Why Coles and Woolworth don't pay early.

By Mike Taylor

Your comments on this caught my eye, and as a former accountant, I had to take a look at the 2023 Annual reports of Coles and Woolworths. In the following observations, in order to extract the relevant information, in the case of Coles, I have to include the Liquor division with Supermarkets; in the case of Woolworths, I can only look at their consolidated financials. Here is what I have found:

Coles (Supermarkets and Liquor)
*Sales $41 Billion
*Gross margin 26%
*Cost of sales $30.3 Billion
*Net profit before tax $1.5 Billion
*Trade Payables (outstanding supplier payments) $5.7 Billion (Known as no-cost working capital )
*No. of days supplier payments outstanding = 69

If suppliers were paid on a 7-day basis, it would require funding of $5.1 Billion. If they financed this by borrowings at, say 8%, it would cost them $410 Million, reducing their NPBT to $1.1Billion (from $1.5 Billion).

If they financed this through a capital raising, it would reduce their EPS (earnings per share), Dividend ratio, P/E (price to earnings ratio), resulting in their share price reduction.

Woolworths: (all operations)
*Sales $64 Billion
*Gross margin 26%
*Cost of sales $47.4 Billion
*Net Profit before Tax $2.4 Billion
*Trade Payables $7.6 Billion
*No. of days supplier payments outstanding =59

If suppliers were paid on a 7-day basis, it would require funding of $6.7 Billion. If they financed this by borrowings at, say 8%, it would cost them $540 Million, reducing their NPBT to $1.9 Billion (from 2.4 Billion).

If by capital raising, same impact as for Coles

Given Coles has only $600 Million cash on hand, and Woolworths has $1.135 Billion, neither of which makes much of a dent in the working capital required ($11.8 Billion). Their only other option (apart from borrowings or capital raising) is to sell assets or reduce inventories.

Suppliers do not have a hope in hell of even getting close to a 7-day payment (unless they cop a hefty early settlement discount)