Question

Company: Wesfarmers Limited & Woolworths Limited

GICS Sector Consumer Staples GICS Industry Group Food & Staples Retailing GICS Industry Food & Staples Retailing

Using MorningtonStar DatAnalysis, select two companies in the same industry sector that MUST have an accounting period from 1 July to 30 June each year. Perform Strategy analysis, including industry-level analysis and firm-level analysis, as well as an accounting analysis, using the five years of data provided by MorningtonStar DatAnalysis for these two companies. The purpose for your analysis is to select one of the two companies for you to invest $25,000 in via the purchase of shares in this company.

Requirements: 1. Perform a strategy analysis, including Porter’s ‘five forces’ framework for industry-level analysis, competitive strategy analysis of the firm-level analysis (incorporating the source of the sustainable competitive advantage), and Corporate strategy analysis for the two selected multi-business organisations (adding the benefits and costs to the companies separate segments)

2. Perform an accounting analysis that addresses the six (6) steps in performing accounting analysis of the five components of the financial statements for the two selected companies (35marks)

3. Evaluate the quality of the financial statements of the two companies. Are you are happy with their quality? If yes, why and if no, why not?

4. Choose one company (of the two selected companies) you decide to invest your $25,000 and identify how many shares this will purchase. Construct your conclusions to support your selection

Answer 1

Porter's Five Forces Analysis is an important tool for understanding the forces that shape competition within an industry. It is also useful for helping you to adjust your strategy to suit your competitive environment, and to improve your potential profit.

It works by looking at the strength of five important forces that affect competition:

• Supplier Power: the ability of suppliers to drive up the prices of your inputs.
• Buyer Power: the strength of your customers to drive down your prices.
• Competitive Rivalry: the strength of competition in the industry.
• The Threat of Substitution: the extent to which different products and services can be used in place of your own.
• The Threat of New Entry: the ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down).

By thinking about how each force affects you, and by identifying its strength and direction, you can quickly assess your position.

You can then look at what strategic changes you need to make to deliver long-term profit.

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. Thesestatements include the income statement, balance sheet,statement of cash flows, and a statement of changes in equity.

Financial statement analysis is an evaluative method of determining the past, current and projected performance of a company. Several techniques are commonly used as part of financial statement analysis including horizontal analysis, which compares two or more years of financial data in both dollar and percentage form; vertical analysis, where each category of accounts on the balance sheet is shown as a percentage of the total account; and ratio analysis, which calculates statistical relationships between data.

Each financial statement provides multiple years of data. Used together analysts can track performance measures across financial statements using several different methods for financial statement analysis, including vertical and horizontal analysis. An example of vertical analysis is when each line item on the financial statement is listed as a percentage of another. Horizontal analysis compares line items in each financial statement against previous time periods. In ratio analysis, line items from one financial statement are compared with line items from another. For example, many analysts like to know how many times a company can pay off debt with current earnings. Analysts can do this by dividing debt, which comes from the balance sheet, by net income, which comes from the income statement. Likewise, return on assets (ROA) and the return on equity (ROE) compare company net income found on the income statement with assets and stockholders' equity as found on the balance sheet.

Choosing the best stocks can make the difference between earning or losing money. It’s easier to select a group of "buy" candidates than to decide which one of two stocks is best. Stocks can be compared on dozens, even hundreds of parameters.

Every stock selection method can be reduced to five or six parameters that distinguish the best performers in their category. For example, the key drivers behind many fast-growing stocks are earnings and revenue growth. The best dividend paying stocks have the largest annual dividend increases and the lowest dividend payout ratios, or the ratio of dividend amount to annual earnings per share. Historical data can tell you how a stock has done in the past but have limited predictive value. It’s better to attach more weight to recent numbers -- the three quarters rather than the past five years – because recent trends are more likely to continue.