Financial Analysis of JB HI FI and Telstra Corporation

Running Head: Finance for business – Masters
1
Project Report: Finance for business – Masters

Finance for business – Masters 2
Contents
Introduction.......................................................................................................................3
1.Company descriptions...................................................................................................3
a.Telstra limited............................................................................................................3
b.JB HI FI.....................................................................................................................3
2.Performance ratio analysis.............................................................................................3
3.Analysis of stock price.................................................................................................11
4.Analysis on changes into stock price...........................................................................12
5.Beta value and cost of equity.......................................................................................13
6.Dividend policies.........................................................................................................14
7.Recommendation letter................................................................................................15
References.......................................................................................................................17
Appendix.........................................................................................................................18

Finance for business – Masters 3
Introduction:
Financial analysis is a process which explains the performance of a business on the
basis of analysis on the financial statements of the company. Financial analysis process takes
the concern of financial statements and other financial activities of the business to identify the
overall position of the business. It evaluates the position through technical analysis and the
fundamental analysis to create a better base for the investors to make decision about the
investment into the company (Higgins, 2012). Ratio analysis, cost of equity, weighted
average cost of capital, horizontal analysis, vertical analysis etc are few evaluation methods
to measure the financial performance of a company. In the report, financial performance of
JB HI FI and Telstra Corporation has been evaluated to identify the best company for the
purpose of the investment.
1. Company descriptions:
a. Telstra limited:
Telstra limited is a telecommunication company in the Australian market. It offers the
telecommunication solution and the services to the business people and the Australian
individuals. The main services of the business are network solution which also includes the
global IP private networks, global Ethernets, international private line, security solution,
managed store, customer control centre. It is the largest company in the telecommunication
sector of the business (Bloomberg, 2018). It has been founded 43 years before at 1st July
1975. Total number of employees of the company is 32000 and 150 subsidiaries are running
by the company to run the business.
b. JB HI FI:
JB HI FI is an Australian company which deals in the consumer goods. The company
specializes in electronic products, blu rays, video games, CDs, DVDs, mobile phones,
electronic home appliances etc. It has been founded in 1974. The company is operating its
services through 303 stores. The company is operating its operations and activities under the
retail industry. The company has expanded its business in New Zealand market as well. The
main competitive advantage of the business is its products and various outlets which make it
convenient for the customers to reach over the store and purchase the products from the
company.
2. Performance ratio analysis:

Finance for business – Masters 4
Performance ratio analysis is a financial evaluation method which is used by the
companies to measure the operating and financial performance of a business. It measures the
liquidity, profitability, solvency, efficiency and capital structure level of the business to
identify the position of the business. This evaluation process makes a base for the investors to
identify the investment level of the business and the risk position to make decision about the
investment into the company (Gibson, 2011). In the report, performance ratios of JB HI FI
and Telstra have been calculated to measure the overall performance of the business. The
performance ratios of the business are as follows:
Profitability ratios:
Profitability ratios depict the profit generation ability of a business. It measures the
total profit of the business through assets, equity, sales revenue etc to identify that how much
profit has been generated by the business through the available resources.
Figure 1: Profitability Ratios
Return on equity measures the net profit of the business against the available equity of
the business. It explains the profit generation capability of the business. ROE of JB HI FI
explain that the profitability level of the business has been lower from last 3 years in 2017.
The current ROE of the business is 20.2%. On the other hand, the Telstra Corp’s ROE
explain about the reduced level as well. The changes in both the companies have occurred
due to the external factors.
Rate of return on
ordinary equity JB HI FI
Net profit / 136,511 152,181 172,400

Finance for business – Masters 5
Total equity 343,479 404,702 853,500
Answer: 39.7% 37.6% 20.2%
Rate of return
on ordinary
equity
Telstra Corporation
Net profit / 4,231,000 5,780,000 3,891,000
Total equity 14,103,000 15,871,000 14,541,000
Answer: 30.0% 36.4% 26.8%
Return on assets measures the net profit of the business against the available resources
of the business. It explains the profit generation capability of the business. ROA of JB HI FI
has been reduced in 2017 because of lower profits from last 3 years. The higher expenses
have led to lower profitability (Morningstar, 2018). On the other hand, the Telstra Corp’s
ROA has also been reduced. The changes in both the companies are quite similar.
Return on Total assets JB HI FI
Net profit / 136,511 152,181 172,400
Total Assets 895,013 992,381 2,452,300
Answer: % 15.25% 15.33% 7.03%
Return on Total
assets
Telstra Corp
Net profit / 4,231,000 5,780,000 3,891,000
Total Assets 40,445,000 43,286,000 42,133,000
Answer: % 10.46% 13.35% 9.24%
Further, the gross profit margin and net profit margin of both the companies have
been calculated and it has been measured that the gross profit of the business is similar in last
3 years while the level of the net profit has been fluctuated. The current net profit level of
JBH is lowest in all the three years. On the other hand, the gross profit and net profit level of
TLS brief reduction in both the levels. It led to the conclusion, that both the organization has
faced the lower profitability position in current year. The main reasons behind it are changes
in the economical performance.

Finance for business – Masters 6
Gross profit margin
JB HI FI
Gross profit / 798253 865408 1230500
Sales Revenue 3652136 3954467 5628000
Answer: 21.9% 21.9% 21.9%
Net profit margin
Net profit / 136,511 152,181 172,400
Sales Revenue % 3,652,136 3,954,467 5,628,000
Answer: 3.74% 3.85% 3.06%
Gross profit
margin Telstra Corporation
Gross profit / 18975000 18587000 14954000
Sales Revenue 25845000 25834000 25912000
Answer: 73.4% 71.9% 57.7%
Net profit
margin
Net profit / 4,231,000 5,780,000 3,891,000
Sales Revenue % 25,845,000 25,834,000 25,912,000
Answer: 16.37% 22.37% 15.02%
(Morningstar, 2018)
Liquidity ratios:
Liquidity ratios depict the ability of a business to manage all the short term debt
through the available short term assets of the business. It measures the total debt payment
position of the business through measuring the level of current assets and current liabilities of
the business.