Financial Statement Assignment: Concepts And Practices

Question

Task:All questions, which must be completed.

Question 1.: The 2016 and 2017 Annual reports for Westfarmers are provided on the Moodle Shell.

Use these Annual reports to compare the financial results of the Westfarmers group as a whole over the two years (that is 2015 to 2017). You should use any financial information provided in the two annual reports (including ratios, and narratives) to conclude on the improvements or not in financial position and profitability. You discussion should focus on reasons for this.

Question 2: The 2016 and 2017 Sustainability reports for Westfarmers are provided on the Moodle Shell

Use the information in these Reports to compare the sustainability initiatives of Westfarmers (include in your answer any new initiatives, or those which were stopped). What is your opinion of these initiatives?

Question 3: The final accounts of Dural Trade Ltd are provided below:

Balance Sheet (Statement of financial position) as at

Dural Trade Ltd
Income statement for the year ended 31st December 2018

Additional information:

• (i) Cash purchases of land and equipment were made during the year.
• (ii) An equipment was sold at its net book value for $25,400 for cash.
• (iii) The investments were sold for cash at $117,600.
• (iv) A rights issue at a premium price was made on the basis of 1 share for every 20 held. A bonus share, which was made out of retained earnings, was also given for every rights issue share. Cash has been received for the rights issue.
• (v) The directors declared a cash dividend during the year.

Required: Prepare a Cash Flow Statement for Dural Trade Ltd for the year ended 31 December 2018 from the above information given (note that you should use the Direct Approach).

Answer

Answer 1- Financial statement analysis
We are providing some sample solutions of financial statement assignments, to help you in building up a concept plan in drafting the solution yourselves. Financial position and profitability of a company can be evaluated with the help of financial statement analysis. Here financial statements for the year ending 2015, 2016 and 2017 will be evaluated to find out actual financial position of the company in market. there are various key indicators that can be helpful in such analysis surcharge number of customers, total profits, revenue generated by the company, number of stores opened in a particular financial year etc. Some of the key indicators are given in financial statements prepared by Management which will be evaluated in this financial statement assignment. Using the format given below will help you in drafting the financial statement assignment in a descent way.

Net profit after taxes- Net profit after taxes is one of the most important factors that can be evaluated for the purpose of identifying financial position of the company. Majority of investors evaluate net profit after taxes comparison with previous financial year in order to make investment decision in company (Buche, 2016). Net profit after tax for the year 2016 has decreased as compared to 2015. NPAT for the year 2015 was $ 2440 million and it has decreased to $2353 million in financial year 2016. Before making any conclusions on the basis of net profit, market conditions for a particular to year should also be analysed. Year 2016 was not very profitable for any business organisation working in retail sector.

Company has recovered substantially in the year 2017 with net profit after tax increased to $2873 million. It shows that a possibility of the company has increased by around 25 % over the period of 12 months which is very substantial. If a comparison is made on profitability of last 5 years company has increased its profit every year except in the case of 2015 and 2016. Currently market condition of retail sector companies is very stable and according to financial results of 2017 it can be said that profitability of the companies expected to increase in future.

Earnings per share: Earnings per share is also key financial factor that can be evaluated to identify financial position of the company. Earnings per share represent return provided by company with its primary business operation for every shareholder of the company. This is also an important factor that is generally considered by investor before purchasing shares in share market (Parmenter, 2015). Similar to the trend of total profits, Earning per share of the company has also decreased in 2016 and then increased in 2017. It was the decreased from 216.1 cents per share in 2015 to 209.5 cents in 2016 and then further increased to 254.7 cents in 2017. Rate of decrease in 2016 is not very substantial and were majorly due to market conditions.

On the basis of these two factors it can be said that profitability of the company in 2017 has recovered substantially as compared to 2016. Wesfarmers Limited is one of the largest retail sector company in Australia in terms of market capital and number of customers. It is expected that profitability of the company will increase in coming financial years.

Return on equity return:Return on equity is another profitability ratio that represents of profit generation capacity of a company (Delbari, Ng, Aziz & Ho, 2016). Return on equity return on equity shows total profitability of the company as compared to total equity investment done by shareholders of the company. There has been substantial increase in total return on equity in 2017 as compared to 2016 as it has increased from 9.6 % to 12.4% in current year.

Free cash flow:Castro can also be evaluated in order to identify efficiency of working capital management of the company. Majority of the operations conducted are conducted in daily processes are dependent on availability of cash in business organisation. Working capital loan cannot be taken on regular basis as interest has to be paid on such loans which can affect profitability of the company. In the year 2016 total free cash inflow has decreased from 1893 million to 1233 million as compared to 2015. On the other hand performance of company in this area was highly impressive in the year 2017 where total free cash flow was 4173 (Alin-Eliodor, 2014). It shows that in the year 2017, working capital Management of the company has been very effective and same procedures and policies should be adopted in coming years so that same results can be generated.

Dividend per share: Only increase and Earning per share will not attract more and more investors this company is not returning profits to shareholders in form of Bonus shares or dividend. This is the reason that dividend per share can also be a deciding factor in evaluating financial performance of the company (Brigham, Ehrhardt, Nason & Gessaroli, 2016). Similar to all the other financial indicators, dividend per share has decreased in 2016 but Ed recovered substantially in the year 2017. Total dividend paid by management in the year 2017 works 223 cents per share. In the same year earnings per share was 254.3 cents per share. It shows that company has dividend pay-out ratio of around 85 % which is not generally seen in other business organisations. It will be a positive factors in market to attract new investors in business in form of equity share capital (Weygandt, Kimmel & Kieso, 2015).

On the basis of evaluating all these financial indicators, it can be said that from the perspective of profitability financial year 2016 was not very profitable for the company. On the other hand profitability of the company has been at its peak in 2017 as compared to last 5 financial years. Company may has made some investment in new stores which are expected to increase profitability of the company in coming financial years.

Answer 2- Sustainability initiatives of Wesfarmers
Sustainability initiatives:
Safety performance- Management of the company has given substantial focus on safety of employees working in the company. Proper monitoring factors has been applied by management in order to identify total amount lost due to injury with the help of lost time injury. Frequency rate (LTIFR). LTIFR has been approximately same in last three financial years i.e. at 7.4 to 7.3 per million hours worked in the manufacturing. Total workmen compensation has also decreased by 1000 as compared to 2016 which shows that number of accident has decreased in current financial year.

Safety initiatives- In order to increase the safety of human resources, management of the company has formulated a new program named ‘Safe Person Commitments’. Main purpose of this program is to meet the safety expectation of employees while working at high risk jobs in the company. This is a very good action taken by company as human resources are one of the most essential resources for conducting business. In addition to focus on physical health, Wesfarmers Limited has also contributed towards maintaining mental health of the employees. Mental health has become one of the most talked about matter in recent times due to increase in work related stress among office employees. One of the subsidiaries of Wesfarmers i.e. Coles has initiated a program called "mind your health program" with objective to improve mental health of employees.

Gender equality- Wesfarmers limited has been successful in bringing gender equality between male and female employees in the company. 44% of total employees of the company are women and 46% are male. In addition to that women are holding substantial amount important tools in the organisation. For example 38% of total non-executive directors are females out of which 24 % senior executive positions. 47 % of all the salaried roles are also held by women in the company (Hörisch, Freeman & Schaltegger, 2014).

Employment- Wesfarmers Limited is also responsible for creating a lot of job opportunities for working people in Australia. According to the financial statements ending 2017, Wesfarmers Limited is employing around 223000 employees in all over Australia. This is a very substantial amount of employment produced by company which would lead to wealth creation for employees. It is estimated that one out of every 60 people living in Australia are working for the company. It is also estimated that around 90% of profits are distributed by company to its shareholders that create circulation of money in the country and result in wealth creation for them.

Economic development- one of the most source of economic development is expenditure done by government on infrastructural and other type of development in the country. Source of revenue for this type of development is tax revenue collected from business organisations (Baumgartner & Rauter, 2017). In the last financial year company has paid total tax of $2.1 billion which is very substantial amount. Wesfarmers Limited is one among the category of 10 highest taxpayers in Australia.

Contribution to community- Company has contributed substantial amount of money for the development of society with the help of their partners and customers. Total amount of such investment from direct and indirect sources has increased from 111.6 million in 2016 to 132.1 million in 2017. This money has been used for various type of social program such as environmental projects, education programs and mental and health initiatives.

After analysing all these factors it can be said that Wesfarmers Limited has been contributing substantially towards social development and other type of development. Sustainability management of the company is very effective and it is expected to produce more benefits to the society in coming future (Johnson, 2015).

Answer 3- Cash flow statement
Cash flow statement: Cash management is very important for daily operations of business organisation and cash flow statement is one of the cash management tool used by management to ascertain the use of cash in business. Cash flow statement is divided in three sections that are cash flow from operating activities, cash flow from investing activities and cash flow from operating activities (Nurnberg, 2015). This classification helps business organisation to ascertain which activity are generating more cash for the company.

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Reference
Alin-Eliodor, T. (2014). Financial Statements Analysis. Journal of Knowledge Management, 4(5), 62-73.

Baumgartner, R. J., & Rauter, R. (2017). Strategic perspectives of corporate sustainability management to develop a sustainable organization. Journal of Cleaner Production, 140, 81-92.

Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.

Buche, A. (2016). Key Financial Indicators for Growth and Competitiveness. The International Journal of Business & Management, 4(3), 89.

Delbari, S. A., Ng, S. I., Aziz, Y. A., & Ho, J. A. (2016). An investigation of key competitiveness indicators and drivers of full-service airlines using Delphi and AHP techniques. Journal of Air Transport Management, 52, 23-34.

Hörisch, J., Freeman, R. E., & Schaltegger, S. (2014). Applying stakeholder theory in sustainability management: Links, similarities, dissimilarities, and a conceptual framework. Organization & Environment, 27(4), 328-346.

Johnson, M. P. (2015). Sustainability management and small and medium?sized enterprises: Managers' awareness and implementation of innovative tools. Corporate Social Responsibility and Environmental Management, 22(5), 271-285.

Nurnberg, H. (2015). Cash Flow Statement. Wiley Encyclopedia of Management, 1-7.

Parmenter, D. (2015). Key performance indicators: developing, implementing, and using winning KPIs. John Wiley & Sons.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.