a. The above two articles describe the competition between Australian companies Woolworths and Wesfarmers. They are the two key providers in the Australia market for groceries, liquor, household goods and basic clothing. (Although Wesfarmers a little more diversified with insurance, coal and hardware interests.) Explain where in the two articles did the authors mention cash or cash flow?
b. Given the importance of cash flow, make a judgement about why the articles commented more on profit and earnings than on cash flow.
c. Examine the statement of cash flows of both Wesfarmers Ltd and Woolworths Ltd. (websites: www.wesfarmers.com.au/www.woolworthslimited.com.au/phoenix.zhtml?c=144044&p=homepage). Outline the method used in presenting the statement of cash flows for each company. If the direct method is used, identify whether an appropriate reconciliation has been reported in the notes to the accounts.
d. Examine the following information retrieved from the Wesfarmers Limited and Woolworths financial reports.
1. Undertake an analysis of the cash flow information given for Wesfarmers and Woolworths. Include in this analysis the computation of the various cash flow ratios shown in this chapter.
2. Based on the analysis answer the following questions:
(i) Which business would you expect to be a better short term credit risk?
(ii) Assess both companies' ability to survive in the longer term?
(iii) Which company is better at generating cash from their sales revenue?