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Manage Budgets And Financial Plans Essay

This project, I chose Woolworths Limited Annual Report 2012 to answer the following questions: To whom is this report disseminated and how is this done?

“The financial report provides people who are interested in a company – such as shareholders, lenders, analysts and employees – with information about the financial performance and financial position of the company”( A guide to understanding annual reports 2012). It is one means by which directors of the company advise shareholders on how the business has performed during the year. The financial report also provides information to shareholders on how the directors have discharged their responsibilities. In other words, Current shareholders and potential investors remain the primary audiences for annual reports. Employees (who today are also likely to be shareholders), customers, suppliers, community leaders, and the community-at-large are also targeted audiences.


The annual report serves many purposes with employees. It provides management with an opportunity to praise employee innovation, quality, teamwork, and commitment, all of which are critical components in overall business success. In addition, an annual report can also be used as a vehicle to relate those company successes—a new contract, a new product, cost-saving initiatives, new applications of products, expansions into new geographies—that have an impact on its work force. Seeing a successful project or initiative profiled in the annual report gives reinforcement to the employees responsible for the success. The annual report can help increase employee understanding of the different parts of the company.

Many manufacturing locations are in remote areas, and an employee’s understanding of the company often does not go beyond the facility where he or she works. An annual report can be a source for learning about each of a company’s product lines, its operating locations, and who is leading the various operations. The annual report can show employees how they fit into the “big picture.” Employees also are often shareholders. So, like other shareholders, these employees can use the annual report to help gauge their investment in the company. In this case, the annual report can serve as a
reminder to employees of the impact that the work they do has on the value of the company’s stock value.


Customers want to work with quality suppliers of goods and services, and an annual report can help a company promote its image with customers by highlighting its corporate mission and core values. Describing company initiatives designed to improve manufacturing processes, reduce costs, create quality, or enhance service can also illustrate a company’s customer orientation. Finally, the annual report can also show the company’s financial strength. Customers are reducing their number of suppliers, and one evaluation criterion is financial strength. They want committed and capable suppliers that are going to be around for the long term.


A company’s abilities to meet its customers’ requirements will be seriously compromised if it is saddled with inept or undependable suppliers. Successful companies today quickly weed out such companies. By highlighting internal measurements of quality, innovation, and commitment, annual reports can send an implicit message to suppliers about the company’s expectations of outside vendors. Sometimes an annual report will even offer a profile of a supplier that the company has found exemplary. Such a profile serves two purposes. First, it rewards the supplier for its work and serves to further cement the business relationship. Second, it provides the company’s other suppliers with a better understanding of the level of service desired (and the rewards that can be reaped from such service).

The Community

Companies invariably pay a great deal of attention to their reputation in the community or communities in which they operate, for their reputations as corporate citizens can have a decisive impact on bottom-line financial performance. A company would much rather be known for its sponsorship of a benefit charity event than for poisoning a local river, whatever its other attributes. Annual reports, then, can be invaluable tools in burnishing a company’s public image. Many annual reports discuss community initiatives undertaken by the company, including community renovation projects, charitable contributions, volunteer efforts, and programs to help protect the environment. The objective is to present the company as a proactive member of the community. This sort of publicity also can be valuable when a company is making plans to move into a new community. Companies seek warm welcomes in new communities (including tax breaks and other incentives).

Communities will woo a company perceived as a “good” corporate citizen more zealously than one that is not. The good corporate citizen also will receive less resistance from local interest groups. The company’s annual report will be one document that all affected parties will pore over in evaluating the business. The way that the company publish it annual report, most listed companies publish their financial statements and reports on their website and notify shareholders of its action including Woolworths Limited. Alternatively, a company may elect to send shareholders a hard copy or a concise report. A shareholder has the right to receive a hard copy, but must specifically request the printed version. Copies are lodged with ASIC and the ASX and are available for inspection online.

Why do these people need the information contained in the annual report? Those people need the information contained in the annual report because the financial accounts provide a wealth of information that is useful to various users of financial information, as summarised below:

Interest in / Use of Accounting Information

Investors are concerned about risk and return in relation to their investments. They require information to decide whether they should continue to invest in a business. They also need to be able to assess whether a business will be able to pay dividends, and to measure the performance of the business’ management overall Lenders

Banks and other financial institutions who lend money to a business require information that helps them determined whether loans and interest will be paid when due Creditors Suppliers and trade creditors require information that helps them understand and assess the short-term liquidity of a business. Is the business able to pay short-term debt when it falls due?

Customers & Debtors

Customers and trade debtors require information about the ability of the business to survive and prosper. As customers of the company’s products, they have a long-term interest in the company’s range of products and services. They may even be dependent on the business for certain products or services Employees

Employees (and organisations that represent them – e.g. trade unions) require information about the stability and continuing profitability of the business. They are crucially interested in information about employment prospects and the maintenance of pension funding and retirement benefits. They are also likely to interested in the pay and benefits obtained by senior management!


There are many government agencies and departments that are interested in accounting information. For example, the IR&CE needs information on business profitability in order to levy and collect Corporation Tax. Various regulatory agencies (e.g. the Competition Commission and the Environment Agency) need information to support decisions about takeovers and grants, for example.


Investment analysts are an important user group – specifically for companies quoted on a stock exchange. They require very detailed financial and other information in order to analyses the competitive performance of a business and its sector. Much of this is provided by the detailed accounting disclosures that are required by the London Stock Exchange. However, additional accounting information is usually provided to analysts via formal company briefings and interviews.

General public

Interest groups, formed by various groups of individuals who have a specific interest in the activities and performance of businesses, will also require accounting information.

Table: User of account (Riley 2012)

What financial information does the report offer-describe the contents of the report and explain Under the Companies Act is required to prepare a set of accounts that give a true and fair view of its profit or loss for the year and of its state of affairs at the year end. Woolworths Annual accounts include:

Performance Summary
Growth Plans
Chairman’s Report
Managing Director’s Report
The Results in Brief
Food, Liquor and Petrol
General Merchandise
Home Improvement
Consumer Electronics
Discontinued Operations
Overheads, Expenses and Balance Sheet
Capital Management and Outlook
Board of Directors
Directors’ Statutory Report
Remuneration Report
Auditor’s Independence Declaration
Corporate Governance Statement
Financial Report to Shareholders
Shareholder Information

For Woolworths Limited, It is a parent company due to it also owns other companies subsidiaries. Therefore, there are consolidated accounts in its annual report. There are many contents contained in Woolworths Limited Annual Report because Woolworths is the big company and also owns other companies subsidiaries which lead to many transactions occurred in the company. Therefore, I will explain some contents to give some idea. Managing Director’s Report: The directors’ report of a listed company is required to contain information that shareholders of the company would reasonably require to make an informed assessment of:

• the operations of the company reported on
• the financial position of that company
• the business strategies of that company and its prospects for future

financial years (unless their inclusion would be unreasonably prejudicial) The report by the directors will identify the names of the directors and officers of the company, and is required to contain information about options including share options, executive options, indemnity and insurance. The directors’ report includes a remuneration report that must include a discussion of the board’s policy on remuneration and its relationship to company performance. The remuneration report includes information about the cost to the company of providing its directors and key management personnel with short-term employee benefits, post-employment benefits, other long-term employee benefits, termination benefits and share-based payment arrangements.

For the managing director’s report of Woolworths reveal that Woolworths pleased to report that we are making significant progress against their goals. Also, for this financial year Woolworths pleased to report a solid increase in net profit after tax from continuing operations of 3.6% and by the end of FY12 Woolworths was Australia’s leading online retailer. These statement shows that they were achieve their goals and success during financial year 2012.

Directors’ declaration
The Directors declare that:
(a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) in the Directors opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in Note 1 to the Financial Statements; (c) in the Directors’ opinion, the attached Financial Statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the Directors have been given the declarations required by s.295A of the Corporations Act 2001.

Examine the financial summaries for information about the fiscal condition of the company. Did the company show a profit? Yes, Woolworths show a profit and for financial results net profit after tax from continuing operations increased 3.6 per cent to $2.18 billion on total Group sales from continuing operations of $55.1 billion, up 4.8 per cent. These results were affected by provisioning for the disposal of the Consumer Electronic business, which has been impacted in recent years by significant price deflation, around the world. On a one off basis, this reduced our after‑tax profits by 14.5% and earnings per share by 14.9%, compared to the previous year.

What sorts of recommendations are made and what suggestions are made regarding business activities for the up-coming year? Business activities for the up-coming year:
Leadership in food and liquor
Act on Woolworths portfolio to maximize shareholder value
Maintain track record of building new growth

Woolworths expect further earnings growth in FY13, with net profit after tax from continuing operations expected to grow in the range of 3% ‑6% (on a normalised 52 week basis), subject to the uncertainties detailed above (note: FY13 will be a 53 week year).

Section 2
Explain the following statement.

“Ratio analysis can help in measuring business performance and setting objectives/goals”. Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm’s financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. Also, ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm’s financial performance with industry averages.

In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. However, ratios are not just a device used by accountants, but a useful tool that identifies strengths and weaknesses of a business and leads to questions about performance that should result in action. Moreover, “ratios can be used to set performance goals. For instance, a business seeking to improve its cash flow position may do so by setting targets to reduce average debtors and inventory turnover” (Manage budgets and financial plans 2010). Understanding the relationship between these items and their impact on cash flow, gives greater control over the business and the ability to clearly communicate performance objectives.

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