000 Final Group Project

MBS605-Business finance
SECURITY VALUATION
CASH FLOW ANALYSIS &

OF
WOOLWORTHS LTD.
ELECTRONIC
ASSIGNMENT
COVERSHEET
Student Number
31709764, 32592791, 32602658, 32523609, 32509568

Surname George, Ghadyali, Sachin, S. Unnithan
Given name Geomon, Hatim, Sudeep, Hamdhullah, Rahul
Email aj116joe@yahoo.com, hatimghadyali@hotmail.com
Unit Code
Unit name
Enrolment mode
Date
Assignment number
Assignment name
Tutor
MBS605
Business Finance
Internal
25/03/2015
Assignment 1
Cash Flow Analysis & Security Valuation of Woolworths
Ltd.
Dr. Zaheda Ronak
Students Declaration:
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been submitted for assessment in another unit.
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SECURITY VALUATION

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Optional Comments to Tutor:

E.g. If this is a group assignment, list group members here
If you can, please insert this completed form into the body of each assignment you submit. Follow the
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PETER LYNCH FINANCIAL GROUP

MBS 605
HATIM
: 32592791
GEOMON
: 31709764
HAMDHULLAH
: 32523609
SACHIN
: 32602658
RAHUL
: 32509568
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Contents
COMPANY INTRODUCTION: WOOLWORTHS LIMITED..............................................4
PURPOSE OF FINANCIAL STATEMENT.....................................................................4
ANALYSIS OF CURRENT OPERATION.......................................................................5
FINANCIAL RATIO ANALYSIS................................................................................5
RETURN ON ASSETS........................................................................................ 6
RETURN ON EQUITY......................................................................................... 7
NET PROFIT RATIO........................................................................................... 8
CURRENT RATIO............................................................................................... 9
DEBT TO EQUITY RATIO.................................................................................10
EARNING PER SHARE..................................................................................... 11
DIVIDENDS PER SHARE..................................................................................11
PRICE TO EARNING RATIO..............................................................................12
TREND ANALYSIS........................................................................................... 13
HORIZONTAL ANALYSIS.................................................................................. 17
VERTICAL ANALYSIS....................................................................................... 18
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CASH FLOW ANALYSIS..................................................................................19
CASH FLOW TO MARGIN RATIO......................................................................25
OCF RATIO..................................................................................................... 25
DEMAND & SUPPLY ANALYSIS.....................................................................26
DIVIDEND VALUATION MODEL..............................................................................32
GRAPHS OF SHARE PRICE AND RETURN AND COMPARISON WITH PREVIOUS
ANALYSIS............................................................................................................. 35
AREAS OF CASH FLOWS....................................................................................... 36
CASH FLOW FROM OPERATING ACTIVITIES....................................................36
CASH FLOW FROM INVESTING ACTIVITIES.....................................................36
CASH FLOW FROM FINANCING ACTIVITIES.....................................................37
CONCLUSION FOR CASH FLOW ANALYSIS:.....................................................37
RECOMMENDATION OF INVESTMENT AND FINANCING STRATEGIES.....................38
JUSTIFICATION OF RECOMMENDATION SHAREHOLDERS WEALTH......................39
WORK CITED........................................................................................................ 40
APPENDICES......................................................................................................... 42
COMPANY INTRODUCTION: WOOLWORTHS LIMITED

Woolworths is a very well-known Australian supermarket/grocery chain
founded in 1924.Woolworths are specialized in selling products including
vegetables,
meat,
fruits,
packaged
foods,
magazines
consumer
electronic products and other stationery products .They operates over 900
stores
across
Australia
through
supermarkets,
Electronics
stores,
Department Stores, Petroleum and liquor outlets and hotels.

In 2008, Woolworths Limited became the first Australian company to
break into the Top 25 global retailers list. Woolworth is one of the most
famous and trusted retailers in the Australian retail market and as a part
of their strategy, they continually invested in new stores and upgraded old
ones to provide quality service and experience for its customers. They
also made reinvestments of significant cash flow share for improving
operations, market range, stock availability and customer service.
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PURPOSE OF FINANCIAL STATEMENT

Financial statement is an important tool to provide information about the
financial position, performance and changes of an enterprise that is very
useful for a wide range of users in making economic decisions. The
statement identifies the basic information required for such users and
helps to analyse the operation of the enterprise or entity over a period of
time. Financial statements includes a firm's Income Statement, Balance
Sheet, statement of Cash flows & the statement of Retained Earnings.
Financial analysis shall be used by managers and owners to make
important business decision and strategies. Stakeholders analyse financial
statement to study current financial status of a company to determine the
return on investment and make investment decisions. New investors can
use these statements for a feasibility analysis before investing, forecast
future dividends and understand risk related with the investments.
Financial institutions use it to examine financial health of a firm before
making a decision to provide loans/credit to a business. Supplier's and
vendor's decision on whether to supply goods on credit to a particular
company is based on its financial statements. Government institutions use
financial statements to calculate tax accuracy confirmed in tax return
report as well as to monitor economic growth.
ANALYSIS OF CURRENT OPERATION
FINANCIAL RATIO ANALYSIS

The appendix 1 shows all the ratios of Woolworths Limited from 2009 to
2014.
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Appendix 1
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RETURN ON ASSETS
RETURN ON ASSETS
17.5
17.19
17.33
17
16.56
16.4
16.5
16
16.25
RETURN ON ASSETS
15.71
15.5
15
2009
2010
2011
2012
2013
2014
ROA is an indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its
assets to generate earnings. Sometimes this is referred to as "return on
investment". The ROA of Woolworths Limited has been in a good health
overall since 2009. In 2009 it was 17.19 which in 2010 increased to 17.33.
In 2011 it decreased to 16.56 which in 2012 further decreased to 15.71.
This most probably might be because of the divestment of its retail and
wholesale consumer electronics businesses in Australia, New Zealand and
India. But in 2013 & 2014 it started recovering & went to 16.4 and 16.25
respectively.
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RETURN ON EQUITY
RETURN ON EQUITY
28
27.62
27.17
27.12
27
25.46
26
24.73
25
RETURN ON EQUITY
24
23
22.3
22
21
2009
2010
2011
2012
2013
2014
ROE is the amount of net income returned as a percentage of

shareholders
equity.
Return
on
equity
measures
corporation's
profitability by revealing how much profit a company generates with the

money shareholders have invested. In 2009, the Woolworths ROE, which
was 27.62%, was at prosperity. In the next two years it remained quite
consistent but in 2012 it drastically came down to 22.3. The reason for
that is obviously the divesting from its retail and wholesale consumer
electronics businesses. In 2013 it increased back to 25.46 which in 2014
again decreased to 24.73%.
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NET PROFIT RATIO
NET PROFIT RATIO

4.2
4.03
3.91
3.92
3.86
3.7
3.8
NET PROFIT RATIO
3.6
3.32
3.4
3.2
3
2009
2010
2011
2012
2013
2014
The ratio of profitability calculated as net income divided by revenues, or

net profits divided by sales is known as net profit ratio. It measures how
much out of every dollar of sales a company actually keeps in earnings.
The net profit ratio of Woolworths seems to be in a quite good health. In
2009, it was 3.7% which in 2010 increased to 3.91. For the next year it
remained a bit constant but in 2012 came down directly to 3.32. In 2013,
it again increased to 3.86 & improved more in the next year by increasing
to 4.03.
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CURRENT RATIO
CURRENT RATIO
0.95
0.95
0.91
0.9
0.86
CURRENT RATIO
0.85
0.79
0.8
0.76
0.73
0.75
0.7
2009
2010
2011
2012
2013
2014
Current ratio is a liquidity ratio that measures a company's ability to pay

short-term obligations. The ratio is mainly used to give an idea of the
company's ability to pay back its short-term liabilities (debt and payables)
with its short-term assets (cash, inventory, receivables). The higher the
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current ratio, the more capable the company is of paying its obligations. In
the case of Woolworths, they were having a low current ratio in 2009
which was 0.76. This further decreased to 0.73 in 2010. But after that it
had a good increase and in 2014 it reached till 0.95. But it is still not a
good sign for them as it is still below 1.
DEBT TO EQUITY RATIO

170
165.47
165
160
155.51
155
150
145
142.09
139.24
136.48
140
135
129.97
130
125
2009
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2010
2011
2012
2013
2014
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Debt to Equity is a measure of a company's financial leverage calculated

by dividing its total liabilities by stockholders' equity. It indicates what
proportion of equity and debt the company is using to finance its assets. A
high debt/equity ratio generally means that a company has been
aggressive in financing its growth with debt. This can result in volatile
earnings as a result of the additional interest expense. This clearly shows
that Woolworths has been aggressive in financing its growth with debt. In
2009 it was 142.09 which in 2010 decreased to 136.48. But in 2011 it
drastically went up to 165.47. In 2012 it came down to 155.51 & even for
the next two years it decreased impressively. In 2014 it came down to
129.97 which is the lowest in last six years.
EARNING PER SHARE
EARNINGS PER SHARE

1.97
1.9
1.9
1.75
1.8
EARNINGS PER SHARE
1.7
1.6
1.78
1.64
1.51
1.5
1.4
2009
2010
2011
2012
2013
2014
Earnings per share serves as an indicator of a company's profitability.

Earnings per share is generally considered to be the single most important
variable in determining a share's price. The Woolworths Eps has been
quite impressive since 2009 as it has only been increasing since 2009 to
2014. In 2009 it was 1.51 which in 2014 is 1.97.
DIVIDENDS PER SHARE
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DIVIDENDS PER SHARE

1.37
1.4
1.33
1.35
1.3
1.26
1.22
1.25
1.2
DIVIDENDS PER SHARE
1.15
1.15
1.1
1.04
1.05
1
2009
2010
2011
2012
2013
2014
DPS is the sum of declared dividends for every ordinary share issued. The
DPS of Woolworths is also been in a decent growth since 2009 to 2014. In
2009 it was 1.04 which in 2014 has increased to 1.37. This is quite
impressive for an investor to invest in Woolworths shares.
PRICE TO EARNING RATIO
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19
18.58
18.5
17.8
18
17.5
17
16.45
16.45
16.5
15.61
16
15.5
15
14.38
14.5
14
2009
2010
2011
2012
2013
2014
The P/E ratio is a valuation ratio of a company's current share price

compared to its per-share earnings. The P/E ratio of Woolworths has been
fluctuating in the last six years. The highest was in 2009 which was 18.58
which decreased to 16.45. It again decreased to 14.38 in 2011 but it in
2012 it increased to 17.8 & then it again came down to 15.61 in 2014.
TREND ANALYSIS
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SALES REVENUE TREND

125.00
122.54
120.00
117.99
115.00
110.00
105.00
110.45
109.17
104.23
100.00 100.00
95.00
90.00
2009
2010
2011
2012
2013
2014
SALES REVENUE TREND ANALYSIS

Particulars
Sales Revenue
Trend
2009
49594.80
100.00
2010
51694.30
104.23
2011
54142.90
109.17
2012
54777.10
110.45
2013
58516.40
117.99
2014
60772.80
122.54
The Sales Revenue of Woolworths has only been increasing since 2009.
Which shows that they are having a positive sales trend.
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INCOME BEFORE TAX TREND

140.00
135.00
134.09
130.00
127.67
125.00
120.00
116.37
115.00
110.00
119.06
109.47
105.00
100.00 100.00
95.00
90.00
2009
2010
2011
2012
2013
2014
INCOME BEFORE TAX TREND ANALYSIS

Particulars
EBIT
Trend
2009
2815.50
100.00
2010
3082.10
109.47
2011
3276.40
116.37
2012
3352.10
119.06
2013
3594.60
127.67
The EBIT trend has also been increasing constantly since 2009.
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2014
3775.20
134.09
SECURITY VALUATION

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NET INCOME TREND

140.00
135.00
133.56
130.00
125.00
123.08
120.00
115.71
115.00
110.08
110.00
105.00
100.00 100.00
98.96
95.00
90.00
2009
2010
2011
2012
2013
2014
NET INCOME TREND ANALYSIS

Particulars
Profit
Trend
2009
1835.70
100.00
2010
2020.80
110.08
2011
2124.00
115.71
2012
1816.70
98.96
2013
2259.40
123.08
2014
2451.70
133.56
Till 2011 the net income increased till $2124 million. But in 2012 it
drastically decreased to $1816.7 million. But in 2013 it again joined the
race & jumped directly to $2259.4 in 2013 which then again increased to
$2451.7 in 2014.
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RETAINED EARNINGS TREND ANALYSIS

180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
1
2009
2010
2011
2012
2013
2014
RETAINED EARNINGS TREND ANALYSIS

Particulars
RETAINED
EARNINGS
Trend
2009
2010
2011
2012
2013
2014
3178.60
3855.20
3897.50
4163.40
4661.10
5423.10
100.00
121.29
122.62
130.98
146.64
170.61
The Retained earnings of Woolworths has been increasing decently since

2009.
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HORIZONTAL ANALYSIS
HORIZONTAL ANALYSIS OF THE BALANCE SHEET

Particulars
Assets
Total Current
Assets
2014 (AUD
in Millions)
2009 (AUD
in Millions)
$
Change
% Change
7,174.80
4,859.20
2,316
47.65
4,805
39.30
7,120
41.68
Total Non Current

Assets
17,030.40
Total Assets
24,205.20
12,225.7
0
17,084.9
0
Total Current
Liabilities
7,558.20
6,414.60
1,144
17.83
Total Non Current

Liabilities
6,121.60
2,509
69.43
Total Liabilities
13,679.80
3,613.00
10,027.6
0
3,652
36.42
Total Share
Holder's Equity
10,525.40
7,057.30
3,468
49.14
Liabilities
HORIZONTAL ANALYSIS OF THE INCOME STATEMENT
Particulars
2014 (AUD
in Millions)
Revenue
60,952.20
Gross Margin
Income Before tax
Net Income
16,477.60
3,515.10
2,458.40
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2009
(AUD in
Millions)
49,697.8
0
12,723.4
0
2,626.30
1,860.00
$
Change
%
Change
11,254
22.65
3,754
889
598
29.51
33.84
32.17
SECURITY VALUATION

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WOOLWORTHS LTD.
Keeping the last six financial years in mind, we have done the horizontal
analysis of the balance sheet and income statement between 2009 and
2014 directly and shown the $ & % change from 2009 to 2014.
VERTICAL ANALYSIS
VERTICAL ANALYSIS OF THE BALANCE SHEET
Particulars
Assets
Total
Current
Assets
Total Non
Current
Assets
2014
(AUD in
Millions)
2009
(AUD in
Millions)
7,174.80
29.64
4,859.20
28.44
17,030.40
70.36
12,225.70
71.56
Total Assets 24,205.20 100.00 17,084.90 100.00

Liabilities
Total
Current
Liabilities
Total Non
Current
Liabilities
Total
Liabilities
Total Share
Holder's
Equity
7,558.20
31.23
6,414.60
37.55
6,121.60
25.29
3,613.00
21.15
13,679.80
56.52
10,027.60
58.69
10,525.40
43.48
7,057.30
41.31
VERTICAL ANALYSIS OF THE INCOME STATEMENT
Particulars
Revenue
Gross
Margin
Income
Before tax
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2014
(AUD in
Millions)
2009
(AUD in
Millions)
60,952.20 100.00 49,697.80 100.00

16,477.60
27.03
12,723.40
25.60
3,515.10
5.77
2,626.30
5.28
SECURITY VALUATION

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Net Income
2,458.40
4.03
1,860.00
3.74
Keeping the last six financial years in mind, we have done the vertical
analysis of Woolworths limited of the years 2009 and 2014 and compared
both the years with the percent change.
CASH FLOW ANALYSIS
HORIZONTAL ANALYSIS OF THE CASH FLOW STATEMENT
Particulars
2014 (AUD
in Millions)
2009 (AUD
in Millions)
$ Change
% Change
Net cash from

operating activities
3,472.70
2,604.20
868.50
33.35
Net cash from

investing activities
Financing Activities
-2,031.40
-1,806.20
-225.20
12.47
5,759.50
-42.29
5,531.40
-481.50
-41.10
46.23
Proceeds from
borrowings
Dividends paid
-7,927.10
-1,523.10
13,619.30
13,458.50
-1,041.60
Net cash from

financing activities
-1,371.90
-808.90
-563.00
69.60
Net increase in
cash
69.40
-10.90
80.30
-736.70
Repayment of
borrowings
7,859.80
Keeping the last six financial years in mind, we have done the horizontal
analysis of the cash flow statement between 2009 and 2014 & shown the
$ & % change from 2009 to 2014. Further comments on the cash flow
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statement are mentioned & discussed under the Areas of Cash flows
section
PROCEEDS FROM ISSUES TREND

700.00
626.84
600.00
500.00
485.61
411.24
400.00
328.49
300.00
229.84
200.00
100.00 100.00
0.00
2009
2010
2011
2012
2013
2014
PROCEEDS FROM ISSUES TREND ANALYSIS

Particulars
2009
2010
2011
2012
2013
2014
PROCEEDS
FROM ISSUES
66.70
153.30
274.30
323.90
418.10
219.10
100.00
229.84
411.24
485.61
626.84
328.49
Trend
Woolworths has been getting huge proceeds from issuance of shares and
which has been increasing from 2009 to 2013. But in 2014 it dropped
drastically from $418.1 million to $219.1 million by almost 50%.
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PROCEEDS FROM BORROWINGS TREND

110.00
100.00 100.00
98.02
94.23
90.00
90.77
80.00
70.00
60.00
57.71
50.00
43.87
40.00
2009
2010
2011
2012
2013
2014
PROCEEDS FROM BORROWINGS TREND ANALYSIS

Particulars
2009
2010
2011
2012
2013
2014
Proceeds from
borrowings
13619.30
12833.80
13349.20
12361.90
5974.50
7859.80
Trend
100.00
94.23
98.02
90.77
43.87
57.71
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Their borrowings has dropped directly from $5974.50 million in 2012 to

$7859.8 million in 2014 which shows that they are now less depending on
the debt, which is a good sign.
REPAYMENTS OF BORROWINGS
110.00
100.00 100.00
95.34
91.75
90.00
86.12
80.00
70.00
60.00
58.90
50.00
48.31
40.00
2009
2010
2011
2012
2013
2014
REPAYMENT OF BORROWINGS TREND ANALYSIS

Particulars
Repayment of
borrowings
Trend
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2009
2010
2011
2012
2013
2014
-13458.50
-12347.70
-11590.90
-12830.80
-6501.80
-7927.10
100.00
91.75
86.12
95.34
48.31
58.90
SECURITY VALUATION

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WOOLWORTHS LTD.
The repayment of the borrowings has also been decreased with a big
difference, but when compared to the proceeds from borrowings each
year, they are paying off more than what they are borrowing. Which is a
good sign for the company.
DIVIDENDS PAID TREND

150.00
146.23
140.00
136.02
130.00
127.96
122.24
120.00
113.42
110.00
100.00 100.00
90.00
2009
2010
2011
2012
2013
2014
DIVIDENDS PAID TREND ANALYSIS

Particulars
DIVIDENDS
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2009
-1041.60
2010
-1181.40
2011
-1273.20
2012
-1332.80
2013
-1416.80
2014
-1523.10
SECURITY VALUATION

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PAID
Trend
100.00
113.42
122.24
127.96
136.02
146.23
As we have shown in the DPS analysis, the dividends paid has increased
from 2009 to 2014 constantly.
NET CASHFLOWS FROM FINANCING ACTIVITIES TREND

200.00
181.63
180.00
187.96
169.60
160.00
140.00
120.00
102.97
100.00 100.00
80.00
60.00
40.00
20.00
0.00
2009
2010
0.09
2011
2012
2013
2014
NET CASHFLOWS FROM FINANCING ACTIVITIES TREND ANALYSIS

Particulars
2009
2010
2011
2012
2013
2014
NET CASHFLOWS
FROM FINANCING
ACTIVITIES
-808.90
-832.90
-0.70
-1469.20
-1520.40
-1371.90
100.00
102.97
0.09
181.63
187.96
169.60
Trend
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SECURITY VALUATION

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The only year which gets our attention in the net cash flows from financing trend
is the year 2011. Their net cash flow from financing activities in 2010 was
$(832.9) million which in 2011 directly decreased to $(0.70) million.
CASH FLOW TO MARGIN RATIO
Cash Flow to Margin Ratio

6.70
5.70
5.25
5.34
5.52
5.71
5.25
4.65
4.70
Cash Flow to Margin Ratio
3.70
2.70
1.70
0.70
2009
OCF RATIO
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2010
2011
2012
2013
2014
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OCF Ratio
50.70
45.70
40.60
40.70
42.47
38.58
37.29
45.95
39.61
35.70
OCF Ratio
30.70
25.70
20.70
15.70
10.70
5.70
0.70
2009
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2010
2011
2012
2013
2014
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DEMAND & SUPPLY ANALYSIS
Being a mature market, Australia has one of the most concentrated grocery
sectors in the world. Woolworths & Coles are the major supermarket chains who
dominate almost 80% market share of the industry valued at $80 billion.
In recent years, Woolworths consolidated its position among the most profitable
major supermarket chain, with gross profit margins of more than 25%. And many
suppliers relied on annual price rises to boost their profitability. Such price rise
has paved path for low-cost competitors like Aldi, the German discount grocery
and US grocery chain Costco to attract bargain-seeking consumers. Coles has
begun to use price as a differentiator, its Down, Down marketing campaign and
$1 milk/$1 bread discount promotions. Over the next five years, their continued
expansion will be a major factor in the future of supermarket retailing. Following
figure describes the price difference among major retails players in Australia.
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Australia is estimated to be the home of over 10,000 small and independent

retailers. With a population of 22.7 million, Australia ranks considerably behind
the USA and UK. Nevertheless it has more number of supermarkets per capita
compared to the US, and about three times as many compared to the UK.
Supermarket revenues for 2011-12 posted a modest growth of 2.5% (to A$ 83.7
billion), which reached a figure of A$ 85.9 billion by 2012-13. By 2016-17, it is
forecasted to touch A$ 94 billion mark.
Of the total household expenditure, food and non-alcoholic beverages account
for over 17%, which in turn represents 16% of the total wholesale trade. The
Australian supermarket and grocery sector is the largest contributor to the retail
turnover with the contribution standing around 29%.
Generic house brands (private label) continues their crusade against the branded
products, with a current market share of 23%. It is expected to steadily grow its
market share towards the likes of 30%. The competition levels are so fierce that
it is expected to drastically change the consumer shopping patterns over the
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next five years even resulting in supermarket shelf wars. It is anticipated that
consumers will demand a broader range of goods and possibly increase
expenditure on gourmet or luxury items.
Parallel imports
Legislation in Australia allows for parallel importing since the year 2000. It
permits non-counterfeit products to be imported from another country, without
the permission of the intellectual property owner. On allowing this rule in relation
to FMCG products, legitimate importers are concerned whether the imported
goods comply with the Australian regulations for labelling and composition,
risking consumer safety and enjoyment by marketing out of date products and
poor storage conditions.
Various industry bodies are constantly monitoring the parallel import activities
against potential damages to consumer confidence and the legitimate investor's
investment in advertising, brand building and trade support.
Changing Retail Purchasing Patterns in Australia

According to Nielsen Market Research organization, Australia's supermarket
sector is rapidly evolving. According to them, ever increasing influence of digital
and social media, changing consumer demographics and fragmented media and
ethnicities will redefine Australian retail landscape by 2017 .Their new research
has revealed that the demand for 'Connected device' is rapidly increasing which
is evident in the growth of online retail marketing sector. Mr. Shane Scacco(Head
of Client Service, Retail Industry Group, Nielsen) during Consumer 360
conference said that 'with internet penetration in Australia quickly approaching
saturation
point,
connected
device
ownership
growing
significantly,
and
consumers' attitude toward online purchase evolving ,traditional 'bricks and

mortar' retailers are making a play to secure their digital footprint and make the
challenging transition from offline to online to omni channel'.
Traditional Purchasing in Australia
One of the biggest challenges that retail industry facing is the 'Customer
Loyalty'. Online grocery retailing is still a naive industry and retailers like
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Woolworth and Coles are discovering that the consumers' preferences for offline
purchase still remains the same.
An illustration of how often consumers look online and buy at store, 2007, 2009,
2011 and 2013 is given in below table:
Proportion of internet
users
Proportion of population
2007
2009
2011
2013
2007
2009
2011
2013
Never
34
27
30
24
52
41
39
31
Sometimes
40
43
44
51
29
35
38
46
Often
26
30
26
25
19
24
23
23
Presently, almost 6 out of 10 Australian consumers use online retail website to

research product to purchase and carryout purchase offline. Recent research also
shows that almost 64 percent of shoppers visit any one of the four major retail
chain a given week.
More than 9 out of 10 Australians (91 %) support Australian farmers ,while nearly
73 % believe they are paying more in retail stores than what they should really
pay for household products. 80% of total Australian retail consumer population
also believe that reduction in price would make a huge difference ;but 52%
believe that this reduction shall make a bad impact on Australian farmer and
another 64% believes that it is this retailers who are the biggest gainers of price
reduction and promotions. Another study has also shown that 41% of consumers
feel their expenses on grocery has reduced in past five years and
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Online Purchasing in Australia:
Major retail giants in Australia, Coles and Woolworth offer an online purchase
service where customers can order any grocery product online and have it
delivered to their door. Other smaller players such as Adli and Aussie Farmers
Direct, having more than 200 franchises in Queensland, Victoria, New South
Wales, ACT, South Australia, Western Australia provide more of regional services.
A significant finding during a research conducted by Roy Morgan is that Food and
Beverages recorded a 30 percent growth in online shopping and has come into
the top 5 online purchase expenditure list. The findings also showed a clear trend
that a customer who has not made online shopping in an average 3 month
period has become a minority for the first time in 2013.
Youth in Australia, aged 14 and above spent over $24 billion in 12 months during
March 2013 to March 2014, recording an increase of 11.9 percent on the
previous year. However, total retail sales increased only 3.4 percent during the
same period.
According to Roy Morgan Research, the average internet shopper spent $285
online per four week period, with Travel, Entertainment and Leisure, Electronics,
Fashion and Food and Beverages the Top 5 categories by expenditure.
Australian Food News reported earlier in September 2014 that Global retail giant
Amazon could be preparing to enter the Australian grocery market, with Amazon
advertising for a software development engineer in Brisbane for its Amazon Fresh
grocery delivery business.
Following table shows the frequency of online purchases made from during
recent years.
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Proportion of internet
Proportion of
users
population
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2007
Never
2009 2011 2013 2007 2009 2011 2013
43
27
22
15
59
41
32
23
monthly
20
21
20
19
14
17
18
18
Monthly
27
33
33
36
20
27
29
33
Weekly
17
23
25
14
20
23
Daily
Less than
PARTICULAR
2009
2010
2011
2012
2013
2014
$ML
$ML
$ML
$ML
$ML
$ML
60,772.
Sales
49,594.80
51,694.30
54,142.90
54,777.10
58,516.40
80
23,227.
Avg assets
16,378.70
17,786.10
19,790.90
21,337.80
21,915.65
70
2,451.7
Net profit
1,835.70
2,020.80
2,124.00
1,816.70
2,259.40
0
9,912.9
Avg equity
6,646.30
7,437.50
7,831.75
8,146.05
8,873.40
5
3,775.2
EBIT
2,815.50
3,082.10
3,276.40
3,352.10
3,594.60
0
4,449.3
Avg inventory
3,151.30
3,365.70
3,587.65
3,717.40
3,951.85
0
44,474.
COGS
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36,871.40
38,300.70
40,049.70
40,316.10
42,754.90
60
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AVG
receivables
472.05
569.70
725.10
836.20
939.80
947.15
7,174.8
CA
4,859.20
5,199.00
6,326.90
5,802.10
6,226.10
0
7,558.2
CL
6,414.60
7,153.40
8,022.20
6,766.20
6,866.00
0
4,693.2
Inventory
3,292.60
3,438.80
3,736.50
3,698.30
4,205.40
0
13,679.
Total liabilities
10,027.60
10,669.60
12,982.60
13,134.80
12,949.70
80
10,525.
Total equity
7,057.30
7,817.70
7,845.80
8,446.30
9,300.50
40
24,205.
Total assets
17,084.90
18,487.30
20,828.40
21,581.10
22,250.20
Operating cash
flows
20
3,472.7
2,604.20
2,759.90
2,991.10
2,873.80
2,719.90
DIVIDEND VALUATION MODEL

In order to evaluate the dividends of Woolworths (WOW), we must first have a
look at their dividend distribution over the past 5 years i.e. from 2010-2014.
Table 1 shows the history of dividend distribution by Woolworths.
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2
1.8
1.6
1.4
1.2
1.22
1.15
1.26
1.33
1.37
1
0.8
Dividend Franked
Dividend Grossed
0.6
0.4
0.2
0
2010
2011
2012
2013
2014
Before we move on to evaluate the dividends issued by Woolworths we have to

calculate the Divided Growth Rate of the company. The calculations of Dividend
Growth Rate are shown:
Dividend Distribution in 2010 = $ 1.15
Dividend Distribution in 2014 = $ 1.37
As the above dividends are franked, we have grossed up the dividend by tax rate
of 30%
= D/(1-Tax rate)
=1.15/(1-.30)
= D/(1-Tax rate)
=1.37/(1-.30)
=1.15/(.70)
=1.37/(.70)
=1.6429
=1.9571
CAGR = (FV/PV)1/5-1
From the above equation the Dividend Growth Rate

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= (1.9571/1.6429).20-1
= (1.1918).20-1
= (1.0356)-1
= .0356 or 3.56%
Over the course of 5 periods dividend grew from $1.64 to $1.95, its compound
annual growth rate, or its overall return, is 3.56%.
CAGR essentially smooths out the progress of investment over a period of time,
providing a clearer picture of annual return. However, although investment
started at $1.64 and ended with $1.95, its growth in any one year may have
been quite a bit higher or even negative (if the investment ever lost money over
that time). Consequently, the CAGR figure may give the impression that the
investment has produced a stable return throughout its life, even if the
investment was extremely volatile, fluctuating a great deal from year to year.
Accordingly, the return on market or Rm is 0.0356 of 3.56% and Rf rate
considered for WOW is also 0.0183 or 1.83% which is the average risk free rate
(5 years Average Government bond yield). Beta is taken from. This is 0.478. Now
we have all the variables to calculate the required rate of return for WOW which
is nothing but CAPM.
CAPM = Rf + (Rm-Rf).
Where Rf is Risk free rate, is systematic risk, and Rm is Return on market.

CAPM = 0.0183 + 0.48 (0.041 0.0183)
= 0.0183 + 0.0108
= 0.0292 or 2.92%
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Since the growth rate is higher than the required rate of return, we cannot use
Gordon Dividend Model {P=Div (1+g)/r-g}. So we will use dividend discount
model to calculate the price of share.
P=
D
r
P=
1 . 95
0. 0292
Share prices = 67.03
Though the share price which we got is higher than the market share price of
WOW, this could be because we have not taken the actual return on market,
which is not available so we calculated the return on market by using the S&P
ASX 200 Index rate in Australia. Moreover we have taken the systematic risk rate
as on date, which is different from the date of fiscal year closing as on 31st
December 2014.
Data which is available to us is for group and not for one particular activity.
Because CAPM is a model that calculates expected return not the actual rate of
return based on expected rate of return on the market, the risk-free rate and the
beta coefficient of the stock. Moreover we have taken the average risk free rate.
This is the reason we have got the higher share price of WOW.
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GRAPHS OF SHARE PRICE AND RETURN AND

COMPARISON WITH PREVIOUS ANALYSIS.
By looking at past 5 years, Woolworths ltd share price has gone up from $ 27.40
(year 2010) to $ 35.66 (year 2014). At the same period, returns have increased
around 20%. However ongoing financial year Woolworth ltd share price has fallen
significantly.
Current share price of Woolworths ltd is AUD 28.96 in Australian Stock Exchange.
One of the reasons for the share price to fall is losing its competitiveness and
market share in its core businesses. Woolworths was the market leader in
Australia and New Zealand supermarket industry, but today Woolworths is facing
tough competition from its competitors such as Coles. In addition to that, group
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is facing loss from other subsidiaries such as master home improvement.
Therefore investor confidence has gone down and share price has been falling
significantly.
In supermarket industry Woolworths is losing its revenue because Coles and
other competitors in the industry is gaining market share by reducing price level.
This leads the revenue to decrease from its core supermarket division and it
affect all over profit of the Woolworths Group.
AREAS OF CASH FLOWS

CASH FLOW FROM OPERATING ACTIVITIES
Wow has maintained their net cash flow from operating activities around $ 2000
million to $ 3000 Million since last 6-7 years. By looking at the past five years,
cash flow from operating activities has increased from 2752 million dollars (year
2010) to 3472.7 million (year 2014).
The company has enough cash to pay
dividend to its shareholders from current years operations itself. In year 2014
company has generated 3472.7 million dollar of operating cash which is more
than enough to cover its total dividend of 1491.9 million dollars.
Wow is converting their maximum portion of revenue into cash, they dont have
major receivables on the balance sheet. Their cash from operating activities such
as receipt from customers that generate cash have increased over the years. In
this segment of cash flow, company has generated more than 65,891 million
dollars in the year 2014.In terms of the payment to suppliers also they have
maintained the same proportion to receipt over the period. Which shows there is
not much difference in the margin in their sales also the credit period with the
suppliers remain as it is.
CASH FLOW FROM INVESTING ACTIVITIES

Looking into investing activities of Woolworths, companys investment on assets,
property and equipment has decreased over the last two years. In year 2012 and
2011, company had invested more than 2100 million dollars on capital
expenditure which came down to 1800 million dollars in 2014. It shows company
has decreased investment on expansion. To compete in todays dynamic
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business environment to have a sustainable growth company need to invest on
business expansion and to diversify into more areas.
There is a 900 million dollars Income from disposable of asset, in year 2013. The
reason behind this would be the decrease in investment on capital expenditure
and some of the investment they had divested. This can be seen through the
proceeds from selling of a subsidiary as well. To increase the value of the
company, Woolworths need to invest on capital expenditure which would help
company to bring back investor confidence and that will automatically lead to
increase in the share price.
CASH FLOW FROM FINANCING ACTIVITIES

With comparison to last five years, in 2014 Woolworths had not received much
capital from issuing new shares to the public. While Woolworths has generated
more than 300 million dollars in year 2012 and more than 400 million dollars in
2013, but in 2014 its dropped down to 200 million dollars.
In year 2013 Wow had dropped their borrowing to half of what they have
borrowed in 2012, also they have maintained approximately same level in 2014.
They are paying of the prior debts completely in the same year, which shows
they have enough cash flow to repay their debts.
However to further investment in expansion of business, company need to

acquire additional capital. If not competitors would continue to gain more market
share. Woolworth as a leading company in Australia and New Zealand it has the
capability to expand beyond its current markets which will need a healthy inflow
of cash.
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CONCLUSION FOR CASH FLOW ANALYSIS:
Wow had maintained their overall net cash flow at a same level over the period
of 6-7 years except in 2011 where it had went up to 1500 million dollars from an
average of 700 to 800 Million dollars in other years. Main reason being they had
not paid of their complete debt during that period. Also based on the net cash
flow we can assume WOW is managing their cash flows very prudently, even
though the debt is quite higher compared to equity, they have enough resources
to pay off the debt. They do not maintain very high cash balance also which
shows they are investing their maximum inflows either in investing activities. In
other ways it can be assumed as they are mainly debt based company the
maximum cash inflow and outflow comes through borrowings and repayment of
the same.
RECOMMENDATION OF INVESTMENT AND FINANCING

STRATEGIES
In todays dynamic business environment, Woolworths has to take strategic
investment and financing strategies to improve cash flow position and
continuous growth of the company in order to be competitive in the market.
Woolworths ltd has to defend their leadership in food and liquor business in order
to improve its cash flow position. Company already has strong presence in food
and liquor industry but company need invest more to retain and increase the
market share.
Woolworths ltd has to diversify its business portfolio in order to diversify the risk
and generate more revenue for the company. Diversifying its business portfolio
further would help Woolworths ltd to earn revenue from more sources and it
would help to improve its overall cash flow. This will also help the company
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diversify its risk on depending revenue only from few businesses. Further, this
would help to improve investor confidence and it enables share price to rise.
To improve cash flow position of the company, Woolworths ltd needs to use its
resources efficiently. Company has to invest on latest technology in its
operations in order to reduce the cost and use resources efficiently. This would
further help company to be more competitive in front of its business rivals.
Woolworths ltd can issue more shares to the public to generate capital for the
new investments and improve cash flow.
In addition to fresh capital, Woolworths ltd can borrow loans from the finance
houses to a small extent. Loans would help company to invest without
completely depending on its cash flows. Therefore new investment wouldnt be a
burden for companys current cash flow.
If WOW would like to grow the shareholder wealth, they have to venture outside
the current market, which needs higher investment. As their financing is mainly
through debt, they have to balance it by issuing some additional shares. Before
they will issue the shares they need to bring back the investors confidence as it
is not at right level which can be noted from recent decrease in share prices. Also
they need to diversify their risk from any other venture where the cash out flow
is not as quick as the current model, where they do not have longer credit
periods. Other option would be to invest higher on the businesses which have
higher margins like the liquor
JUSTIFICATION OF RECOMMENDATION SHAREHOLDERS

WEALTH
By investing more on liquor and food business, diversifying its business and
upgrading technology, Woolworths ltd can generate additional revenue and
increase competiveness of the company. Additional revenue for the company
would lead to more profit to share to shareholders. Moreover, additional
investments would increase investors confidence towards the Woolworths
Company and it will eventually help to increase the price of the share.
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By issuing new shares for additional investment means, company is not using its
profit or cash flow for the investments. Therefore it wont affect the profit to the
shareholders and also increase shareholders wealth in the long term.
In order to sustain the business over long period they have to look outside the
current market, also improve the supply chain example sourcing materials from
the countries where those materials can be sourced at very low price without
compromising in quality, it will be easier to source from different markets if they
have stores within those markets.
WORK CITED
http://www.academia.edu/7738263/Woolworths_LTD_Financial_Essay_2013
http://www.wsws.org/en/articles/2008/12/ukre-d01.html
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http://www.switzer.com.au/the-experts/paul-rickard/down-downwoolworths-is-down/
https://au.finance.yahoo.com/q?s=WOW.AX
https://www.mywealth.commbank.com.au/companies/woolworthsconfident-despite-share-price-slide-news20141127
http://www.woolworthslimited.com.au/annualreport/2014/files/Woolworths
_Annual_Report_2014.pdf
http://www.academia.edu/7738263/Woolworths_LTD_Financial_Essay_2013
http://www.wsws.org/en/articles/2008/12/ukre-d01.html
https://www.mywealth.commbank.com.au/companies/woolworthsconfident-despite-share-price-slide-news20141127
http://www.theguardian.com/business/2008/nov/19/woolworths-retaildepartment-stores
http://www.news.com.au/finance/business/woolworths-profits-slide/storyfnkgdftz-1227241267076
http://www.abc.net.au/news/2015-02-27/woolworths-first-half-profit-fallsto-13-billion/6267930
http://www.smarta.com/advice/general/rubbish-week-for-woolworths/
http://www.woolworthslimited.com.au/
http://en.wikipedia.org/wiki/F._W._Woolworth_Company
http://www.woolworths.com.au/wps/wcm/connect/webSite/Woolworths/
http://www.smh.com.au/business/Companies/Woolworths
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http://www.fin24.com/Companies/Retail/Woolworths-profit-up20130829http://www.fin24.com/Companies/Retail/Woolies-to-slash-prices20130614
http://www2.woolworthsonline.com.au/
http://www.fin24.com/Companies/Retail/Woolworths-posts-impressiveprofit-20130214
http://articles.economictimes.indiatimes.com/keyword/woolworths
http://www.bdlive.co.za/business/retail/2014/02/16/woolworths-littlesecret-to-big-success
http://www.proactiveinvestors.com.au/companies/overview/563/woolworth
s-limited-0563.html
http://markets.ft.com/research/Markets/Tearsheets/Financials?s=WOW:ASX
Peirson, G., Brown, R., Easton, S., Howard, P., and S. Pinder. 2009.
Business Finance, 10th edition.
Mc-GrawHill, Australia.
Pike, R. And B. Neale, 2009, Corporate Finance and Investment: Decisions
and Strategies, 6th
edition, Financial Times Prentice Hall, Limited.
http://www.bloomberg.com
http://www.morningstar.com.au/Stocks/NewsAndQuotes/WOW
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APPENDICES
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MBS605-Business finance

CASH FLOW ANALYSIS &

31709764, 32592791, 32602658, 32523609, 32509568

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I have retained a copy of this assignment.

I am aware that I am making this declaration by submitting this document

CASH FLOW ANALYSIS &

Optional Comments to Tutor:

PETER LYNCH FINANCIAL GROUP

CASH FLOW ANALYSIS &

CASH FLOW ANALYSIS &

COMPANY INTRODUCTION: WOOLWORTHS LIMITED

Department Stores, Petroleum and liquor outlets and hotels.

CASH FLOW ANALYSIS &

PURPOSE OF FINANCIAL STATEMENT

ANALYSIS OF CURRENT OPERATION

FINANCIAL RATIO ANALYSIS

CASH FLOW ANALYSIS &

CASH FLOW ANALYSIS &

ROA is an indicator of how profitable a company is relative to its total

CASH FLOW ANALYSIS &

ROE is the amount of net income returned as a percentage of

profitability by revealing how much profit a company generates with the

CASH FLOW ANALYSIS &

NET PROFIT RATIO

NET PROFIT RATIO

NET PROFIT RATIO

The ratio of profitability calculated as net income divided by revenues, or

CASH FLOW ANALYSIS &

Current ratio is a liquidity ratio that measures a company's ability to pay

CASH FLOW ANALYSIS &

DEBT TO EQUITY RATIO

DEBT TO EQUITY RATIO

DEBT TO EQUITY RATIO

CASH FLOW ANALYSIS &

Debt to Equity is a measure of a company's financial leverage calculated

EARNING PER SHARE

EARNINGS PER SHARE

EARNINGS PER SHARE

Earnings per share serves as an indicator of a company's profitability.

CASH FLOW ANALYSIS &

DIVIDENDS PER SHARE

DIVIDENDS PER SHARE

PRICE TO EARNING RATIO

CASH FLOW ANALYSIS &

PRICE TO EARNING RATIO

PRICE TO EARNING RATIO

The P/E ratio is a valuation ratio of a company's current share price

CASH FLOW ANALYSIS &

SALES REVENUE TREND

SALES REVENUE TREND ANALYSIS

CASH FLOW ANALYSIS &

INCOME BEFORE TAX TREND

INCOME BEFORE TAX TREND ANALYSIS

CASH FLOW ANALYSIS &

NET INCOME TREND

NET INCOME TREND ANALYSIS

CASH FLOW ANALYSIS &

RETAINED EARNINGS TREND ANALYSIS

RETAINED EARNINGS TREND ANALYSIS

The Retained earnings of Woolworths has been increasing decently since

CASH FLOW ANALYSIS &

HORIZONTAL ANALYSIS OF THE BALANCE SHEET

Total Non Current