'Financial Analysis on Coles Myer & Woolworths Essay\r'

'Introduction\r\nColes Myer bound (CML) and Woolworths Limited ( orgy) atomic number 18 twain major Australian companies with all-inclusive retail interest and listed on the Australian acquit Ex diversity. They are Australian public companies which operate a number of retail chains.\r\nCML is Australia’s second largest retailer, puke shrieking. It operates a number of chains of retail outlets which are including Coles Supermarkets, Bi-Lo, Liquorland, Pick ‘n Pay Hypermarket, Kmart, Officeworks, Target, Harris Technology and Coles gestate (Wikipedia, 2006) .\r\n screaming is oc afoot(predicate)ly the largest retail caller-out in Australia and New Zealand by market neatisation and gross sales. shrieking operates in Australia through several retail banners such(prenominal) as Woolworths and Safeway Supermarkets, BWS, Dan Murphy’s, BIG W, Dick metalworker Power House and Dick Smith Electronics (Wikipedia, 2006) .\r\nThe habit of this report is to psych oanalyse monetary performances of the two in public listed companies in last 5 years by using series of calculation tools include horizontal analysis and financial symmetrys. Also as a recommendation, we entrust advise investors to buy or not buy the two companies’ shares according to the results of the performance analysis.\r\nfiscal Condition\r\n(See Appendix 1 & adenylic acid; 2 for balance details)\r\n1. Overview\r\nThe drunken revelry’s tax has annex every year, one year as with child(p) as 149.90 % in 2005 ( adjoin appendix 11 for details). In 2001, revenues were 20915.1 million while in 2005 revenue has addition to 31352.5 million. Since revenue change magnitude, the net take in openly has developmentd as well. Net profit move 84.70% from 2001 to 2005. The plane abbreviation (Appendix 11 &; 14) indicates screaming is a very successful companionship and earning money. CML’s revenue has profitd 52% and the net profit rose 314% from 2001 to 2005, the increase was tremendous because it occurred in typical continuative with the restructuring of the method of financing a foreign process (Financial Report, 2005).\r\n2. Liquidity\r\nCurrent balance\r\nThis symmetry represents the financial liquid state of the company. ‘The incumbent dimension compares the additions a company raft strongly convert to funds to the liabilities it moldiness pay in the near term’ (Vance, D. E. 2003). The higher(prenominal)(prenominal) the proportion, the more than liquid the company is. For CML, there was a subtle increase of 0.04 from 2001 to 2002. Then it followed by an manifest fall from 1.37 to 1.09 during period from 2002 to 2005. This represents that one-unit sure liabilities is secured by 1.37 units of current pluss in 2002 and 1.09 units, nearly one current asset for one current liability, in 2005. From the prospect of bacchanal, the balance starts from 0.81 up to 0.84 because declined to 0.81 a nd finally dropped to 0.82 during this period of time. The current symmetrys are all slight than one, indicating that one current asset will prepare for the recompense of more than one unit current liability. That leads to high liquidity risk in the business ope dimensionn. If there is an tinge to WOW, it will encounter the problem of retaliatement.\r\nQuick ratio\r\nQuick ratio is kindred with current ratio, alone more conservative than current ratio, because in numerator, size up is excluded from current assets, and in dominator, bank overdraft is excluded from current liabilities. ‘The quick ratio addresses the issue of whether current assets could cover current liabilities if size up were found to be worthless’ (Vance, D. E. 2003). WOW undergo a slight increase from 0.2 to 0.26 in this period of time. In contrast, CML undergo a pocket-sized fluctuation and end up with 0.28 in 2005, the final one in 5-year time and the highest one is 0.41 in 2003. Gener ally, the quick ratios of CML exceed the ones of WOW.\r\nCash flow ratio\r\nCash flow ratio will analyse the ability of repayment on current liabilities from the perspective of the operating cash flows. Vance, D. E. (2003) states that it is an separate way to mean about the risk of leading to, or place in a company. These two companies both experienced a drop on this ratio from 2004 to 2005, 0.35 for WOW and 0.3 for CML in 2005.\r\n3. Financial supplement\r\nEquity ratio & debt ratio\r\nEquity ratio and debt ratio are both designing for detonator social organisation and they are negatively related with each other. The appeal of virtue is higher than the cost of debt, further shareholders will not require companies to repay them dividends and principals any time. However, companies must pay the debt holders interests and principals each year. And increasing leverage ratio will result in increasing the drive away to shareholders, yet at the same time, it will increase the repayment commitments and then raise the risk to company and shareholders.\r\nCML’s equity ratio increased to 0.4 and correspondingly debt ratio change magnituded to 0.15 from 2001 to 2005. Generally it is a untroubled trend, even though there has been a decline in equity ratio in 2005 from 0.45 to 0.40 and an increase in debt ratio from 2004 to 2005, it may be collect to the acquisition from US group KKR. However, in 2005, equity is almost three times debt, which means the capital structure is still in good condition.\r\nOn the other hand, WOW experienced a opposite trend that its equity ratio has decreased from 0.30 to 0.25, and debt ratio has significantly increased from 0.13 to 0.32 between 2001 and 2005. WOW brocaded funds heavily on interest-bearing liabilities and thence takes higher risk than CML due to higher leverage ratio.\r\nTimes interest make & set charges coverage\r\n‘Times interest earned ratio examines the ability of the business to meet its regular financial commitments’ (Harvey, McLaney and Atrill 2001). Fixed charges coverage ratio is very similar to Times interest earned ratio. These two ratios appreciate the profitability of company and the ability of interests and principal repayment. CML experienced a significant increase on these two ratios from 3.48 to 12.04 and from 6.81 to 16.64, even though there was a slight drop between 2004 and 2005. However, WOW experienced an obvious fall to 11.82 and 12.25 on times interest earned and fixed charges coverage on an individual basis. In 2005, compared with WOW, CML showed a ruin financial performance on the ability to repay the interests and principal.\r\nAverage payment period\r\nCML experienced a decreasing trend on average payment period from 45.29 to 38.69. In contrast, WOW experienced an increase from 19.41 in 2001 to 37.78 in 2003, and a decrease to 34.77 in 2005. Compared with WOW, CML has a longer payment period. It means CML can hold its money more tim e and do some investments.\r\n4. Assets management\r\nSales turnover\r\nThis ratio indicates assets management efficiency that one unit asset can buzz off how much sales. From the perspective of CML, the sales turnover gradually increased from 2.9 in 2001 to 3.94 in 2005. On the other hand, WOW maintained perpetual on about 4.5 sales turnovers. We can see that WOW managed its assets more efficiently than CML did.\r\nAverage inscription turnover period\r\nThis ratio assesses the efficiency of inventory management whether company reduce the inventories as few as possible. The fewer inventories, the more free cash flow company has to invest on other assets. Both WOW and CML experienced a decrease on inventory turnover period from 39.64 to 29.64 and from 59.45 to 41.38 respectively. It indicates that CML managed its inventories less efficiently than WOW did.\r\n5. positiveness\r\n bribe on sales\r\nWOW return on sales remained constant, 4% of sales. For CML, it maintained stable, n early 2% of sales. Obviously, WOW has a higher operating profit margin, and then a better profitability performance perhaps due to the more efficient costs control.\r\nReturn on assets\r\n‘It is used to measure whether assets are world productively employed’ (Vance, D. E. 2003). This ratio indicates how much profit one unit asset can generate and how profitable company is as a whole. WOW and CML are both in the increasing trend, 0.17 and 0.1 respectively in 2005. In term of this ratio, it showed that WOW is more profitable than CML\r\nReturn on equity & earning per share\r\nThese two ratios reflect the return to the shareholders and the place increase for the shareholders. WOW and CML both experienced an increase on the return to the shareholders, yet the WOW’s increase of the return is more stable than CML’s. In 2005, in term of return on equity, WOW stayed with 37% of the equity, yet CML just 16%.\r\ndecisiveness\r\nThe two companies curb been do ing quite well in recent years as can be seen from the increasing profitability. The table in Appendix 15 indicates a comparison of the two companies according to the supra discussion. CML has a better performance on liquidity and financial leverage but WOW managed Assets and Profitability better than CML.\r\nRecommendations\r\nOn 8th phratry 2006, WOW’s closing share price is $20.80 and CML is $13.70. found on the financial analysis above, we can fill up that WOW has maintained a constant financial performance in last 5 years, but their growth is not rapid. However, Simpson (2006) states that ‘At present Coles Myer is earning a 13 per cent return on capital invested in stores, compared with 24 percent by Woolworths.’ Therefore, I recommend potential investors buy shares from WOW for a short-term. According to CML news released in March and June, CML had acquired Sydney dose stores Pty Ltd (CML News vent-hole, 2006) and Hedley Hotel Group (CML News chuck up the sponge, 2006). CML will hit the ceiling the pharmacy business further more and have a different strategy than WOW if the regulations change in the future becomes true. CML also will balloon their liquor business to compete WOW as well. Thus, I believe that the potential financial growth of CML will be a lot higher than what it is right now and I suggest investors go under their money on CML for a long-term investment.\r\nReferences\r\n1.Wikipedia 2006, Coles Myer Ltd, Wikipedia quit bug Organization, viewed 10 September 2006\r\n2.Wikipedia 2006, Woolworths Ltd, Wikipedia Free Source Organization, viewed 10 September 2006\r\n3.Financial Report, 2005, Coles Myer Ltd., pp 19\r\n4.Vance, D.E. 2003, Financial Analysis and Decision Making, McGraw-Hill, United States of America\r\n5.Harvey, D, McLaney, E and Atrill P 2001, Accounting for business, Butterworth-Heinemann, Oxford\r\n6.Simpson, K. 2006, Market waits for higher Coles bit, The Age, 8 September 2006, front page of Busin ess Section\r\n7.News Release 2006, ‘Coles Myer Acquires Pharmacy Direct’, Coles Myer Ltd., 31 March 2006\r\n8.News Release 2006, ‘Hedley Hotel Acquisition Complete’, Coles Myer Ltd., 14 June 2006\r\n'