Woolworths Financial Ratio Report Analysis - Accounting...

Woolworths Financial Ratio Report Liquidity, Solvency and Profitability Abstract This report consists of ratio calculation and analysis of Woolworths’ liquidity, solvency as well as profitability. Liquidity ratios include current ratio, quick asset ratio and inventory turnover. Solvency ratios include debt to total asset and interest coverage. Profitability ratios include return on owners’ equity, payout ratio, return on assets, return on sales, asset turnover, cash return on sales and operating expense ratio. Ratio Calculation | Formula | Calculation $M | Results | | | 2012 | 2011 | 2012 | 2011 | Current Ratio | Current AssetsCurrent Liabilities | 5,802.16,766.2 | 6,326.98.022.2 | 0.86 : 1 | 0.79 : 1 | Quick Asset†¦show more content†¦This may be caused due to: * Increase in assets that are held for sale to $376.70M from $93.90M * Decrease in cash from $1,519.60M to $833.40M used to pay off external borrowings and pay out dividends. Woolworths is facing a problem in paying back its short-term liabilities using its most liquid assets. Inventory Turnover Inventory turnover measures the company’s efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory (Carey, 2009) Woolworths has shown increasing inventory turnover from 10.88x in 2011 to 10.97x in 2012. Generally, the higher the inventory turnover, the better the liquidity. The lower ratio in 2011 implies poorer sales since the cost of sales in is $39,050.00M, lower than $40,792.40M in 2012. However, the improvement in inventory turnover may indicate ineffective buying – Woolworths buys too often in small quantities, with higher buying price. Typically, low inventory turnover shows inefficiency in controlling inventory levels or stock pile-up but this is not the case with Woolworths. Its inventory turnover ratio in 2012 shows improvement despite higher average inventory of $3,717.40M in 2012 than $3,587.65M in 2011, showing that Woolworths is able to produce stronger sales with higher inventory levels. Higher inventory turnover ratio in 2012 indicates better liquidity while lower inventory turnover ratio in 2011 gives signal ofShow MoreRelatedThe usefulness and Limitations of the corporate annual report, illustrating your answer by reference to one companys most recent Annual Report and Annual Review Documents.1437 Words   |  6 PagesCorporate Annual reports are produced by companies every year to be filed at companies House by Law and they are sent to its shareholders in order to inform them on their success throughout the year of trading. 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