Wesfarmers Limited

Wesfarmers Limited

Question No. 1

Calculation of Ratios

2011

2010

Liquidity Ratios

Current Ratio

=

10218

=

1.17

=

9674

=

1.23

8722

7852

Quick Ratio

=

5231

=

0.60

=

5016

=

0.64

8722

7852

Cash Flow from Operations to Current Liabilities

=

2917

=

0.33

=

3327

=

0.42

8722

7852

2011

2010

Efficiency Ratios

Debtors' Turnover

=

52891

=

24.61

=

49865

=

28.19

2149

1769

Average Days Sales Uncollected

=

365

=

14.83

=

365

=

12.95

24.6

28.19

Inventory Turnover

=

51887

=

10.40

=

49202

=

10.56

4987

4658

Inventory Turnover In Days

=

365

=

35.08

=

365

=

34.55

10.40

10.56

2011

2010

Profitability Ratios

Net Profit Margin

=

1922

=

0.04

=

1565

=

0.03

54875

51827

Asset Turn Over

=

54875

=

1.34

=

51827

=

1.32

40814

39236

Return on Assets

=

1922

=

0.04

=

1565

=

0.03

54875

51827

Return on Ordinary Shareholders' Equity

=

1922

=

0.08

=

1565

=

0.06

25329

24694

2011

2010

Financing Ratios

Debt to Equity

=

15485

=

0.61

=

14542

=

0.59

25329

24694

Debt to Total Assets

=

15485

=

0.28

=

14542

=

0.28

54875

51827

Cash Flow from Operations to Total Liabilities

=

2917

=

0.19

=

3327

=

0.23

15485

14542

2011

2010

Market Based Investment

Price/ Earnings (P/E)

=

32.22

=

0.19

=

28.55

=

0.21

166.7

135.7

Dividend Yield

=

20

=

0.62

=

19

=

0.67

32.22

28.55

Dividend Cover

=

1922

=

96.10

=

1565

=

82.37

20

19

Net Tangible Asset Backing

=

4749

=

0.20

=

4160

=

0.18

23286

23286

Question No. 2

Company Introduction

The company operates general merchandise, liquor and fuel outlets, specialty department stores and supermarkets and also supplies home expansion and office products mainly in New Zealand and Australia. Wesfarmers Limited operates in the course of a portfolio of diversified business interests which entail various retail operations.

Analysis of Financial Ratios of Wesfarmers Limited

Liquidity Ratios

The liquidity ratios of Wesfarmers Limited present that the liquidity position of the company declined from 2010 to 2011, which is not a good indication for the company. Moreover, the reason of this statement is that the current ratio, quick ratio and cash flow from operations to current liabilities decreased in 2011 as compared to 2010, thus, it can be stated that the company may face difficulties or problems in meeting or fulfilling its immediate needs.

Efficiency Ratios

In addition to this, it is observed that average days sales uncollected of the company increased from 13 to 15 days. This shows that the debtors are taking more time to pay, which is not a good indication for the company as the increase in average days sales uncollected may possibly leads to bad debts. Moreover, the inventory turnover in days of Wesfarmers Limited is almost same that is 35 days, in this in view, it can be stated that the company maintains a constant repayment of its liabilities to its suppliers.

Profitability Ratios

For Wesfarmers Limited, it is noted that the profitability structure of the company is slightly improved from 2010 to 2011, which can be endorsed by the assessment of the profitability ratios. Moreover, the basis of such is that net profit margin of Wesfarmers Limited in 2010 was 0.03 which increased to 0.04. The asset turnover also increased from 2010 to 2011 that is from 1.32 to 1.34 respectively. In addition to this, this ratio indicates turnover of the company's assets. Beside it, it is found that the return on assets of Wesfarmers Limited also slightly increased from 0.03 to 0.04 from the 2010 to 2011. This reflects that the increase in profitability but not by too much. Furthermore, it is also noted that the return on ordinary shareholders' equity of the company have also raised from 2010 to 2011 that is from 0.06 to 0.08; this represents that the wealth of share holders is increased over the period under consideration. Keeping this in view, it can be stated that the overall performance of the company in terms of profitability is encouraging for the investors.

Financing Ratios

With reference to financing ratios, it is observed that the debt to equity of the company is increased which is not a positive sign for Wesfarmers Limited, as the company debt is increased from ...