For my assignment I have to calculate a bunch of financial ratios for Woolworths and Wesfarmers. 2 of the ratios require values for 'sales on credit'. But I cant seem to find where it shows 'sales on credit' on the income statement or any other part of the financial report for that matter. Could anyone point me in the right direction.
reading financial statements - sales on credit
- Thread starter eggnog
- Start date
I don't think that's right.
Maybe should have explained a bit more.
I need to calculate the "Accounts receivable turnover" ratio from woolworths 2011 financial statements. The formula they gave me is "Net Credit Sales" divided by "Average Net Accounts Receivable". I know the second bit but I'm not sure about the "Net Credit Sales". I can't find "credit sales" or "sales on credit" anywhere in the income statement, balance sheet or anywhere else in the financial statements.
Also, for the "acid-test ratio" I need to use "short-term investments" in my calculations. Likewise, I can't find this in the balance sheet. But under current assets there is "Assets held for sale". I'm assuming this is the same thing as assets being held for sale are sort of short-term investments. Is my thinking correct?
Would really like help being pointed in the right direction as these ratios I calculate will be used to form the basis of a recommendation to a fictitious client. If I don't get these ratio's correct then the financial recommendation would be incorrect and will heavily impact my awarded mark.
Maybe should have explained a bit more.
I need to calculate the "Accounts receivable turnover" ratio from woolworths 2011 financial statements. The formula they gave me is "Net Credit Sales" divided by "Average Net Accounts Receivable". I know the second bit but I'm not sure about the "Net Credit Sales". I can't find "credit sales" or "sales on credit" anywhere in the income statement, balance sheet or anywhere else in the financial statements.
Also, for the "acid-test ratio" I need to use "short-term investments" in my calculations. Likewise, I can't find this in the balance sheet. But under current assets there is "Assets held for sale". I'm assuming this is the same thing as assets being held for sale are sort of short-term investments. Is my thinking correct?
Would really like help being pointed in the right direction as these ratios I calculate will be used to form the basis of a recommendation to a fictitious client. If I don't get these ratio's correct then the financial recommendation would be incorrect and will heavily impact my awarded mark.
To make it easier thought I might post up the financial statements.
Balance sheet for Woolworths 2011 2010
Current assets
-----------------------------------------------------
Cash 1,519.6 713.4
Trade and other receivables 1,122.2 916.8
Inventories 3,736.5 3,438.8
Assets held for sale 93.9 37.3
Other financial assets 120.8 92.7
Total current assets 6,593.0 5,199.0
Income statement 2011 2010
---------------------------------------------------------
Revenue from the sale of goods 54,142.9 51,694.3
Other operating revenue 136.6 90.5
Cost of sales (40,186.3) (38,391.2)
Gross profit 14,093.2 13,393.6
Other revenue 226.2 179.3
Branch expenses (8,583.8) (8,165.4)
Administration expenses (2,459.2) (2,325.4)
Earnings before interest and tax 3,276.4 3,082.1
Financial expense (300.0) (238.5)
Financial income 38.5 27.0
Net financing cost (261.5) (211.5)
Net profit before income tax 3,014.9 2,870.6
Income tax expense (874.6) (832.6)
Profit after income tax expense 2,140.3 2,038.0
So for 2011, the average net accounts receivables is ( $1,122.2 (2011) + $916.8 (2010) ) divide by 2
ie: average receivables = $1,019.5
And you're saying net credit sales is net profit = 2,140.3
So the turnover ratio is 2,140.3 / 1,019.5 = 2.1
Would I have to deduct cash from net profit as this makes more sense to calculate a net credit sales figure.
Balance sheet for Woolworths 2011 2010
Current assets
-----------------------------------------------------
Cash 1,519.6 713.4
Trade and other receivables 1,122.2 916.8
Inventories 3,736.5 3,438.8
Assets held for sale 93.9 37.3
Other financial assets 120.8 92.7
Total current assets 6,593.0 5,199.0
Income statement 2011 2010
---------------------------------------------------------
Revenue from the sale of goods 54,142.9 51,694.3
Other operating revenue 136.6 90.5
Cost of sales (40,186.3) (38,391.2)
Gross profit 14,093.2 13,393.6
Other revenue 226.2 179.3
Branch expenses (8,583.8) (8,165.4)
Administration expenses (2,459.2) (2,325.4)
Earnings before interest and tax 3,276.4 3,082.1
Financial expense (300.0) (238.5)
Financial income 38.5 27.0
Net financing cost (261.5) (211.5)
Net profit before income tax 3,014.9 2,870.6
Income tax expense (874.6) (832.6)
Profit after income tax expense 2,140.3 2,038.0
So for 2011, the average net accounts receivables is ( $1,122.2 (2011) + $916.8 (2010) ) divide by 2
ie: average receivables = $1,019.5
And you're saying net credit sales is net profit = 2,140.3
So the turnover ratio is 2,140.3 / 1,019.5 = 2.1
Would I have to deduct cash from net profit as this makes more sense to calculate a net credit sales figure.
Eggnog,
"Net Credit Sales" might be easier understood simply as "Net Sales"
What it refers to is that woolies might sell 10 items for $40 each. So gross sales is $40 x 10 = $400
However, let's say one of those items is returned for a full refund ("credit")
Your net credit sales is now $360
If no other data is available, I think you can safely use the revenue from sales of goods as the net credit sales.
All the ratio is trying to show is how efficiently the company is collecting money from it's customers.
http://www.investopedia.com/terms/r/receivableturnoverratio.asp
You can also get the inverse (AR/NS) and divide by 365 to get the Sales to Cash conversion days (average number of days money is tied up in AR)
The Y-man
"Net Credit Sales" might be easier understood simply as "Net Sales"
What it refers to is that woolies might sell 10 items for $40 each. So gross sales is $40 x 10 = $400
However, let's say one of those items is returned for a full refund ("credit")
Your net credit sales is now $360
If no other data is available, I think you can safely use the revenue from sales of goods as the net credit sales.
All the ratio is trying to show is how efficiently the company is collecting money from it's customers.
http://www.investopedia.com/terms/r/receivableturnoverratio.asp
You can also get the inverse (AR/NS) and divide by 365 to get the Sales to Cash conversion days (average number of days money is tied up in AR)
The Y-man
QR = (curr assets - Inventory) / (current liabilities)
Curr Asset = 6593m
Inventory = 3736.5m
Curr Liabilities = 8288.3m (you need to get this from Bal Sheet)
The Y-man
Net credit sales should only be equated with net sales when all the sales are on terms. The purpose then is to see how efficiently collection of receivables occurs. To include cash sales in the credit sales would mean that it would appear that receivables would be being collected very quickly. If there was a breakup of sales on credit it would be in the income statement or a note to the accounts.
Thanks for the link y-man. But still a bit confused. Like my textbook, investopedua also says that net credit sales does not include cash sales. Investopedia also says some financial reports doesn't list net credit says, which woolies and coles don't and why I am finding this ratio difficult to calculate. This is also probably why I am thinking that might have to deduct total cash from total sales to get the figure for the value of sales was bought on credit as opposed to cash
Ok, which may come down to the classic "bad choice of companies for assignment" (very common)....
How about you argue that there is almost NO credit sales?
I imagine bulk of the revenue would be cash anyway (credit card sales are considered cash, as the payment is received by the vendor - the issuing financial institution carries the outstanding amount). This is evidenced by the relatively small receivables amount compared to sales anyway.
[edit] - MRO beat me to it.
The Y-man
Thanks for the help everyone.
The assignment states to calculate 19 different ratios from woolies and coles financial statements and make a recommendation on which is the better investment based on calculated ratios. No additional info is given for the assignment. As stated before, that was the full income statment and all the current assets listed on the balance sheet.
Based on what everyone has said I might have a chat with the lecturer to justify that these ratios cannot be calculated based on the information published in the financial statements. Unles of course someone else has a brilliant way of calculating total value of sales that was purchased in credit
The assignment states to calculate 19 different ratios from woolies and coles financial statements and make a recommendation on which is the better investment based on calculated ratios. No additional info is given for the assignment. As stated before, that was the full income statment and all the current assets listed on the balance sheet.
Based on what everyone has said I might have a chat with the lecturer to justify that these ratios cannot be calculated based on the information published in the financial statements. Unles of course someone else has a brilliant way of calculating total value of sales that was purchased in credit
sounds like my old Finsia/Caplain Course:
Anyway, Im using Morningstar now for these things but here are the rough answers for FY 06-11 [WOW]
Total Return % = 7.11
Return On Assets % = 11.38
Return On Equity % = 28.47
Net Gargin % = 3.99
Asset Turnover % = 256.67
Financial Leverage % 268.86
Long Term Debt = $3374m
Total Equity = $7846m
Net Debt/Equity = 42.38%
Im sure there are a lot more ratios you had to do. Can't quite remember how to do them anymore.
P
Anyway, Im using Morningstar now for these things but here are the rough answers for FY 06-11 [WOW]
Total Return % = 7.11
Return On Assets % = 11.38
Return On Equity % = 28.47
Net Gargin % = 3.99
Asset Turnover % = 256.67
Financial Leverage % 268.86
Long Term Debt = $3374m
Total Equity = $7846m
Net Debt/Equity = 42.38%
Im sure there are a lot more ratios you had to do. Can't quite remember how to do them anymore.
P
