Accounting and Financial Management

Accounting and Financial Management

Part A

Woolworth Ltd (WOW)

Question 1

Woolworth limited used historical cost accounting as a basis of their financial statements.

Total Assets for the year $21581.1 Million.

Assets - Liabilities = CapitalBeginning of 2012 = 20828.4 - 12982.6 = $7845.8Ending of 2012 = 21581.1 - 13134.8 = $8446.3

The long term borrowing component of the non-current liabilities have increased the explanation for the change is the additional loan borrowed for investing purpose. The provisions have increased as well and other noncurrent liabilities. Other financial liabilities have decreased.

Change in total assets 21581.1-20828.4 = $752.7Change in total liabilities 13134.8 - 12982.6 = $152.2Change in total Equity 8446.3 - 7845.8 = $600.5Total Change in equity and liability = $752.7The change in total assets and total liabilities Is same 752.7 = 752.7. The reason for the change being equal is the satisfaction of the accounting equation used in constructing Balance Sheet of the company and the double entry accounting System, which ensures every debit has a credit.

Woolworth does not have 100% beneficial interest in all of its subsidiaries. Woolworth has 25% interest in Gage Roads Brewing Co. Ltd. It has 75% interest in ALH Group Pty Ltd.

Profit attributable to the members of Woolworth in 2012 is 1816.7 Million. EBIT of 3068.4 and Revenue of 55129.8 is attributable to the members of Woolworth

Profit for the period is 1817.2 and Net cash flow from operating activities is 2873.8. this is normal, because net cash flow from operations include cash flows from previous and current periods as well but profit and loss statement is drawn for the current year and also includes the credit and cash transactions. Cash flows only record cash transactions occurred in current year.

The changes in financial activities include the cash collected from issuance of equity to the shareholders and proceeds collected from borrowing. Cash received for loans is received as cash inflows and shares issued to the public or non controlling interests are also recorded as a cash inflow.

Investment activities included the 1165.8 Million in property development and purchase of property and plant. It also includes the payments for the purchase of businesses amounting 968.7 Million. Proceeds were also collected from sale of activities. Major portion if investing activity is spent in property development and property purchase. No divestment is visible in this section of cash flow statement.

Question 2

Calculation of Ratios

1

Return on Equity (ROE)

21.62%

2

Profit margin ratio

3.27%

3

Asset Turnover Ratio

2.60 times

4

Debt to equity ratio

0.84 times

5

Interest coverage ratio

1.05 times

6

Current ratio

0.86 times

7

Net Tangible Asset Backing (NTAB)

2.56 times

8

Earnings Per Share (EPS)

$1.7863

9

Dividend per Share (DPS)

$1.26

10

Price to earnings Ratio (PER)

17.59 times

Question 3

Woolworth purchased Dick Smith electronics in 1980 and 1981 in 2 stages. The purchase price paid for Dick Smith is $24 Million at that time but not it is selling the firm to Anchorage Equity for $20 Million. The investment is worthwhile for the stakeholders because Dick Smith is constantly under margin pressures and shareholders are forcing whether to expand or divest from the electronics sector. Dick Smith profit margins were reduced by ...