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Accounting & Financial Management - Assignment Example

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This paper "Accounting & Financial Management" discusses the justifiable selection of a benchmark company in order to evaluate the performance of Woolworth Limited from different angles of financial performance assessment, liquidity and solvency position, efficiency, and capital financing structure…
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Accounting & Financial Management
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Download file to see previous pages AWB’s operations can be categorized into areas ranging from ‘pool management services’ to ‘harvest financing’, and ‘International commodity management’. Only a company with such a big range of activities and financial outlays can become the benchmark for an equally big company like ‘Woolworth Limited’.

The performance of an entity can be better analyzed through its profitability analyses. The profitability ratios like Gross Profit ratio, Net Profit Margins, Return on assets (ROA), and Return on Equity (ROE). The calculations of such ratios are shown in the attached annexure. The Gross Profit ratio measures the percentage of each pound or dollar of sales remaining after the cost of goods sold. The gross profit margin covers other overheads and contributes towards net margins. Woolworth’s gross margin performance is very encouraging considering the performance of the benchmark company. The gross margin in 2007 is 25.32% of sales, whereas the other leading entity like AWB in the same industry is earning a gross profit ratio of 8.24%. Of course, no direct comparison is possible unless the product line is absolutely similar in nature. Woolworth’s gross margins have been hovering around 25% during the last three years. In 2005 it was 24.89%, in 2006 25.03% and in 2007 it has risen to 25.32% of sales. Gross margins are steadily rising with an increase in turnover year by year from $31352.5m in 2005 to$37833.3 in 2006 and $42586.8 in 2007. The rise in gross margin in 2007 is 1.15% over 2006, but that is not as great as that of AWB. The AWB Gross margin has risen from 7.91% in 2006 to 8.24% in 2006, an increase of 4.17%.

It would be observed that the ‘Net margins’ of Woolworth in 2007 have been increasing almost in the same ratio as the increase in gross margin. The net margin has risen from4.16% in 2005 to 4.56 % in 2006, and 4.97% in 2007. This shows the percentage of increase in 2007 8.99% over 2006. With AWB the situation has reversed. The gross margins have declined from 0.86% in 2006 to 0.66% in 2007.  ...Download file to see next pagesRead More
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