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Report to understand the financial data of Australia's three big Retailers': Woolworths Ltd, Coles Myer Ltd, and David Jones Ltd from 2001 to 2003 and form a view on their working capital management practices.

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Introduction

Table of Contents 1. Introduction ----------------------------------------------------------------2 2. Data--------------------------------------------------------------------------2 3. Discussion------------------------------------------------------------------5 4. Conclusion------------------------------------------------------------------6 Bibliography----------------------------------------------------------------8 Appendix 1 -----------------------------------------------------------------9 1. Introduction The purpose of this report is to understand the financial data of Australia's three big Retailers': Woolworths Ltd, Coles Myer Ltd, and David Jones Ltd from 2001 to 2003 and form a view on their working capital management practices. The data is studied by using analytical tools like ratio analysis, reviewing descriptive material in financial statements, finding differences in components of statements, and by comparing results. A final picture is thus sketched to clarify how the calculated figures are affected by nature of each business and what other reasons underlie these results. 2. Data The main sources of data used to assess the working capital position are balance sheet and profit and loss statement, along with the notes to financial statements from the published annual financial reports of each company for 2001,2002, and 2003 respectively. Woolworths Ltd Coles Myer Ltd David Jones Ltd Year 2001 $m 2002 $m 2003 $m 2001 $m 2002 $m 2003 $m 2001 $m 2002 $m 2003 $m Current assets Cash 256 295 287.3 270.5 866 905.5 11.55 19.138 17.345 Receivables 194.9 258.6 242.4 705.1 288.7** 346 72.961 53.092 47.875 Inventories 1731.8 1838.4 1843.1 2904.2 2808.9 2836.8 287.298 287.209 289.54 Property, plant and equipment 126.8 ...read more.

Middle

Management Efficiency 3. Discussion Woolworths, Coles Myer, and David Jones are all cash sales businesses unlike companies who sell items on credit like oil drilling industries, which explains lower Days receivable ratio. In fact, David Jones, an upmarket department store, has reduced the ratio by 40% from 2001 to 2003 (Table 3). It puts aside provisions for doubtful debt because of its credit card business but the ratio shows tight control on cost management. Coles Myer's Days receivable ratio suggests that they are collecting cash quickly like Woolworths but the ratio appears distorted when we compare revenue from department stores (38%) and groceries (61.2%) in 2003 (Table 3, Appendix 1). This will be clearer when we discuss the Days inventory ratio. The Days payable ratio shows that Woolworths takes longer to pay its creditors than Coles Myer. This works in favour of Woolworth because their operating cycle (Days receivable + Days inventory) is less than Days payable. Therefore, Woolworths transaction intensive business runs its operations with supplier's money and manages this effectively by using this as a non-interest bearing liability. This is also reflected in Woolworths negative working capital, current ratio, and acid-test ratio figures. Thus to have current assets less than current liabilities is favourable in a grocery business, as cash has to inflow every day. ...read more.

Conclusion

* Woolsworths Supermarkets used 57% of total assets, generated 86.4% sales revenue and delivered 97% of total profit in 2003. These figures reflect their effectiveness in managing debtors, creditors, and inventory. This success is also attributed to Project 'Refresh' programme, which helped in reducing Days inventory ratio, and has put more emphasis on better supply chain management. * David Jones has control on debtors but there is a scope to reduce days inventory ratio and cost of operations. This is important because department stores accounted for 89.5% of total assets in 2003. The latest 2003/2004 financial results are however showing positive turnaround as department store operation has shown profit before tax and unallocated expenses of $67.885m, up from the $5.075m achieved in 2003. (AAP, 2004) * Coles Myer profits from food and liquor items have gone up from 2001 ($514.7m) to 2003 ($566.7m) and from 18%(2002) to 33% (2003) in department stores (Appendix 1). There has been a drop in days receivable and days inventory ratio from 2001 to 2002, which indicates better management efficiency. However, the increase in Days payable ratio, same liquidity, and days inventory from 2002 to 2003(Table 2 and 3) shows that managers need to focus on inventory management to deviate from selling assets or increasing liabilities to pay creditors, like taking overdraft of $10.8 million in 2003. ...read more.

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