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Essay: Westfarmers financial performance and sustainability

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Course name: Business, Society and the Planet
April 15th, 2018
ANSWER TO QUESTION NO 1
WESTFARMERS
Westfarmers in the year 2017 has increased its net profit to $2873 million in comparison to the net profit in the year 2016 i.e. $2466 million. The net profit in the year 2016 was less due imparement charges on Curragh and Target. Westfarmer’s earning per share has also increased from 21.6 percent. This is all because of increase in earnings from Kmart, industrial businesses and reduced losses from Target. Return on equity has also increased to 12.4 per cent in 2017 from 9.6 per cent. It shows that this group has been increasing its capacity to generate profit without requirement of much capital. Higher ROE of the company is better (Atrill, McLaney and Harvey, 2014).
Moreover, the cash flow of the group increased from $861 million to $4,226 million. This reflected the group earning growth, better inventory management. . It can also be known from the report that the net working capital of the group has slightly increased from $2129m to $2260m. But these figures are lower mainly because the company has improved its inventory management. Inventory for the year 2017 is $6530. Improved inventory management is a good practice for the company (Bala, 2012). If inventory management is not properly done in the company it can really give company a hard time.
All of the financial information has shown the strength of the group conglomerate structure. Since the group is performing so good, considering the group strong cash flow and current earnings the group decided to pay the dividend of 120 cents per share. The directors of the group have also decided to continue the operation of Dividend Investment Plan.
COLES
From the report it is noticeable, Cole’s revenue has been slightly decreased by $25 in the year 2017. There is a noticeable decrease in earning before interest and tax (EBIT), declining by 13.5 per cent for the year 2017. The decrease in EBIT is mainly because of the reduced revenue and also the high operating cost. As we can know that the revenue for the year 2017 has decreased it has affected the reduction in EBIT as well. Though the revenue has declines this store has increased the store sales by the 4.6 percent.
Moreover, Coles have also achieved the transaction growth of 14.5 percent. The active flybuys customer has been increasing. The food and liquor department in Coles has seen the increase of sales to 2 percent. It is all because of high quality products and good service. On the other hand, this convenience store has lowered the return on capital employed, which means that the store has removed the unused or unnecessary assets.
HOME IMPROVEMENTS
The revenue of home improvement has drastically increased by 17.4 percent in the year 2017. This has also raised the EBIT ratio to $1245m. Increasing the revenue is not an easy task. For the increment in revenue, the company needs increase its customers, increase transaction size or raise price. Home improvements have acquired the stores in Bunning United Kingdom and Ireland and also there was a strong development of the store in Bunning Australia and New Zealand. Therefore, it is evident that how the Home improvements has increased revenue. The revenue of the company exceeded $13.5 billion.
The report also shows the return on capital employed of 30.3 per cent in 2017 that is declined by 3.4 percent from the year 2016. This decrease illustrates the store paying off debt thereby reducing liabilities. The store might have removed unused and unnecessary assets, which help to improve its return on capital employed ratio (Hoggett et al., 2017). The store is moving towards being more efficient that is evident from high capital employed in the year 2017. The capital employed in 2017 is $4110 that is $ 511 more than 2016.
DEPARTMENT STORES
Department store was formed with the combination of Kmart and Target in the year 2016. The revenue for the department stores decreased from $8646m to $ 8528m in the year 2016. This is mainly because of the decrease in revenue of target and strong growth in Kmart. Kmart has shown the significant increase in revenue in 2017 that is $5578m from $5190m in 2016. This is because of the growth in sales by increased consumer transaction and high units sold per customer. But on the other hand, target has considerably decreased its revenue from $3456m in year 2016 to $2950m in year 2017.  There was decrease of 14.6 percent of revenue.  In comparison to Kmart, Kmart is seen the strongest brand than target because of the difference in revenue between this two brand which is $2628m.
The earning before interest and tax has increased for Kmart in 2017 by $83 whereas in the case of Target the earning have been decreased hugely to -10 from -195 in the year 2016. This shows that Kmart is performing very well. Since the sales, revenue for target has reduced it has resulted in the decrease of earning of the store.
OFFICE WORKS
Office Works is also doing well in its business which can be seen through it’s revenue. The revenue for the year 2017 has increased by 6.1 per cent, which has also increased the earnings by 7.5 per cent in the year 2017. The revenue and earnings has increased because of the growth in sales. They have changed the store design, amplified the store products and online offers. This all factors have led the store to perform extraordinary in the year 2017.
From the report it is also evident that the return on capital of 121 basis points increased to 14.7 per cent. This is all because of the strong sales, cost control and efficient capital management by the store. The capital expenditure for the year 2017 was $36. The continuing investment in stores, grown in online portal has all result to improved capital expenditure.
ANSWER TO QUESTION NO 2
Sustainability means meeting our own needs without compromising the ability of future generations to meet their own need (“Report of the World Commission on Environment and Development”: Our Common Future). Sustainability is not just environmentalism but is a concerned for social equity and economic development. Wesfarmers is a leading Australian company with the major focus on diverse operations aiming to provide satisfactory return to their shareholders. At Wesfarmers, sustainability is all about understanding and managing the ways that has impact on the communities and environment, by creating values. Wesfarmers sustainability is accredited with Dow Jones Sustainability Indices and in year 2017 it scored 78 out of 100 which has made Wesfarmers a global leader in sustainability with the greater performance in health, nutrition, information, environmental policy and management and corporate citizenship(“2017-wesfarmers-sustainability-full-report.pdf,”)
The retail businesses of Wesfarmers such as Coles, Office Works, Department Stores, Home Improvements has shown sustainability efficiently in their organization effectively, that has contributed sustainability. Coles the largest retailer’s business that alone serves the needs of 21 million consumers each week had shown sustainability by sustainable agriculture, community partnerships and support, economic contribution, product quality and safety, responsible and ethical sourcing. Coles has set the number of priorities to become sustainable such as: making the operation more energy efficient, increasing the diversity of workforce with higher indigenous representation, maximizing recycling programs, driving ethically responsible and sound products, increasing transparency of supply chain, and others.
Department store such as Kmart is one of the Australia’s and New Zealand’s largest retailers which offers wide range of products at low prices. Kmart has shown sustainability by creating an inclusive culture that is by developing attraction and retention strategies for women in leadership roles, implementing new community plans to focus on youth’s self-reliance. It has introduced Kmart’s sustainable cotton strategy and sustainable factories roadmap. It has also developed action plans to reduce waste to landfill, phase out plastic bags in store and reducing carboard packaging.
Officeworks one stop shop for micro, small and medium sized businesses, students and households is the leading retailer and supplier of office products and solutions. The activities like planting two trees for ever one used to base on weight of paper and wood used to supply office products, they had invested in resources to reduce energy consumption, they also assist their customers to recycle their electronic waste, building stronger local community partnership, increasing women in leadership roles are the sustainability practices shown by Officeworks.
Bunnings the leading retailer of home improvement is the biggest supplier in project builders, commercial tradespeople and for housing industry. For it, sustainability is about those actions that are socially responsible, economically viable as well as environmentally aware. They had had accelerate reduction of energy through installations of renewable energy, providing their customers education to help them make sustainable choices, to reduce supply chain waste, has maintained ethical supply chains.
The sustainability shown by Wesfarmers can be rated as it has covered all the sectors not only environmental issues. It has various policies for their people looking for their safety, ensuring gender and pay equality, maintaining proper workforce relations, sourcing the raw materials through sustainable agriculture, contribution to community such as for health and medical research, indigenous programs, education, developed strategies for climate change, proper management of emissions reduction of use of water and recycled products and waste.
ANSWER TO QUESTION NO 3
a.
DOUG’S DISCOUNT STORE
Adjusting Journal Entries
For the year ended 31 May 2018
Date Account Details Ref No. Debit ($) Credit ($)
May – 01 Inventory loss
Inventory
(recording inventory loss) 2,000
2,000
May – 01 Depreciation expenses – Motor Vehicle
Accumulated depreciation
(recording of depreciation)
Depreciation expenses – Equipment
Accumulated depreciation
(recording of depreciation) 8,000
5,400
8,000
5,400
May – 01 Wages expense
Wages payable
(wages owed) 2,000
2,000
May – 01 Bad debt expenses
Allowance for bad and doubtful debt
(recording of bad debts) 550
550
Total 15,950 15,950
b.
Doug’s Discount Store
Income Statement
For the year ended #1 May 2018
$ $
Income:
Sales 503,200
Less: Cost of Sales (205,000)
Gross Profit 298,200
Expenses:
Vehicle expenses 100,000
Rent expense 36,000
Wages expenses 37,000
Advertising expenses 5,000
Interest repayments on mortgage 3,000
Depreciation – Motor Vehicle 8,000
Depreciation – Equipment 5,400
Inventory loss 2,000
Bad debt expenses 550 (196,950)
Net Profit 101,250
c.
Doug’s Discount Store
Statement of Changes in Owner’s Equity
For the year ended 31 May 2018
$ $
Doug, Capital 1 May 0
Add: Capital Investment 190,000
Profit for the period 101,250 291,250
291,250
Less: Drawings (26,000)
Doug, Capital 31 May 265,250
d.
Doug’s Discount Store
Balance Sheet
For the year ended 31 May 2018
Non – Current Assets:
Land and Building 300,000
Motor vehicles                                                                   80,000
Less: Accumulated depreciation                                      (8,000) 72,000
Equipment                                                                         54,000
Less: Accumulated depreciation                                       (5,400) 48,600
Total Non-Current Assets 420,600
Current Assets:
Inventory 99,000
Bank 33,000
Petty cash 200
Accounts Receivables                                                        11,000
Less: allowance for Bad and doubtful debt                          (550) 10,450
Total Current assets 142,650
Total Assets 563,310
Non – Current Liabilities:
25-Year mortgage on land and buildings 210,000
Total Non – Current Liabilities 210,000
Current Liabilities:
6 Month loan 20,000
Accounts payable 66,000
Wages payable 2000
Total Current Liabilities 88,000
Total Liabilities 298,000
Equity:
Doug, Capital 31 May 265,250
Total Liabilities and Equity 563,310
e.
Doug’s Discount Store
Closing General Journal Entries
For the year ended 31 May 2018
Date Account Details Ref No. Debit ($) Credit ($)
May-31 Revenue
Profit or Loss Summary
(to close revenue account) 298,200
298,200
May-31 Profit or Loss Summary
Vehicle expenses
Rent expense
Wages expenses
Advertising expenses
Interest repayments on mortgage
Depreciation – Motor Vehicle
Depreciation – Equipment
Inventory loss
Bad debt expenses
(to close expenses account) 196,950
100,000
36,000
37,000
5,000
3,000
8,000
5,400
2,000
550
May-31 Profit or Loss Summary
Doug, Capital
(to close profit to capital) 265,250
265,250
May-31 Doug, Capital
Doug, Drawings
(to close drawings to capital) 26,000
26,000
Doug’s Discount Store
Post-closing Trial Balance
For the year ended 31 May,2018
Account Titles Debit ($) Credit ($)
Bank 33,000
Inventory 99,000
Petty cash 200
Accounts receivables 11,000
Allowances for bad and doubtful debt 550
Land and buildings 300,000
Motor Vehicles 80,000
Accumulated depreciation – Motor vehicles 8,000
Equipment 54,000
Accumulated depreciation – Equipment 5,400
6 months loan 20,000
Accounts payable 66,000
Wages payable 2,000
25-Year mortgage on land and buildings 210,000
Capital 265,250
Total 577,200 577,200

References

Atrill, P, McLaney, E, Harvey, D. (2014), Accounting; an introduction, 6th ed Pearson Education, NSW.
Bala, P. K. (2012). Improving inventory performance with clustering based demand forecasts. Journal of Modelling in Management, 7(1), 23-37.
Hoggett, J., Medlin J., Edwards, L, Chalmers, K., Hellman, A., Beattie, C, and Maxfield, J. (2017), Financial Accounting. 10thed
2017-wesfarmers-annual-report.pdf. (n.d.). Retrieved from https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0
2017-wesfarmers-sustainability-full-report.pdf. (n.d.). Retrieved from
https://moodle.federation.edu.au/pluginfile.php/3275301/mod_resource/content/1/2017-wesfarmers-sustainability-full-report.pdf
Report of the World Commission on Environment and Development: Our Common Future – A/42/427 Annex – UN Documents: Gathering a body of global agreements. (n.d.). Retrieved May 25, 2018, from http://www.un-documents.net/wced-ocf.htm

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