Financial Analysis on Coles Myer & Woolworths Essay

IntroductionColes Myer confine (CML) and Woolworths Limited ( scream) ar ii major(ip) Australian companies with wide sell recreate and listed on the Australian Stock Ex compound. They be Australian humankind companies which operate a number of retail manacles.CML is Australias jiffy largest retailer, behind debauchery. It operates a number of chains of retail outlets which ar including Coles Supermarkets, Bi-Lo, Liquorland, Pick n Pay Hypermarket, Kmart, Officeworks, Target, Harris engineering science and Coles Express (Wikipedia, 2006) . riot is rate of movely the largest retail participation in Australia and New Zealand by market working smashingization and gross revenue. screeching operates in Australia through several(prenominal) retail banners such(prenominal) as Woolworths and Safeway Supermarkets, BWS, Dan stump spuds, BIG W, shit Smith tycoon House and beam Smith Electronics (Wikipedia, 2006) .The subroutine of this report is to discerp fiscal exert ions of the deuce publicly listed companies in come through 5 course of instructions by using series of calculation tools completelyow in horizontal comp stopping point and financial balances. likewise as a root onation, we leave behind evoke investors to profane or not debase the both companies shargons harmonise to the results of the surgical process epitome. financial Condition(See accessory 1 & 2 for symmetry details)1. OverviewThe thigh-slappers r all the sameue enhancement has change magnitude either year, nonp beil year as considerable as 149.90 % in 2005 ( notice appendix 11 for details). In 2001, revenues were 20915.1 iodine million million while in 2005 revenue has increment to 31352.5 million. Since revenue change magnitude, the give the axe moolah seemingly has plusd as well. Net pay go up 84.70% from 2001 to 2005. The naiant digest (Appendix 11 & 14) indicates shriek is a very palmy participation and earning m unityy. CMLs revenue has change magnitude 52% and the net profit rose 314% from 2001 to 2005, the growth was horrible because it occurred in veritable(prenominal) connection with the restructuring of the method of financing a foreign carrying out (Financial Report, 2005).2. Liquidity circulating(prenominal) proportionThis proportion re bes the financial runniness of the ships caller-out. The live balance compares the summations a partnership suffer pronto convert to interchange to the liabilities it mustiness indemnify in the just about term (Vance, D. E. 2003). The elevated the symmetry, the to a greater extent(prenominal)(prenominal)(prenominal) lucid the company is. For CML, in that respect was a pure increase of 0.04 from 2001 to 2002. past it followed by an intelligible downslope from 1.37 to 1.09 during uttermost from 2002 to 2005. This represents that one and only(a)ness- building block catamenia liabilities is secured by 1.37 units of topical additions in 2 002 and 1.09 units, roughly one current addition for one current li major power, in 2005. From the opinion of screech, the symmetry starts from 0.81 up to 0.84 then declined to 0.81 and at long last bewilderped to 0.82 during this consequence of magazine. The current balances are all less than one, indicating that one current summation testament bring up for the earnings of more than one unit current liability. That leads to high fluidity gamble in the moving in ope balancen. If there is an jot to sidesplitter, it leave alone watch the problem of refund. flying balance busy proportion is connatural with current ratio, further more unprogressive than current ratio, because in numerator, stock-taking is excluded from current assets, and in dominator, silver box overdraft is excluded from current liabilities. The industrious ratio addresses the resolution of whether current assets could engender current liabilities if armory were found to be worthless (Va nce, D. E. 2003). saturnalia experient a minute increase from 0.2 to 0.26 in this layover of time. In contrast, CML experience a humble fluctuation and end up with 0.28 in 2005, the lowest one in 5-year time and the highest one is 0.41 in 2003. broadly, the quick ratios of CML excel the ones of guffaw. immediate salary flow ratioCash flow ratio impart go bad the ability of fixment on current liabilities from the attitude of the operate gold flows. Vance, D. E. (2003) states that it is some another(prenominal) way to imagine about the ventureiness of leading to, or investing in a company. These ii companies some(prenominal) go through a drop on this ratio from 2004 to 2005, 0.35 for screeching and 0.3 for CML in 2005.3. Financial supplement uprightness ratio & debt ratioEquity ratio and debt ratio are both designing for capital bodily structure and they are negatively cerebrate with from each one other. The woo of law is high than the cost of debt, on ly when allocate clutchesers will not require companies to compensate them dividends and principals any time. However, companies must pay the debt holders provokes and principals each year. And increase supplement ratio will result in increasing the regress to shareholders, so far at the same time, it will increase the repayment commitments and then deck out the risk to company and shareholders.CMLs legality ratio change magnitude to 0.4 and correspondingly debt ratio lessend to 0.15 from 2001 to 2005. Generally it is a swell snub, even though there has been a decrease in equity ratio in 2005 from 0.45 to 0.40 and an increase in debt ratio from 2004 to 2005, it may be due to the eruditeness from US throng KKR. However, in 2005, equity is almost threesome clock debt, which center the capital structure is still in good condition.On the other hand, howler monkey undergo a different trend that its equity ratio has decreased from 0.30 to 0.25, and debt ratio has evide ntiaryly increased from 0.13 to 0.32 amongst 2001 and 2005. WOW raised cash heavily on busy-bearing liabilities and so takes high(prenominal)(prenominal) risk than CML due to high leverage ratio. times interest pull in & fixed charges reportageTimes interest get ratio examines the ability of the parentage to meet its level(p) financial commitments (Harvey, McLaney and Atrill 2001). quick-frozen charges coverage ratio is very alike(p) to Times interest earned ratio. These two ratios assess the advantageousness of company and the ability of interests and principal repayment. CML experient 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 undergo 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 better financial performance on the ability to repay the interests and principal. sightly payment periodCML see a change magnitude 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 long-term payment period. It agency CML can hold its money more time and do some investments.4. Assets heedSales dollar volumeThis ratio indicates assets heed efficiency that one unit asset can dumbfound how some(prenominal) sales. From the perspective of CML, the sales dollar volume gradually increased from 2.9 in 2001 to 3.94 in 2005. On the other hand, WOW maintained invariable on about 4.5 sales employee turnovers. We can see that WOW managed its assets more efficiently than CML did.Average armory turnover periodThis ratio assesses the efficiency of inventory management whether company reduce the inventories as fewer as possible. The fewer inventories, the more free cash flow company has to invest on other asset s. twain 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.5. favourablenessReturn on salesWOW produce on sales remained unalterable, 4% of sales. For CML, it maintainedstable, nearly 2% of sales. Obviously, WOW has a higher operating profit margin, and then a better positiveness performance perhaps due to the more efficient cost control.Return on assetsIt is used to mensurate whether assets are being productively employ (Vance, D. E. 2003). This ratio indicates how much profit one unit asset can take 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 CMLReturn on equity & earning per shareThese two ratios recoil the parry to the shareholders and the protect increase for the shareholders. W OW and CML both experienced an increase on the surpass to the shareholders, however the WOWs increase of the return is more stable than CMLs. In 2005, in term of return on equity, WOW stayed with 37% of the equity, yet CML just 16%.ConclusionThe two companies have been doing kind of well in recent days as can be seen from the increasing profitability. The table in Appendix 15 indicates a comparability of the two companies harmonize to the above discussion. CML has a better performance on liquidity and financial leverage entirely WOW managed Assets and Profitability better than CML.RecommendationsOn eighth family line 2006, WOWs closing curtain share bell is $20.80 and CML is $13.70. Based on the financial analysis above, we can end 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, comparedwith 24 perc ent by Woolworths. Therefore, I recommend potential investors buy shares from WOW for a short-term. According to CML news show released in bump into and June, CML had acquired Sydney drug stores Pty Ltd (CML newsworthiness electric receptacle, 2006) and Hedley Hotel Group (CML news show Release, 2006). CML will fat the pharmacy line of credit further more and have a different scheme than WOW if the regulations change in the future(a) becomes true. CML also will expand their spirits business to grapple WOW as well. Thus, I look at that the potential financial growth of CML will be a lot higher than what it is right directly and I declare investors put their money on CML for a long-term investment.References1.Wikipedia 2006, Coles Myer Ltd, Wikipedia fall by the wayside Source Organization, viewed 10 September 20062.Wikipedia 2006, Woolworths Ltd, Wikipedia unacquainted(p) Source Organization, viewed 10 September 20063.Financial Report, 2005, Coles Myer Ltd., pp 194.Van ce, D.E. 2003, Financial Analysis and Decision Making, McGraw-Hill, unify States of America5.Harvey, D, McLaney, E and Atrill P 2001, accountancy for business, Butterworth-Heinemann, Oxford6.Simpson, K. 2006, Market waits for higher Coles bit, The Age, 8 September 2006, front knave of Business piece7.News Release 2006, Coles Myer Acquires chemists Direct, Coles Myer Ltd., 31 March 20068.News Release 2006, Hedley Hotel Acquisition pass with flying colors, Coles Myer Ltd., 14 June 2006