Friday, December 6, 2019

Accounting Financial Analysis Report Wesfarmers

Question: Compare current assets and current liabilities as shown on the balance sheet and comment on the short-terms solvency of the company. Compare current assets and current liabilities as shown on the balance sheet and comment on the short-terms solvency of the company. Answer: Wesfarmers is one of the best companies in Australia. To answer this question, the consolidate balance sheet of the company for the year ended 30th June, 2016 has been considered. This balance sheet has the amounts of current liabilities and current assets for the year 2016 and 2015. The comparison is shown under: Current Assets Particulars 2016 ($m) 2015 ($m) Cash and cash equivalent Receivable Trade Others Receivables Finance Advances Loans Inventories Derivatives Others 611 1,628 835 6,260 54 296 711 1463 806 5,497 428 188 Total 9,684 9,093 As per the above list, the total amount indicates that there is an increase in current assets in 2016 than 2015. However, there are increases and decreases in items of the current assets. The amount of cash has increased in 2016. It indicates that the company has cash to pay the daily obligations of the business. Trade receivables and other receivables have also increases in 2016. The increase in receivable is an indicator of increase in sales. There is also increase in the loan and advances as well as in Inventories. However, the amount of derivatives has decreased in 2016. Other current assets have increased by a large margin (Agbada and Osuji 2013). Current Liabilities Particulars 2016 ($m) 2015 ($m) Trade and Other Payable Interest Bearing Loans and Borrowings Income Tax Payable Provisions Derivatives Other 6,491 1,632 29 1,861 160 251 5,761 1,913 64 1,605 142 241 Total 10,424 9,726 According to the latest balance sheet, most of the items in current liabilities have increased. Trade and other payables have increased by a fair amount which indicates that the company use to give a lot of credits to the customers. However, the company has been successful to decrease the amount of loans and borrowings in 2016. This will help to decrease the amount of interest payable in 2016. Income tax payable has decreased in 2016. On the other hand, provisions, derivatives and other current liabilities have increased significantly (www.wesfarmers.com.au 2016). According to Adrian (2015), short term solvency of a company refers to the ability of the company to meet the daily obligations of the business. It means that the amount of current assets should be more than the amount of current liabilities. Only then the company will be able to meet the daily obligations. As per the current balance sheet, both the total of current assets and current liabilities has increased in 2016 than 2015. The matter of concern is that in 2016, current liabilities are more than current assets. However, in 2015, the situation was much better as the total current assets were more than the total current liabilities. This situation indicates that the solvency position was better in 2015 than 2016. It shows that Wesfarmers is not fully able to meet the daily obligations of the business. That means the solvency position of Wesfarmers is not good. Thus, the company needs to take corrective measures to recover from this position (Pierret 2015). References Adrian, T., 2015. Discussion of Systemic Risk and the Solvency-Liquidity Nexus of Banks.FRB of New York Working Paper No. FEDNSR722. Agbada, A.O. and Osuji, C.C., 2013. The efficacy of liquidity management and banking performance in Nigeria.International review of management and business research,2(1), pp.223-233. Pierret, D., 2015. Systemic risk and the solvency-liquidity nexus of banks.Available at SSRN 2346606. wesfarmers.com.au. (2016).docs/default-source/reports/2016-annual-report.pdf. [online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf [Accessed 29 Sep. 2016].

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