The report would concentrate on assessing the various financial statements of three ASX listed organisations functioning in the identical sector. For meeting this purpose, the organisations include Woolworths Group Limited, Wesfarmers Limited and JB Hi-Fi Limited that are operating in the Australian retail sector. The analysis of the annual reports of the last three years of these organisations is evaluated, in which the main aspects covered include cash flow statement, equity and liability, accounting for corporate income tax and other comprehensive income statement.
Woolworths Group Limited has been established in 1924 in Australia and it is involved in operating retail stores via Australian Food, Endeavour Drinks, New Zealand Food, Big W Hotels and other drinks. Moreover, it has liquor stores and hotels as well with an employee base of around 201,522 (Woolworthsgroup.com.au 2019).
Wesfarmers Limited is the leading Australian retail organisation and its operations mainly include retail, distribution of industrial and safety products, coal mining and production, chemical and fertiliser production and investment businesses in Australia, UK, New Zealand and others. The company has been established in 1914 and at present, it has staff base of 217,000 (Wesfarmers.com.au 2019).
JB Hi-Fi Limited is mainly involved in retailing home consumer products operating through JB Hi-Fi Australia, The Good Guys and JB H-Fi New Zealand. The main products of the organisation include audio equipment, cameras, computers, DVD products, musical instruments and others. The company has been founded in 1974 with a staff base of around 12,229 in 2018 (Jbhifi.com.au 2019).
Equity And Liability:
Part (i):From the annual reports of Woolworths Group Limited, the equity section contains contributed equity, reserves and retained earnings. It has been identified that contributed equity would increase from $5,252.2 million in 2016 to $6,055 million in 2018, as additional equity shares are issued in the market. However, reserves have increased from $93.9 million in 2016 to $353 million in 2018, as there is presence of foreign currency translation reserve, hedge reserve and others (Van Mourik 2014). Finally, there has been increase in retained earnings as well from $3,124.5 million in 2016 to $4,073 million in 2018 (Woolworthsgroup.com.au 2019).
In case of Wesfarmers Limited, all items are same as Woolworths; the only addition is reserved shares. The issued capital has increased from $21,937 million in 2016 to $22,277 million in 2018 owing to the increase in the issuance of equity shares in the market. However, retained earnings have fallen significantly in 2018 due to the decline in overall net income earned by the organisation. In addition, reserves have increased from $166 million in 2016 to $344 million in 2018, as hedge reserve and foreign currency translation reserve have increased over time. Finally, no significant change could be observed in reserved shares of the organisation from 2016 to 2018 (Wesfarmers.com.au 2019).
For JB Hi-Fi Limited, the equity items are contributed equity, retained earnings and reserves. Significant increase in contributed equity could be observed from 2016 to 2018, as the firm has raised its issuance of equity shares in the market for meeting capital needs (Bauman and Shaw 2016). After this, retained earnings are observed to increase during this period as well owing to significant rise in profit margin. Finally, reserves are seen to be increased over the years (Investors.jbhifi.com.au 2019).
Part (ii):From the annual reports of Woolworths Limited, the main current liabilities disclosed are trade payables, borrowings, current tax payable, provisions and other financial liabilities, which are observed to increase from 2016 to 2018. The non-current liabilities are borrowings, provisions, other financial liabilities and other non-current liabilities, which have fallen over the three-year period (Woolworthsgroup.com.au 2019).
As per the annual reports of Wesfarmers Limited, the line items in current liabilities comprise of trade and other payables, interest-bearing loans and borrowings, income tax payable, derivatives, provisions and others, which have fallen slightly from $10,424 million in 2016 to $10,025 million in 2018. The non-current liabilities after registering increase in 2017 has declined in 2018 that constitute of interest-bearing loans and borrowings, derivatives, provisions and others (Wesfarmers.com.au 2019).
The annual reports of JB Hi-Fi Limited contain certain line items in its current liabilities, which include trade and other payables, provisions, deferred revenue, current tax liabilities and others. The amount is witnessed to increase significantly from 2016 to 2018. On the contrary, the non-current liabilities include borrowings, deferred tax liabilities, deferred revenue, provisions and others, which after experiencing significant increase in 2017 has fallen in 2018 (Investors.jbhifi.com.au 2019).
In accordance with the above figure, it could be stated that Woolworths and JB Hi-Fi use more portion of debt capital than equity capital for funding their business assets. The only exception could be observed in case of Wesfarmers, as it has relied on raising funds from the equity shareholders so that its financial risk could be minimised (Kulikova, Garyntsev and Gafieva 2015). Thus, the financial leverage is high for JB H-Fi Limited followed by Woolworths and Wesfarmers.
Cash Flow Statement:
Part (iv):From the cash flow statements of Woolworths Group Limited, the cash flows from operations include receipts from customers, payments to employees and suppliers, payment of net financing costs and income tax payment. This area after experiencing considerable rise in 2017 has declined in 2018. The cash flows from investing activities include proceeds from sales of PPE, payments for PPE and intangible assets, payments for business purchase, Home Consortium Trust and dividends obtained. These cash flows are observed to increase steadily over the years. Finally, the cash flows from financing activities comprise of proceeds from share issuance and borrowings, repayment of borrowings and payment of dividends. These cash flows are observed to increase considerably in 2017; however, decline could be observed in 2018. However, the increased operating cash flows have resulted in increased cash balance of the organisation in 2018 (Woolworthsgroup.com.au 2019).
As per the cash flow statements of Wesfarmers Limited, increase and fall in operating cash flows are witnessed from 2016 to 2017 and from 2017 to 2018 respectively. The significant items under this head include all the items mentioned for Woolworths with the additions as interest received and borrowing costs. The investing cash flows have declined massively in 2017 compared to the last year after which increase could be observed in 2018. The items falling under this head comprise of payments for PPE and intangibles, proceeds from sale of PPE, proceeds from business sale, investments in joint ventures, subsidiary acquisition and net redemption of loan notes. On the other hand, the financing cash flows comprise of proceeds from and repayment of borrowings, payment of equity dividends and demerger transaction costs. This head after witnessing considerable increase in 2017 has fallen slightly in 2018. However, the ending cash balance has fallen in 2018 compared to 2017 for Wesfarmers (Wesfarmers.com.au 2019).
For JB Hi-Fi Limited, the main operating cash flow items include receipts from customers, payments to staffs and suppliers, payment of income tax, interest and finance costs and receipts of interest. This head has experienced considerably from $185.1 million in 2016 to $292.1 million in 2018. After this, the main investing cash flows comprise of payments for business combinations and PPE and proceeds from sale of PPE. This head after experiencing remarkable increase in 2017 has fallen significantly in 2018. Finally, the financing cash flows comprise of proceeds from share issue, proceeds or repayment of borrowings, share issue costs, payments for share issue costs and dividend payments. The trend is similar to that of the investing cash flows owing to which ending cash balance has remained almost identical in 2018 compared to 2017 (Investors.jbhifi.com.au 2019).
Woolworths Group Limited:
It is evident from the above table that the net operating cash flows of Woolworths after increasing in 2017 have declined in 2018, which signifies the fluctuating income of the organisation from operating activities (Frank and James 2014). After this, the organisation has invested heavily in purchasing PPE and investing in business and it has made considerable to the shareholders in the form of dividend (Woolworthsgroup.com.au 2019).
In accordance with the above table, it could be observed that although the net operating cash flows of the organisation after experiencing massive rise in 2017 have experienced a slight decline in 2018 owing to increased payment of income tax. Besides, it has made considerable investment in purchasing PPE in 2018. Finally, the payment of equity dividend has resulted in increasing cash outflows from financing activities (Wesfarmers.com.au 2019).
JB Hi-Fi Limited:
From the above figure, it is evident that the operating cash flows have risen over the years because of increased receipts from the customers. However, there has been decline in financing cash flows owing to the reduction in payments for business combination (Investors.jbhifi.com.au 2019).
After the conduction of comparative analysis of the three selected organisations, it could be stated that the cash flows from operations are highest for Wesfarmers Limited followed by Woolworths Group Limited and JB Hi-Fi Limited. This is because of increased customer receipts and dividends obtained (Mohanram 2014). Along with this, it could be witnessed that all these organisations have focused on investing their PPE base and other intangible assets leading to increase in their overall investments. Finally, the increased dividend payments, finance costs and interests have resulted in rise in cash outflow of these organisations (Lee 2014).