The Financial Analysis of JB HI FI Report 2022

JB HI FI
FIN600 TX YYYY
NAME: STUDENT ID:

Student name – ID FIN600 TX YYYY
JB HI FI
Executive Summary
This report performs the financial analysis of JB HI FI using the last two years financial data. The
financial analysis is done using horizontal analysis of financial statements, vertical analysis of
financial statements and ratio analysis. The analysis of the income statement tells that the firm’s
financial performance has increased due to increased revenues and higher profits. The balance sheet
analysis shows that the financial performance of JB HI FI has improved as its balance sheet
becomes more liquid due to higher cash assets and lower fixed assets. Four types of ratios used for
the ratio analysis of JB HI FI in this report are profitability ratios, liquidity ratios, efficiency ratios
and gearing ratios. The profitability ratio of JB HI FI improved in 2019 as compared to 2018 which
shows that the firm has generated higher returns for its investors. The efficiency ratios also
improved due to consolidation of business operations and improved efficiency that led to higher
revenue per unit of the company’s resources. The liquidity and debt ratios also improved as the cash
levels of the firm increased and its interest bearing borrowings decreased. That reflects strong
financial position of JB HI FI. The calculations of all the ratios is shown in the excel sheet attached
in the appendices. There is some systematic risk due to the global slow-down and ongoing trade
wars but the firm large position provides it a competitive advantage. There is some unsystematic
risk from the growth of Amazon in Australia but the firm’s profit has not been much hurt till now.
JB HI FI needs to invest in its online business and innovation to reduce this risk in future. This
report recommends investing in JB HI FI as its business is moving in the right direction and its
future performance is expected to be strong. The results of the recent federal election, decreased
interest rate levels, improved housing market and tax cuts will boost consumer confidence that will
support the firm’s business.
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Student name – ID FIN600 TX YYYY
JB HI FI
Contents
1 Introduction...................................................................................................................................3
1.1 Background and Business............................................................................................................3
2 Company Analysis........................................................................................................................5
2.1 Financial statements, Current Financial performance, economic outlook....................................5
2.1.1 Horizontal Analysis:....................................................................................................................5
2.1.2 Vertical analysis...........................................................................................................................8
2.1.3 Economic Outlook.....................................................................................................................12
3 Ratio Analysis.............................................................................................................................13
3.1 Profitability ratios......................................................................................................................14
3.2 Efficiency ratios.........................................................................................................................16
3.3 Liquidity ratios...........................................................................................................................17
3.4 Gearing ratios.............................................................................................................................19
4 Recommendations and overall assessment.................................................................................21
5 References/Bibliography.............................................................................................................24
6 Appendices – attached Excel Spreadsheet..................................................................................27
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Student name – ID FIN600 TX YYYY
JB HI FI
1 Introduction
1.1 Background and Business
The journey of JB HI FI Limited started from a single store located at East Keilor, Victoria. Mr.
John Barbuto established the company in 1974 with an intention to provide best ranged and low
priced Hi-Fi and recorded music in Australia.
JB HI FI Limited (JBH) is engaged in the production of whitegoods, consumer electronics and
software such as games, music, movies etc. It is also a specialty discount retailer of home
entertainment products which are highly branded. The group carries out its business operations from
shopping centers, standalone destination sites and online stores which are operated in New Zealand
and Australia.
The group carries out its business in a market which is highly competitive. However, the group has
smartly taken over its major rival firm The Good Guys Business for $870 million (Janda and Letts,
2016). The company has the biggest threat from Harvey Norman which carries out its business on
the franchise model and deals in furniture, communications, consumer electrical products, bedding
and Manchester, bathrooms and tiles, kitchen appliances, carpets and flooring and small appliances
(Harvey Norman Holdings Limited, n.d.). But up to some extent, Harvey Norman’s franchise model
is limiting the company’s ability to remain competitive. The complex business model of competitors
and simple business model of JB HI FI has helped the group to earn more revenues and maintain an
upper hand position in terms of performance (Brook, 2018).
JB HI FI managed to perform well in spite of Australia’s retail downturn. In FY 2019, it has
reported increase in the value of its market capitalization which stands at $3.57bn (ASX, n.d.). Still,
group believes that its performance has been hampered and adversely affected due to the acquisition
of The Good Guys business whose management is preoccupied with Good guys business (JB HI FI,
2019).
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Student name – ID FIN600 TX YYYY
JB HI FI
Retail shares of JB HI FI have underperformed as a result its share price has dropped (Lau, 2019).
However, if we look at Figure A we could see that the share price of JB HI FI has significantly gone
up by 84.13 % (approx.) in the last five years.
Source: (The motley Fool, n.d.)
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Student name – ID FIN600 TX YYYY
JB HI FI
2 Company Analysis
2.1 Financial statements, Current Financial performance, economic
outlook
The company’s financial analysis is done by evaluating its financial statement, the performance of
its core business and the effect of external factors like industry performance and macro-economic
conditions.
According to Blaao (2016), for the effective financial analysis of a company various tools that can
be used are horizontal analysis of its financial statements, vertical analysis of its financial
statements and ratio analysis. Horizontal analysis is done by observing the percentage directional
change in major elements of the financial statements to observe the change in the company’s
operations over a period of time. Vertical analysis is done by observing how much each element of
income statement and balance sheet is as a proportion of total revenues and total assets respectively.
It is used to analyse the proportional contribution or the impact of each element of the financial
statements and how this impact has been changing over a particular time period.
2.1.1 Horizontal Analysis:
Income statement
Income Statement ($million) 2019 2018 Year on Year growth
or horizontal analysis
Revenue 7095.3 6854.3 3.52%
Cost of sales 5568.2 5384.1 3.42%
Gross Profit 1527.1 1470.2 3.87%
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