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Wesfarmers Executive Summary

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The Return on Equity (ROE) for Wesfarmers Limited decreased in 2016 by almost 8% compared to 2015 and it may have decreased for these reasons:
Firstly, as seen above in Table V, the DuPont Analysis for Wesfarmers for the year 2016, the profit margin has decreased to almost 8%. Profit Margins measures how much out of every dollar of sales a company actually keeps in earnings (Investopedia, 2017). Therefore Wesfarmers 3.9% profit margin for the year 2015, means that the company had a net income of AUD $0.03 for each dollar of total revenue earned. As for the year 2016, the 0.6% profit margin shows that Wesfarmers net profit after tax (NPAT) reduced by over two (2) Million compared to 2015 net profit after tax (NPAT).
Secondly, when you look …show more content…

Another key point is that their ROE has made a drastic drop from 2015 to 2016 respectively. In 2016, the figure was 19.3% whist in 2016 is -14.2%. However, not all companies with negative ROEs are always bad investments because free cash flow is another form of profitability and can be used in lieu of net income (Fuhrmann, 2017). Woolworths income statement shows that their NPAT is AUD -$1, 234,800.00 however, their balance sheet reveals that they have cash at bank AUD $948,1000 and can cover some of their liabilities but if is done they will not be able to pay any dividends because they do not have recorded …show more content…

This is the case because it has the most influence over the ROE as the other two components have proven to be somewhat stable. The inferior ROE according to Table V are the Asset Turnover and Equity Multiplier Ratios. This is the case because they have demonstrated they have the least influence on the overall ROE for the past two year (2015 & 2016).
As for Woolworths superior ROE according to Table V is the Profit Margin Ratio although in 2016 the figure was -2.1%. This is the case because it has the most influence over the ROE as the other two components have proven to be somewhat stable. The inferior ROE according to Table V are the Asset Turnover and Equity Multiplier Ratios. This is the case because they have demonstrated they have the least influence on the overall ROE for the past two year (2015 & 2016).
Capital Structure Ratios
The capital structure is how a company finances its overall operations and growth by using different sources of funds. With that being said, debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings (Investopedia,

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