Accounting Concepts and Practices Assignment Sample

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INTRODUCTION

In business, there are various crucial aspects which are essential to be taken into account so that proper functioning can be determined. Accounting practices are one of the important part of every business organisation such as Wesfarmers. It can help in analysing the financial statement of company during a year (Lunenburg and Ornstein, 2011). In this report, various tools and techniques are used to examine the performance of company. The other part of this report provides information about sustainability of the firm.

QUESTION 1

Financial performance analysis

Wesfarmers Ltd is well known Australian conglomerate public limited company. It is situated in Perth and Western Australia. The company is generating total revenue of A$65.9 billion with total number of 220000 employees. Wesfarmers recorded a substantial enhance in net profit for the year 2017 as compare to that previous year 2016. Underlying net profit after tax is also at higher side with total of 22.1% to $2.873 million.

Earnings per share (EPS) is increase to 21.6% to a highest record of $2.55. Return on equity is also jumped to 9.6 per cent to 12.4%. The main focus of company is to provide superior return to shareholders for the long period of time. At this short term profits can be scarifies in order to support long term business growth (Flamholtz, 2012). It is important for the company's to determine their financial position in proper manner. By which, decision-making can be more easy for them to plan their future. The best way to identified various outcomes then, manager need to use financial statements of the company. Such as income statements, balance sheet and cash flow statements.

Income statement of Wesfarmers Ltd

Particular

2016

2017

Revenue

65512

68015

Cost of Revenue

45525

46359

Gross Operating Profit

19987

21656

Operating expenses

Research and development

-

-

Sales, general and administrative

10520

11068

Staff cost

-

-

Depreciation and amortization

1115

1118

Other Operating Expenses

7710

5785

Total Operating Expenses

19345

17971

Operating income before interest and taxes

642

3685

Non-operating income

396

453

Income before income taxes

1038

4138

Provision for income taxes

631

1265

Net income from continuing operations

407

2873

Net Income

407

2873

Net income available for common shareholders

407

2873

Earnings per share

Basic

0.36

2.55

Diluted

0.36

2.54

 Balance sheet:

Particular

2016

2017

Assets

Current Assets

Cash, cash equivalents, and short-term investments

Cash and cash equivalents

611

1013

Short-term investments

54

247

Total cash, cash equivalents, and short-term investments

665

1260

Accounts receivable

-

-

Inventory

6260

6530

Other Current Assets

2759

1877

Total current assets

9684

9667

Non-Current Assets

Not property, plant and equipment

9612

9440

Equity and other investments

-

-

Intangibles

19073

18936

Deferred Income Taxes

1042

971

Other Long-Term Assets

1372

1101

Total non-current assets

31099

30448

Total Assets

40783

40115

Liabilities and stockholders' equity

Liabilities

Current Liabilities

Accounts Payable

6491

6615

Taxes Payable

-

-

Current Debt

1632

1347

Other current liabilities

2301

2455

Total current liabilities

10424

10417

Non-current liabilities

Deferred taxes liabilities

-

-

Long Term Debt

5671

4066

Other long-term liabilities

1739

1691

Total non-current liabilities

7410

5757

Total Liabilities

17834

16174

Stockholders' equity

Common stock

21909

22242

Additional paid-in capital

-

-

Other reserves

-

-

Retained earnings

874

1509

Minority Interests

-

-

Total stockholders' equity

22949

23941

Total liabilities and stockholders' equity

40783

40115

From the above two crucial statements of the company, its performances can be determine by using various ratios. Because, by analysing ratios in well organised manner perfect solution can be examine by the managers.

Comparison of performance in two year through using various ratios.

Liquidity ratio: It is said to be that ratio by which company can determine its total cash availability with them (Edmonds and et. al., 2013). It is categories into various parts. It can be gauge a company's capability to pay off its debts. Such as:

Current ratio: It is refers to measure a company's total ability to pay short-term obligations. It is financial ratio that investors should be used to decide whether they are able to meet out there cash requirements.

Current ratio: Current assets/ Current liabilities

2016: 9684 /10424=0.93

2017: 9667/10417= 0.93

Acid test ratio: The quick ratio is a liquidity ratio which is used to measures the capabilities of Wesfarmers Ltd to pay its current debts as they come due with only quick assets.

Acid test ratio: Current assets-(Prepaid expenses + Stock) / current liabilities

2016: 9684-6260 / 10424= 3424/10424= 0.33

2017: 9667-6530 / 10417=3137/10417= 0.3

Interpretation:

According to the above analysis, it has been found that current ratio of the company is not much changes as pre the previous year. The ideal ratio of CA is 2:1. It means that current liabilities are higher than assets which make huge impact on the performance of the company. Such types of case are said to be underperformed companies. Whereas, acid test ratio of Wesfarmers is under liquidity. As they are not able to pay off their short term debts.

Profitability ratios: It refers as more effective ratios which is used to measure the profitability of the company. It is a way to determine company's performance during the year. It is more simple way that capacity to generate profit for the company can be identified. It consists of:

Gross profit ratio: It is known as that ratio that establishes the relationship of gross gains on total sales to net sales of a firm (What is the Gross Profit Margin, 2016).

Gross profit ratio: Gross profit / Net sales *100

2016: 19987 /65512*100= 30.5%

2017: 21656/68015*100= 31.8%

Net profit ratio: Such kind of ratios shows positive relationship among net profit after tax and net sale.

Net profit ratio: Net profit after tax (PAT) / Net sales *100

2016: 407/65512*100= 0.62%

2017: 2873/68015*100=4.22%

Interpretation:

From the above ratios, it has been found that profitability position of the company is very low in 2016. The Gross profit ratios is less because minimum use of cost of goods sold (COGS). Whereas, net profitability of the company is enhance by 4 time which is positive sign for the company.

ROCE: It is said to be return on capital employee. The purpose of this is to measure total return Wesfarmers is getting from its total investments.

ROCE: Operating Profit / Capital employed *100

2016: 19987/ 22949*100= 87.09%

2017: 21656/23941*100= 90.4%

Gearing ratio: It is said to be relationship between equity and other fixed interest loan.

Gearing ratio: long term debts / Capital employed *100

2016: 5671/22949*100= 24.7%

2017: 4066/23941*100= 16.9%

Ratios

2016

2017

changes

Current ratio

0.93

0.93

0

Acid test ratio

0.33

0.3

0.03

Gross profit ratio

30.50%

31.80%

1.30%

Net profit ratio

0.62%

4.22%

3.60%

ROCE

87.09%

90.40%

3.31%

Gearing ratio

24.70%

16.90%

7.80%

The above table indicate comparison of two year performance of Wesfarmers Ltd. It has been clearly state that gross profit margin is increased from 1.30%. ROCE of the company is getting sufficient amount of return as 3.31%.

QUESTION 2

Sustainability report

Over the last few year, Wesfarmers has communicated its progress in sustainability by producing an annual report. Under which they are committed to create interest for shareholders, customers and other employees those are working with them. Long term value formulation is only possible if they are playing a vital role in serving the society (Mosse, 2011).

Farm animal welfare:

Coles brand animal welfare policies is focused on reducing number of products sources from close confinement system. The fresh eggs have been cage free in 2013 and Coles brand fresh pork has been snow stall in 2014. All coles pork, ham and bacon are sources from farms that can only use gestation stalls for maximum time of 24 hours. All branded poultry has been entirely sourced from RSPCA approved farm. Such issues can reflect Wesfarmers important social and environmental influences the decision made by shareholders. It covers various aspects such as:

Safety: They are responsible for delivering a relentless focus on employee’s performance. They are using TRIFR (Total recordable injury frequency rate) and lost time injury frequency rate. This year rate of TRIFR is less with 33.6 to 28.3 percent.

Ethical sourcing and human rights: Under this, ethical sourcing training needs are provided to the third parties, suppliers and factories in order to ensure standards expected by various division.

Environment analysis: They target to protect their surrounding through reducing the emission intensity of our businesses. It will be easy to improve their resilience to climate modification. 16% of total reduction in greenhouse gas emission intensity in last five years.

Density rate: They are always tried to strive to develop an inclusive work environment. It can be enhance to 27% to promote diversity at workplace with total number of 4,231 employees working in order to determine it primary indigenous.

Workplace relation: It has been seen that more than 83 per cent of total workforce is working by collective contracts. Wesfarmers are tried to negotiate either individually or collectively without engagement of outside parties (Walker and Walker, 2011). The fair work commission is reducing to approve a new venture bargaining agreement which is covering all Coles store team member.

(Source: Financial performances, 2017)

The above graph is representing community contribution rate those are indirect or directly related with the company. The Indirect contribution in 2017 is about 59.3 which is higher as compare to previous year. Whereas, direct contribution rate is 72.9 % in 2017 as compared to last year.

CONCLUSION

From the above project report, it has been concluded that accounting concept is one of the crucial tools by which managers can analyse their financial statements. It covers various financial ratios to determine the exact performance of company. The sustainability report is also effective since last year.

REFERENCES

Books and Journals:

Edmonds, T. P. & et. al. (2013). Fundamental financial accounting concepts. New York, NY: McGraw-Hill Irwin.

Flamholtz, E. G. (2012). Human resource accounting: Advances in concepts, methods and applications. Springer Science & Business Media.

Lunenburg, F. C. & Ornstein, A. C. (2011). Educational administration: Concepts and practices. Cengage Learning.

Mosse, D. (Ed.). (2011). Adventures in Aidland: The anthropology of professionals in international development (Vol. 6). Berghahn Books.

Walker, J. R. & Walker, J. T. (2011). Tourism concepts and practices. Pearson Education India.

Online

What is the Gross Profit Margin?. 2016. [Online] Available through: <https://www.thebalance.com/what-is-the-gross-profit-margin-393201>.

Financial performances. 2017. [Online] Available through: <http://financials.morningstar.com/ratios/r.html?t=WES&region=aus&culture=en-US>.

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