Financial Performance Analysis Assignment

ANALYSIS OF FINANCIAL PERFORMANCE
JB Fi-Fi Limited and Harvey Norman Limited
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Contents
Introduction................................................................................................................................3
Ratio analysis of JB Hi-fi Limited.............................................................................................4
Short term financial ratios/ Liquidity ratios...........................................................................4
Long term solvency/ Financial leverage ratio........................................................................4
Asset utilization (efficiency or turnover ratios).....................................................................5
Profitability ratio....................................................................................................................6
Market value ratios.................................................................................................................7
Ratio analysis of Harvey Normal Limited.................................................................................8
Short term solvency (Liquidity ratios)...................................................................................8
Long term solvency (Financial Leverage ratios)...................................................................8
Profitability ratios...................................................................................................................9
Asset unitization Ratios........................................................................................................10
Market valuation......................................................................................................................10
Comparative analysis...............................................................................................................12
Recommendation......................................................................................................................14
Conclusion................................................................................................................................15
References................................................................................................................................16
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Introduction
Performance valuation has become an important management technique used to evaluate past
performances and make strategies for growth and development. There are various techniques
that are used by management of a company for performance evaluation and one of the most
popular techniques is ratio analysis. Ratio analysis helps in establishing a meaningful
relationship between two or more financial figures which can be used to evaluate different
aspects of the business (Baños-Caballero et.al, 2014). Here ratio analysis of two companies
has been conducted to evaluate their preferences. In addition to individual performance
evaluation, the comparison is also made between ratios of these two companies. Companies
taken into consideration for such evaluation are Harvey Norman Limited and JB Hi-fi
Limited. Both of these companies are working in Australian retail industry. Australian retail
market is highly competitive that makes performance evaluation more vital for growth and
development. From a general overview, it can be said that Harvey Norman is a larger
company as compared to JB Hi-fi limited if the size of market capital and yearly revenue
generated is considered.
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Ratio analysis of JB Hi-fi Limited
Ratio analysis is a management technique that is used to analyse past performance of the
company and compare its current financial and operational position with its past
performances (Sujová, 2013). Here ratio analysis of JB Hi-fi limited has been done for the
financial year 2016 and 2017. All ratios are divided into following five major categories.
Short term financial ratios/ Liquidity ratios
Ratios Formula 2017 2016
Current ratio Current assets / Current liabilities 1.322 1.573
Acid Test
Ratio
Current assets – (stock + prepaid expenses) /
Current liabilities
4.167 4.478
Current ratio
It is the ratio that is used by investors and other interested stakeholders to analyse the short-
term liquidity position of the company. This ratio analyses the ability of the company to meet
its current liabilities. The ideal current ratio is considered as 2:1 but it might change from
industry to industry (Juan García-Teruel and Martinez-Solano, 2007). Therefore best
comparison in this scenario can be done with the help of pat year current ratio. The current
ratio is decreased in 2017 as compared to 2016 which is the result of a substantial increase in
current liabilities in 2017. It can be maintained by investment in highly profitable short-term
investments.
Quick ratio
The quick ratio is similar to current ratio with a small difference where quick assets are used
to calculate instead of current assets. Assets like prepaid expenses and inventory are excluded
as they are not readily convertible into cash by the company. A quick ratio of the company
has decreased marginally but still, it is very high. That shows that company has strong
immediate liquidity position (Agha, 2014).
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