Ratio Analysis of Two-Year Financial Statements...

Title: Ratio analysis of 2-year financial statements: Woolworths Limited Assignment Topic Evaluate the performance of a company through critical analysis of its published financial statements over the two latest years, as follows: Locate, extract and analyse data from the published financial statements to provide a comprehensive analysis of a company’s operations and performance; Structure an argument about performance based on the analysis of five aspects of performance evaluation: Profitability Efficiency Short-term solvency Long-term solvency Market based ratios Present a clear, well-structured report using appropriate style and language. Word count: 2 337 (from the start of the Introduction to the end of the Conclusion)†¦show more content†¦Financial leverage ratios give an indication of a company’s fixed financing obligations and its ability to service the source of financing. Liquidity ratios are used to evaluate a firm’s ability to meet its shorter term debts, and efficiency ratios provide information on the ability of the firm to manage its assets, specifically receivables and inventory (Erdogan 2013). 1.1 Profitability Ratios As previously pointed out, profitability ratios provide information on the success of a firm in terms of profitability. Profitability on its own is a good indicator – the higher a firm’s profit, the better. However, in order to understand and manage profit, its relationship to sales, cost of sales and expenses must be understood. For example, if profit decreases noticeably – managers need to understand whether this drop is due to an equal drop in sales or whether it is due to an increase in cost of sales (gross profit) or possibly other expenses (net profit). Profitability ratios shed some light on these relationships. And just as with profit, the return (gain) on assets and shareholder’s equity may give an indication on a company’s performance. The net profit (NP) margin for Woolworths Limited is 3.3% (please refer to APPENDIX I for details on calculated margins and ratios) in 2012 and increases by 0.6% by 2013. 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