calculations for Wesfarmers. Current Ratio Formula - Current Ratio = Current assets___ Current Liabilities Table I Wesfarmers 2015 2016 9,093,000 = 0.9 times 9,726,000 9,684,000 = 0.9 times 10,424,000 A ratio in excess of one (1) should be expected but should not go below zero (0). Explain why For the year ended 30 June 2015 and 2016, Wesfarmers’ current assets were consistently at 0.9 times larger than it current liabilities, this is 1.125 times higher than the industry average of 0.88 as shown in Appendix V – Wesfarmers Ltd Industry Averages. This indicates that Wesfarmers is a health company and should not have any trouble paying its debts for the next twelve (12) months, as it’s currently liabilities are let than its current …show more content…
The analysis provides a view on the strengths and weaknesses of the company. The Return on Equity is composed of three ratios: profit margin, asset turnover, equity multiplier which reflects the impact of change in key figures in both the income statement and the balance sheet. Not to mention, the Return on Equity (ROE) for Wesfarmers Limited decreased in 2016 by 9% compared to 2015. The Return on Equity 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 4%. Profit Margins measures how much out of every dollar of sales a company actually keeps in earnings (Investopedia, 2017). Therefore Wesfarmers 5.6% profit margin for the year 2015, means that the company had a net income of AUD $0.05 for each dollar of total revenue earned. As for the year 2016, the 1.6% profit margin shows a decrease of AUD $0.04 down from its AUD $0.05 net income for