Financial Decision Making: Analysis of Ratios, Profitability, Liquidity, and Financial Stability

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Financial decision making

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Table of Contents
Introduction......................................................................................................................................3
1. Calculation of ratios.....................................................................................................................3
2. Evaluation of profitability, financial stability, and liquidity of the company.............................3
3. Problems in using the annual report............................................................................................5
Introduction..................................................................................................................................5
Problems identified......................................................................................................................5
Conclusion...................................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
Financial decisions are required to be made in all the businesses and in that there will be
need to evaluate the data and options which are available. The performance of the company will
be analyzed and this can be done with the help of the available techniques. In the given report
ratio analysis will be performed in the context of JB Hi-Fi. There will be a calculation of various
ratios which will be made from the data which will be collected. The results will be considered
and with the help of them there will be evaluation of the profitability, liquidity and financial
stability of the company. All the changes which are taking place will be considered and the
reasons for the same will also be identified.
1. Calculation of ratios
Particulars Formula 2016 2017 2018
Gross profit ratio Gross profit/sales*100 21.88 21.86 21.45
Profit margin Net profit/sales*100 3.85 3.06 3.40
Expenses to sales ratio Total expenses/Sales*100 16.39 17.29 16.59
Return on ordinary
shareholders ratio
Net profit/average shareholders
fund*100
287.72 70.66 52.98
Current ratio Current assets/current liabilities 1.57 1.32 1.32
Quick ratio Quick assets/current liabilities 0.35 0.35 0.35
Receivables turnover Sales/Average receivables 44.05 38.59 34.42
Inventory turnover COGS/Average inventory 6.03 6.25 6.15
Debt ratio Total liabilities/total assets 0.59 0.65 0.62
Equity ratio Total equity/total assets 0.41 0.35 0.38
Asset turnover Sales/Average total assets 4.19 3.26 2.77
Return on total assets Net profit/Average total assets 16.13 9.99 9.42
2. Evaluation of profitability, financial stability, and liquidity of the company
The business is required to maintain a good financial position and in that various
financial aspects are taken into account. There will be consideration of the profitability
maintained by the company together with the liquidity that is ensured. The financial stability will
be analyzed to identify the position of the company in the current scenario and also for the