Woolworths Financial Perfomance
An analysis of Woolworth financial performance over the last two financial years show that the firm are improving their figures by raising or keeping their Liquidity, Gearing, Profitability or Efficiency consistent. This analysis can help provide insights on whether it is a smart choice to buy shares in Woolworth. Looking into the firm’s financial performance and proposed financial strategy an interpretation can be made on the risk and reliability of investing in Woolworth.
Liquidity matches with the capability of companies to deal with short-term cash acquirement.
The risk involved in investing into a company with low liquidity levels is that the business may experience cash flow problems. The inability for e. G. Woolworth not being able to pay their short-term liabilities could then later result in Woolworth becoming insolvent, meaning they are unable to pay debts altogether when they fall due.
If Woolworth were unable to pay these debts, this would mean they would have to borrow money, which would affect (deteriorate) their profitability levels. With lower revenue, the WOW share price will not give their investors as much turn meaning not as many people will invest in Woolworth.
Based on the financial report of Woolworth, It can be seen that Woolworth’ liquidity levels have risen consistently made sure they avoid the problems listed above through their Multiple Earnings Streams meaning they always have a consistent cash flow. Although firmly based in the retail sectors, Woolworth has multiple income streams that allow the company overall to continue to perform. In the worst of times, people always have to eat, so combined with Woolworth discounting business model, this earnings stream should perform reasonably well no matter what happens.
Woolworth also operates discount department stores, consumer electronics outlets, as well as home improvement and hardware outlets such as Big W, Dan Murphy’s (director’s report 2013).
The retail nature of the business also means mainly cash sales so they business always have a source of cash flow coming into company. Woolworth have a steady rate of liquidity meaning they shouldn’t have to deal with a cash flow problem allowing their profitability levels to reach their potential and also allowing their share price to continue rising.
This share is definitely reliable because the company have cured ways to avoid any liquidity problems so that shareholders can receive maximum dividends. The profitability of the business is essential in deciding whether or not to invest in shares in the business. The company has a responsibility to provide maximum profits to shareholders.
Woolworth have financial priorities such as acting on their portfolio to maximize shareholder value, maintaining their track record of building new growth businesses and putting in place the enablers for a new era of growth. They focus heavily on satisfying their shareholders.
The chief executive of Woolworth Grant O’Brien has proposed a new financial strategy. According to his statements, Woolworth plans to open 39 new supermarkets, seven new BIG Was and 15 new Masters Home Improvement stores before the end of the financial year. (http:// growth-strategy. HTML) This means more sources of income and profits.
Growth is essential because the more the business is growing, the more the value of the share will rise because of capital gains which then leads to profit for the shareholders that had the shares before the growth period that see’s share prices rise.
Then the business must distribute the dividends to its shareholders. From there the shareholder must assess the stability of the share to hold its high price and it becomes a case of return vs.. Risk. The continuous growth of the Woolworth is clearly evident.
This is extremely beneficial for investors as growth is the biggest driver of stock price. From analyzing Woolworth’ financial performance it is evident that they have kept a steady profitability rate of 26% over the past two financial years. “An additional 1. Million customers on average every week came through our doors in the quarter. This drove increases in market share and basket size in our Australian Food and Liquor business, which recorded a 4.
5 per cent increase in sales,” (Chief executive Grant O’Brien – GM). Through the evidence of satisfactory and consistent growth Woolworth achieve, buying shares in Woolworth at the right price would be a good choice because their continuous growth always ends up in more profit for the shareholders because their share value will continue rising. Teens those funds that have been supplied by the owners (equity) and those, which have been, borrowed “debt”. The higher the gearing levels of a business level are meaning the more risk an investor makes when buying shares but also a greater hence of making larger amounts of profits. When observing Woolworth balance sheet statistics from 2012 to 2013 it can be seen that there has been 0. 1% deterioration in their gearing levels from 1.
6 down to 1. 5 percent (Woolworth balance sheet 12-13).
These gearing levels are relatively manageable meaning that there is low risk in investing in their shares because the company maintains a steady level of growth and profits meaning there share value cannot fluctuate too much because their financial performance is almost predictable so there isn’t a high level of risk when investing in their company. If Woolworth choose to raise the leverage levels they can use equity to generate funds so that the business can distribute shares amongst its shareholders (new issues, rights issues, placements, share purchase price), which will result to a constant cash flow into the business.
They may choose to do this so that the company can resolve liquidity problems as the business is constantly receiving capital to pay debts as they fall due to.
This can then go on to resolve profitability problems. Investing in shares with Woolworth would not be overall a major risk but you won’t be making as much profit as fast. These shares are definitely good for a slow and steady profit so I would invest in Woolworth shares.
In conclusion, through the analysis of Woolworth financial performance over two financial years and examining their financial strategies, I think Woolworth have definitely found ways to achieve their objective of maximizing shareholder profits because they have kept consistent and keep improving in their yearly balance sheets and income statements. They also have financial strategies in place that will always support and help the share prices to reach their full potential so that investors will chive a steady and good amount of dividends from the company so I would definitely buy shares in Woolworth.