- Explain the importance of financial ratio analysis, including the importance or relevance of different ratio categories, such as profitability, cash flow, liquidity and solvency, capital structure, activity ratios and other categories. Are some ratio categories more important than others? Why?
- How important is analyst forecast information for assessing a company’s current and future prospects? Do you think it is more important than financial ratios? If so, under what circumstances? How important is business strategy to the overall success of Wesfarmers and Woolworths? Can this also explain why some retail groups have been more successful than others?
- Using the financial statement data on Woolworths and Wesfarmers provided on BB, analyse the performance of both companies over the past three years using some key financial ratios discussed in lectures.
- Which of the two retailers is performing better and why? Which ratio categories do you place more emphasis on in your analysis and why? Is the financial performance of these two companies reflected in their respective stock price performance over the past year? Explain.
- Why do you think some retailers have different rates of return on equity, leverage and PE ratios?
- How do analysts rate the current and expected future prospects of Woolworths and Wesfarmers? Do you agree with their assessments?
- Apply the Altman Z-score model discussed in class to the most recent financial statements and market data of Woolworths and Wesfarmers. Discuss your findings.
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