Business Finance Analysis of Wesfarmers Limited
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Introduction
This paper deems it necessary to examine Wesfarmers’ financial report for the year ended 2023 to understand its financial strength which recorded the company’s revenue of AUD 43.55 billion and net profit of AUD 2.47 billion. Auditing proves the definite, expense, assets, and future tactic sections of the report containing revenue, it is reliable and authoritative in analysis.
Background and Context
Business Finance Issue: Capital Structure
Capital structure management by the use of debt and equity is another strategic financial management at Wesfarmers. The benefits therefore include tax shield and lower cost of capital but must be weighed against costs such as financial, and the need for financial flexibility. This issue is more important for Wesfarmers since it has a diversified business and needs to properly finance various segments.
Economic and Business Context
The economy had a big effect on the capital system that Wesfarmers built. Due to low interest rates, companies have been forced to take on more debt over the last few years. But there are also worries about inflation, interest rates going up, and problems with global supply lines. The way Wesfarmers handles its money is affected by changes in the business world, like e-commerce and more eco-friendly ways of doing business. The company needs to spend on technology and the environment, but it also needs to be careful with its debt.
Key Drivers
Wesfarmers' capital structure has been brought into the limelight as a result of several different causes. Because both innovation and competition need large investments, the company's financial choices are impacted. Acquisitions and divestitures are examples of strategic moves that might have an impact on capital structure (Group, 2024). The debt and equity balance of Wesfarmers was negatively impacted, in particular, by the company's acquisition of Catch Group and subsequent divestment of coal. In addition, the organisation is motivated to optimise its capital structure by the expectations of its shareholders regarding returns and financial stability.
Stakeholder Analysis
Internal Stakeholders
Shareholders care most about the company's financial health and return on investment (ROI). Things like vote rights, earnings, and stock projections can affect a person's choice. Capital structure decisions affect how secure a job is and how quickly one can move up in the finance and strategy planning fields. High-level managers say that these goals must be matched with the company's long-term health.
External Stakeholders
The amount of debt that companies have is closely watched by the government to make sure they follow the rules about money and to lower societal risk. Strong financial systems make sure that services and goods are available, which means that customers have a secondary effect. Creditors and buyers are both worried about the company's reputation and its ability to pay its bills. Since they trust Wesfarmers' financial estimates, they affect the company's ability to borrow money and its appeal as an investment.
Analysis of Information Sources
Formal Sources
The 2023 financial report of Wesfarmers contains a great deal of useful information on the company's finances, such as its revenue of AUD 43.55 billion and its net profit of AUD 2.47 billion, the EBIT of the company was AUD1.74 billion and the. The reviewed report has details about the business's income, spending, assets, and plans for the future. People can trust this source of critical information because it promises truth and follows the rules set by regulators (Wesfarmers, 2023).
Informal Sources
In business, industry reports are important unofficial sources that give background information and analysis of the market. These papers also have important details about market trends, industry standards, and the strategies that rivals use. E-commerce and ecology are two things that are becoming more popular in the field, and Wesfarmers needs to think about them both when planning its future. Most of the time, these studies are made by market research firms and business groups. In addition to the official financial data, they give ideas that are both new and useful.
Credibility and Relevance
Audited financial records are reliable because they are correct and follow the rules set by regulators. They also give a full picture of how the company is doing. Even though they aren't looked over, business papers have useful information in them. The combination of market and organisational data made possible by cross-referencing various sources strengthens policy proposals.
Impact on Wesfarmers
Financial Performance
The capital structure has a big effect on Wesfarmers' financial success. When they have the right amount of debt and stock, the cost of cash goes down and the profits go up. When there is too much debt, interest payments go up, which could make it harder to get cash. Wesfarmers made 2.47 billion Australian dollars in 2023 because people properly handled the debt. This shows that people are good with money.
Business Operations
The way Wesfarmers structures its capital is a key factor in determining how flexible its operations can be (Katarína Belanová, 2023). Equity financing makes it possible for projects like growth, sustainability, and technology to get the money they need. There is a chance that heavy payback obligations would make it harder to change how things are done if there is a lot of debt. The goal at Wesfarmers, a company that provides retail and industrial services, is to have a financially balanced structure.
Strategic Decisions
It's possible that the way Wesfarmers' finances are set up could affect mergers and purchases. It's easier to buy companies like Catch Group when stock is high, and it's easier to get rid of non-core businesses when debt is low, which is good for the company's long-term finances and goals inflation (Hamdin Ahmed Alafif, 2023).
Long-term Goals
Wesfarmers' long-term growth, profits, and ability to handle risk are all affected by its capital structure. In a market that is always changing, a balanced plan makes sure that the business can make money and stay strong by focusing on long-term growth and managing risks.
Conclusion and Recommendations
Wesfarmers' business freedom and ability to make more money both go up when its capital structure is fair, according to the search results. Debt optimisation helps decision-makers take advantage of reduced interest rates and preserve financial stability. To help with growth, more needs to be looked at when it comes to the many ways to spend on technology and ecology. Capital structure choices benefit from market monitoring.
References
Group, D. (2024). Dividend information. Wesfarmers.com.au. https://www.wesfarmers.com.au/investor-centre/your-shareholding/dividend-information
Hamdan Ahmed Alafif. (2023). Interest Rate and Some of Its Applications. Journal of Applied Mathematics and Physics, 11(06), 1557–1569. https://doi.org/10.4236/jamp.2023.116102
?Katarína Belanová. (2023, March 28). How Increased Inflation Affects Businesses. ResearchGate; Association for Information Communication Technology Education and Science (UIKTEN). https://www.researchgate.net/publication/369587951_How_Increased_Inflation_Affects_Businesses
?Wesfarmers. (2023). 2023 Annual Report 2023 Annual Report. https://www.wesfarmers.com.au/docs/default-source/reports/2023-wesfarmers-annual-report---interactive.pdf?sfvrsn=a048e0bb_3
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