cleared off. However given the global financial and economic crisis, Financial experts have predicted that Wesfarmers debt levels are going to rise in the short to medium term of 2009 (Greenhalgh, 2008). This shows the ability of Wesfarmers to purchase assets using borrowed cash in hand and thus lever up their total assets.The short to medium term debt will have to be refinanced in the coming months to assist it diminution any further risks. Wesfarmers services a diverse customer base reflecting the broad range of industries in which the company operates, given this diverse operations of groups they have a larg e number of competitors including MITRE 10, BHP, RIO and Orica, Caltex etc ( FinAnalysis, 2009). However the major one of them all being Woolworths. Woolworths has established a clear egest in sales growth in recent years, and is estimated to hold approximately 27% of the market with Coles falling down to 23%.Woolworths has clearly demonstrate a lead in terms of supermarket margins and supply chain automation resulting in heavy price discounting, and they have reported a unscathed growth in margins from 4. 7% in 2005 to 6. 2% in 2007(Woolworths, 2008). As Wesfarmers operate in various other industries and segments they have demonstrated a strong position in the market. General merchandising and apparel store Target has performed strongly compared to peers, describe margins growing from 2. 1% in 2002 to 8. 8% in 2007.However both Coles and Woolworths operate in a duopolistic market for large scale retailers, with other competitors finding it difficult to compete with these two m assive players. Stakeholder analysis The Board of Wesfarmers Limited is a strong counsellor of good incorporate governance and is committed to providing a satisfactory return to its shareholders and fulfilling its corporate governance obligations and responsibilities in the take up interest of the company and its stakeholders complying with the ASX corporate Governance Councils Corporate Governance Principles and Recommendations (Wesfarmers, 2008).The stakeholders include employees, customers, suppliers and other contractors, political sympathies agencies, local communities, and also shareholders in the parent company. The company strives to expand and improve its sustainability efforts into the future by enhancing the physical environment in which they operate, provide a safe working environment for employees, customers and other stakeholders, treating all stakeholders with respect, investing in the communities for development and better standards of living and most of all, beh aving in a judicial and ethical manner (Hill et,al. 007, p. 34 & Wesfarmers, 2008). However there were a a couple of(prenominal) discrepancies and criticism in the early 1990s, regarding environment and longstanding pollutions issue from sites use for fertilizer production by Wesfarmers. The government and the public were concerned to the highest degree leaching of heavy metals into the water table. Criticism also leveled at the company over its adequate stakeholder involvement in the issue (Sustainable Asset Management, 2003).It was also k straightwayn that a large number of stakeholder of the parent company were now pleased and supportive of the acquisition of Coles group. However eventually it was understood that shareholders back up the proposal and realized it was an opportunity for future growth, increased market share, and higher share prices and returns (Bolt, 2007). Over the years Wesfarmers made strong efforts and changes to advocate the best practice in Corporate Gove rnance by fulfilling its obligations and responsibilities.The board sanction new terms of reference for the audit and compliance committee. The committee also has the responsibility to assess the effectiveness of the groups compliance reporting programe to cover areas such as crisis management, legal liability, risk review, insurance, financial issues, environmental health and safely management (Wesfarmers, 2007). Wesfarmers also revised their disclosure member and policy and improved timely disclosure of relevant information to the market, this includes the lend of investor and analyst briefing and communication with the media.Stakeholders are involved in reviews and stakeholders surveys to take on key areas such as supply chain, OH&S, resource consumption, product stewardship, feedbacks and complaints etc to gossip on the companys performance. The Australian Standards Technical Committee, Australian urine and other authorities have concluded that Wesfarmers has involved in e nsuring environmental responsibility and safety (Wesfarmers, 2007). Succession planning is another issue which is eternally under review within the group.Together with the mergers and acquisitions taken place over the years, Wesfarmers board ensured that these transitions were a smooth one, keeping abreast with the history and shade of the company. This evolution had diversified and strengthened the company together with the experience and fellowship and skill of highly committed directors (Wesfarmers, 2007). References Wesfarmers, 2008, Corporate Governance, retrieved on 27 declination 2008, .Bolt, C, 2007, Wesfarmers makes improved offer for coles, The West Australian, retrieved on 27 December 2008, . Wesfarmers, 2008, Submission on the federal governments Green composing for a proposed carbon pollution reduction scheme, retrieved on 27 December 2008, . Sustainable Asset Management, 2003, Sustainability Leaders Australia Fund, retrieved on 27 December 2008, . Wesfarmers, 2007 , Annual General Meeting Chairmans mastermind, retrieved 29 December 2008, .