WESFARMERS

Ratio Analysis of Wesfarmers forthe Year 2011

[Student ID and unit number]

Ratio Analysis of Wesfarmers forthe Year 2011

Ratio Calculations for 2010 and 2011

Ratio Name

Formulae

2011

2010

Short-term solvency or liquidity ratios

a) current ratio

Current Assets/Current Liabilities

1.17

1.23

b) quick ratio

(Current Assets-Inventory)/Current Liabilities

0.60

0.64

c) cash flow from operations to current liabilities

CFO/Current Liabilities

0.33

0.42

Efficiency ratios

d) debtors' turnover

Total Sales / Average Debtors

27.01

27.25

e) average days sales uncollected

365/ Debtor turnover ratio

13.51

13.40

f) inventory turnover

Cost of Goods Sold / Average Inventory

7.57

7.38

g) inventory turnover in days

365 x (Average Inventory / Cost of Goods Sold)

48.21

49.44

Profitability ratios

h) net profit margin

Net profit / sales

3.63%

3.14%

i) interest cost as a percentage of sales

Interest Expense / Sales

0.99%

1.31%

j) asset turnover

Net Sales / Assets

1.30

1.27

k) return on assets

(net profit + interest + income tax) / average total assets

12.88%

7.33%

l) return on ordinary shareholders' equity

(Net Income-Preferred dividend)/Av. Common Shareholder's Equity

7.68%

6.40%

Long-term solvency or financing ratios

m) debt to equity

Total Debt / Total Equity

61.14%

58.89%

n) debt to total assets

Total Debt / Total Assets

37.94%

37.06%

o) interest coverage

EBIT / Interest Expense

6.14

4.39

p) cash flow from operations to total liabilities

CFO / Total Liabilities

0.19

0.23

Market-based investment and other ratios

q) price/earnings (P/E)

Market Value per Share/Earnings per Share

19.11

20.25

r) dividend yield

Annual Dividend per share / Price per share

0.05

0.05

s) dividend cover

Net Profit/Dividend paid to Ordinary Shareholders

1.11

1.08

t) net tangible asset backing

net tangible assets / balance of no. of ordinary shares issued

$ 4.12

$ 3.61

Evaluation of performance and financial standing of the Wesfarmers for 2011

Introduction

Wesfarmers originated in 1914 from a small platform. It has developed a lot since then and has become one of the largest listed companies of Australia. It has headquarter in Western Australia and has diversified business operations that prove to be their biggest strength.

According to the managing director of the company, there have been many ups and downs in Australian market during the external environment in 2011, yet the company managed well and gave a good performance (Wesfarmers 2011, pp. 10-11).

Discussion

The financial performance of the company remained quite satisfying throughout the year, despite the natural disasters in the company's area. It is quite difficult to judge a company just in the basis of ratio analysis without having knowledge about the industry and benchmarks within which it operates. However, comparing the ratios of this year with last year and the financial statement analysis performed through ratio analysis, helps to take decisions regarding the firm and draw conclusions about its performance.

The company's sound economic performance can be seen with the “Corporate Social responsibility” activities it did for the people of its country when the disaster hit the city by participating in Queensland premier's Flood Relief and Christchurch earthquake Appeal (Wesfarmers 2011, pp. 10-11).

It is apparent from the fact that operating revenues, EBIT, Net profit and EPS rose by 5.9%, 12.7%, 22.8% and 22.8% respectively. Similarly, there is a decrease of 19.6% in finance cost in the financial statements of 2011. There is also an increase of 20% in dividend declaration as compared to last year. The ratio analysis of the company puts a light on the financial performance of the business.

Short-term solvency or liquidity ratios

Short term solvency measures the ability of a company to meet its liabilities ...