Woolworths Financial Ratio Analysis, Essay Example

Gross Profit Margin

The company’s Gross Profit Margin increased from 25.8% in 2011 to 26.0% in 2012. The gross profit margin is a depiction of a company’s profitability from the cost of sales. Despite the increase in the cost of sales from AU$39,050.0 in 2011 to AU$40,792.4 in 2012, the company’s gross profit margin still increased by 0.2%. This can be attributed to significant increase in Sales revenue, from AU$52,609.1 in 20122 to AU$55,129.8 in 2012 (Wolwoths Limited). This increase was enough to counter the increase in the cost of producing the goods that were sold and increase the company’s profitability. (Kieso, Weygandt and Warfield)

Profit Margin

The company’s profit margin reduced from 6.3% in 2011 to 6.1%. The profit margin is a depiction of the company’s profitability on cost of sales after tax and all other expenses have been accounted for. This 0.2% decrease can be attributed to the decrease in net profit, AU$2,140.3 in 2011 to AU$1,817.1 in 2012 (Wolwoths Limited). This is because operating expenses increased during this period, from AU$10,666.7 in 2011 to AU$11,347.7 in 2012. This means that the company is making AU$0.2 less on every AUD$ spent on the production of commodities. (Kieso, Weygandt and Warfield)

Return on Asset

The company’s ROA decreased from 10.2% in 2011 to 8.4% in 12012. This can be attributed to the fact that even though the value of assets increased from AU$20,828 in 2011 to AU$21,581.1 in 2012, the company’s net income reduced significantly from AU$2,140.3 to AU$1,817.1. This means that the company’s ability to convert on its assets reduced within this period. (Bragg)

Return on Equity

The company’s Return on Equity reduced from 28.01% in 2011 to 27.22% in 2012. This can be attributed to the fact that even though the owner’s equity increased from AU$7,845.8 in 2011 to AU$8,446.3 in 2012, net income reduced from AU$2,140.3 in 2011 to AU$1,817.1. This means that the company’s ability to convert on the owner’s equity reduced within this time period. (Bragg)

Works Cited

Bragg, Steven M. Business Ratios and Formulas: A Comprehensive Guide. Hoboken: Wiley, 2012. Print.

Kieso, Donald E, Jerry J Weygandt and Terry D Warfield. Intermediate Accounting. Hoboken: Wiley, 2012. Print.

Wolwoths Limited. “Wolwoths Limited Annual Report 2012.” Financial Report. 2012. Print.