Accounting Concepts and Practices Assignment Sample

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Introduction - Accounting Concepts and Practices

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In business, there are various crucial aspects which are essential to be taken into account so that proper functioning can be determined. Accounting practices are one of the important part of every business organisation such as Wesfarmers. It can help in analysing the financial statement of company during a year (Lunenburg and Ornstein, 2011). In this report, various tools and techniques are used to examine the performance of company. The other part of this report provides information about sustainability of the firm.

Question 1

Financial performance analysis

Wesfarmers Ltd is well known Australian conglomerate public limited company. It is situated in Perth and Western Australia. The company is generating total revenue of A$65.9 billion with total number of 220000 employees. Wesfarmers recorded a substantial enhance in net profit for the year 2017 as compare to that previous year 2016. Underlying net profit after tax is also at higher side with total of 22.1% to $2.873 million.

Earnings per share (EPS) is increase to 21.6% to a highest record of $2.55. Return on equity is also jumped to 9.6 per cent to 12.4%. The main focus of company is to provide superior return to shareholders for the long period of time. At this short term profits can be scarifies in order to support long term business growth (Flamholtz, 2012). It is important for the company's to determine their financial position in proper manner. By which, decision-making can be more easy for them to plan their future. The best way to identified various outcomes then, manager need to use financial statements of the company. Such as income statements, balance sheet and cash flow statements.

Income statement of Wesfarmers Ltd

Particular	2016	2017
Revenue	65512	68015
Cost of Revenue	45525	46359
Gross Operating Profit	19987	21656
Operating expenses
Research and development	-	-
Sales, general and administrative	10520	11068
Staff cost	-	-
Depreciation and amortization	1115	1118
Other Operating Expenses	7710	5785
Total Operating Expenses	19345	17971
Operating income before interest and taxes	642	3685
Non-operating income	396	453
Income before income taxes	1038	4138
Provision for income taxes	631	1265
Net income from continuing operations	407	2873
Net Income	407	2873
Net income available for common shareholders	407	2873
Earnings per share
Basic	0.36	2.55
Diluted	0.36	2.54

 Balance sheet:

Particular	2016	2017
Assets
Current Assets
Cash, cash equivalents, and short-term investments
Cash and cash equivalents	611	1013
Short-term investments	54	247
Total cash, cash equivalents, and short-term investments	665	1260
Accounts receivable	-	-
Inventory	6260	6530
Other Current Assets	2759	1877
Total current assets	9684	9667
Non-Current Assets
Not property, plant and equipment	9612	9440
Equity and other investments	-	-
Intangibles	19073	18936
Deferred Income Taxes	1042	971
Other Long-Term Assets	1372	1101
Total non-current assets	31099	30448
Total Assets	40783	40115
Liabilities and stockholders' equity
Liabilities
Current Liabilities
Accounts Payable	6491	6615
Taxes Payable	-	-
Current Debt	1632	1347
Other current liabilities	2301	2455
Total current liabilities	10424	10417
Non-current liabilities
Deferred taxes liabilities	-	-
Long Term Debt	5671	4066
Other long-term liabilities	1739	1691
Total non-current liabilities	7410	5757
Total Liabilities	17834	16174
Stockholders' equity
Common stock	21909	22242
Additional paid-in capital	-	-
Other reserves	-	-
Retained earnings	874	1509
Minority Interests	-	-
Total stockholders' equity	22949	23941
Total liabilities and stockholders' equity	40783	40115

From the above two crucial statements of the company, its performances can be determine by using various ratios. Because, by analysing ratios in well organised manner perfect solution can be examine by the managers.

Comparison of performance in two year through using various ratios.

Liquidity ratio: It is said to be that ratio by which company can determine its total cash availability with them (Edmonds and et. al., 2013). It is categories into various parts. It can be gauge a company's capability to pay off its debts. Such as:

Current ratio: It is refers to measure a company's total ability to pay short-term obligations. It is financial ratio that investors should be used to decide whether they are able to meet out there cash requirements.

Current ratio: Current assets/ Current liabilities

2016: 9684 /10424=0.93

2017: 9667/10417= 0.93

Acid test ratio: The quick ratio is a liquidity ratio which is used to measures the capabilities of Wesfarmers Ltd to pay its current debts as they come due with only quick assets.

Acid test ratio: Current assets-(Prepaid expenses + Stock) / current liabilities

2016: 9684-6260 / 10424= 3424/10424= 0.33

2017: 9667-6530 / 10417=3137/10417= 0.3

Interpretation:

According to the above analysis, it has been found that current ratio of the company is not much changes as pre the previous year. The ideal ratio of CA is 2:1. It means that current liabilities are higher than assets which make huge impact on the performance of the company. Such types of case are said to be underperformed companies. Whereas, acid test ratio of Wesfarmers is under liquidity. As they are not able to pay off their short term debts.

Profitability ratios: It refers as more effective ratios which is used to measure the profitability of the company. It is a way to determine company's performance during the year. It is more simple way that capacity to generate profit for the company can be identified. It consists of:

Gross profit ratio: It is known as that ratio that establishes the relationship of gross gains on total sales to net sales of a firm (What is the Gross Profit Margin, 2016).

Gross profit ratio: Gross profit / Net sales *100

2016: 19987 /65512*100= 30.5%

2017: 21656/68015*100= 31.8%

Net profit ratio: Such kind of ratios shows positive relationship among net profit after tax and net sale.

Net profit ratio: Net profit after tax (PAT) / Net sales *100

2016: 407/65512*100= 0.62%

2017: 2873/68015*100=4.22%

Interpretation:

From the above ratios, it has been found that profitability position of the company is very low in 2016. The Gross profit ratios is less because minimum use of cost of goods sold (COGS). Whereas, net profitability of the company is enhance by 4 time which is positive sign for the company.

ROCE: It is said to be return on capital employee. The purpose of this is to measure total return Wesfarmers is getting from its total investments.

ROCE: Operating Profit / Capital employed *100

2016: 19987/ 22949*100= 87.09%

2017: 21656/23941*100= 90.4%

Gearing ratio: It is said to be relationship between equity and other fixed interest loan.

Gearing ratio: long term debts / Capital employed *100

2016: 5671/22949*100= 24.7%

2017: 4066/23941*100= 16.9%

Ratios	2016	2017	changes
Current ratio	0.93	0.93	0
Acid test ratio	0.33	0.3	0.03
Gross profit ratio	30.50%	31.80%	1.30%
Net profit ratio	0.62%	4.22%	3.60%
ROCE	87.09%	90.40%	3.31%
Gearing ratio	24.70%	16.90%	7.80%

The above table indicate comparison of two year performance of Wesfarmers Ltd. It has been clearly state that gross profit margin is increased from 1.30%. ROCE of the company is getting sufficient amount of return as 3.31%.

QUESTION 2

Sustainability report

Over the last few year, Wesfarmers has communicated its progress in sustainability by producing an annual report. Under which they are committed to create interest for shareholders, customers and other employees those are working with them. Long term value formulation is only possible if they are playing a vital role in serving the society (Mosse, 2011).

Farm animal welfare:

Coles brand animal welfare policies is focused on reducing number of products sources from close confinement system. The fresh eggs have been cage free in 2013 and Coles brand fresh pork has been snow stall in 2014. All coles pork, ham and bacon are sources from farms that can only use gestation stalls for maximum time of 24 hours. All branded poultry has been entirely sourced from RSPCA approved farm. Such issues can reflect Wesfarmers important social and environmental influences the decision made by shareholders. It covers various aspects such as:

Safety: They are responsible for delivering a relentless focus on employee's performance. They are using TRIFR (Total recordable injury frequency rate) and lost time injury frequency rate. This year rate of TRIFR is less with 33.6 to 28.3 percent.

Ethical sourcing and human rights: Under this, ethical sourcing training needs are provided to the third parties, suppliers and factories in order to ensure standards expected by various division.

Environment analysis: They target to protect their surrounding through reducing the emission intensity of our businesses. It will be easy to improve their resilience to climate modification. 16% of total reduction in greenhouse gas emission intensity in last five years.

Density rate: They are always tried to strive to develop an inclusive work environment. It can be enhance to 27% to promote diversity at workplace with total number of 4,231 employees working in order to determine it primary indigenous.

Workplace relation: It has been seen that more than 83 per cent of total workforce is working by collective contracts. Wesfarmers are tried to negotiate either individually or collectively without engagement of outside parties (Walker and Walker, 2011). The fair work commission is reducing to approve a new venture bargaining agreement which is covering all Coles store team member.

(Source: Financial performances, 2017)

The above graph is representing community contribution rate those are indirect or directly related with the company. The Indirect contribution in 2017 is about 59.3 which is higher as compare to previous year. Whereas, direct contribution rate is 72.9 % in 2017 as compared to last year.

Conclusion

From the above project report, it has been concluded that accounting concept is one of the crucial tools by which managers can analyse their financial statements. It covers various financial ratios to determine the exact performance of company. The sustainability report is also effective since last year.

References

Books and Journals:

• Edmonds, T. P. & et. al. (2013). Fundamental financial accounting concepts. New York, NY: McGraw-Hill Irwin.
• Flamholtz, E. G. (2012). Human resource accounting: Advances in concepts, methods and applications. Springer Science & Business Media.
• Lunenburg, F. C. & Ornstein, A. C. (2011). Educational administration: Concepts and practices. Cengage Learning.
• Mosse, D. (Ed.). (2011). Adventures in Aidland: The anthropology of professionals in international development (Vol. 6). Berghahn Books.
• Walker, J. R. & Walker, J. T. (2011). Tourism concepts and practices. Pearson Education India.

Online

• What is the Gross Profit Margin?. 2016. [Online] Available through: <https://www.thebalance.com/what-is-the-gross-profit-margin-393201>.
• Financial performances. 2017. [Online] Available through: <http://financials.morningstar.com/ratios/r.html?t=WES&region=aus&culture=en-.