Financial Analysis of JB Hi-Fi Limited

This assignment requires a detailed analysis of the provided financial statements of JB Hi-Fi Limited. It focuses on understanding the company's profitability by examining the income statement, particularly net income applicable to common shares. Additionally, the balance sheet provides data about current and long-term assets, liabilities, and stockholders' equity, allowing for an assessment of the company's financial health and structure.

Managing Financial
Research

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Overview of company............................................................................................................3
Scope of analysis ...................................................................................................................4
Key financial issues faced by an organization.......................................................................4
Factors associated with JB HI FI Limited..............................................................................4
Assessing financial viability:..................................................................................................6
Impacts of finance on financial statements............................................................................7
Ratio Analysis: ......................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11
APPENDIX:...................................................................................................................................12

INTRODUCTION
Finance is an essential parts of every business organization. Without having adequate
amount of funds organisation cannot survive for longer period of time. The primary objective for
an organisation is to maximise wealth for the company. In order to determine its current position,
manager needs to analyse its financial status so that present value can be examine. The time
value of money and risk associated with the projects are identify before making any plan for
investments. Some specific aspects that are examine under this reports are assets, equity as well
as payment of dividend that are incurred by company during the year. This report covers various
aspects that are helpful in decision-making and evaluation by using certain ratios. On the basis of
proper evaluation over certain impacts that are available in internal departments of an
organisation are discuss under this report (Broadbent and Cullen, 2012).
TASK 1
Overview of company
JB Hi Fi Limited is an Australian retailer company which is dealing in consumer
products. They are mainly specialised in video game, Blu-rays, DVDs and CDs or other
electronic home appliances. It is situated in Chadstone shopping centre in Melbourne. It is a
public listed company that deals in retail sectors. There are almost 112 stores at various location
in Australia. The total revenue generate by company is about A$4billion. JB Hi Fi has very
diversify business and is currently deals in retailer for consumer electronic that consists of
plasma and LCD televisions (Renz and Herman, 2016).
In fast moving business world people are more reliable on latest and fast technologies
that can help to solve business problems by just one click. The primary target of the company is
to make expansion of their core operation with the help of their available profits. This JB HI FI
company is listed over Australian stock exchange. There are continuous increasing in its
profitability by 26% as compare to last year. It has been seen that JB Hi Fi is a sole retail chain in
Australia that sells various electronic products in their shops. It has been observed that this
company is one of the largest retailer and second in term of selling computer games and car
stereos. JB HI FI company are offering products at very economical prices to customer so that
every one can avail product and services of company in more effective manner.
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Scope of analysis
The primary aim of this particular analysis is to examine key aspects that are associated
with JB Hi Fi company. The financial performance and position can be evaluated by using
information from various statements such as profit and loss, balance sheet and cash-flows
statements.
Key financial issues faced by an organization
It is mainly depend upon the size of business various other factors can have impacts on
an organisation. Because of their inability to enjoy different benefits in the marketplace. Equity
related business is designed and operate with the motive of providing a value that can access by
the owners in coming times. Financial risks are develop from an organisation's exposure to
modify in market prices such as rate of interest, product cost and exchange rates. Financial
problem is a kind of situations where money related concern are creating more stress for the
company's owner. Most people would face hard time and has direct impacts on financial position
during the year. These issues can be impossible to deal with but owners could get assistance by
using various steps in solving those in some critical situations (Cascio, 2018).
There are certain more aspects that are related with the company such as transaction with
other company or parties.
 Some of them can be arises from internal actions of failure of organisation policies and
financial systems.
 In case of change in market policies as well as structure of company's format these
financial issues can be originated.
 The performances of staffs and other employee can be more effectively analyse by using
appropriate techniques that help them to resolve various financial issues.
 The major impacts are shown over the productivity of the company as they are incurring
maximum investments in formulation of product selling plans. Some of the issues are
related with the savings and credit banks (Cases and et. al., 2011).
Factors associated with JB HI FI Limited
Organisation structure is a crucial framework for a company that is to present in front of
authority those are running their businesses. There are various policies, rules and responsibilities
that can have huge impacts on the financial growth of the company. These factors can be arises
from both internal as well as external level. Business owners needs to consult or make review of
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information from concern authorities about these level before making any new organisational
plan. Considering all the facts that the company has set up around 15 new stores that helps them
to make strategies for financial measure. There financial condition can only be determine by
using profitability ratios that is use as overall success of a company after comparison it with
certain activities of the businesses. It will be helpful in gaining competitive advantages over
other company's. Some external factors are mention underneath:
 Political factor: These are given maximum importance to the business. There are
different aspects of government policy that can affect business profitability. With the
political fluctuation in the nation business can able to run in appropriate manner that
make huge impacts on slow down of production demands.
 Economic factors: This can disturb political condition of a nation. The economic aspects
can lead to huge impacts on financial downfall of JB HI FI business operations. By the
changes in tax rates and government spending can make major influences over the
profitability of an organisation (Epstein and Buhovac, 2014).
 Social factor: It is mostly related with culture and by the way of conducting things to the
society can make impacts of financial position of an organisation. Attitude and shared
beliefs play a dominant role about JB HI FI company to understand customer perception
about marketing message for retailing sectors. If products are not able to satisfy specific
requirements of customers then they are hard to deal with social environment. Whereas,
the job opportunities would also become low for that particular areas. The company
mainly plan to provide more chances to young people as they are manufacturing
electronic products.
 Technological factors: It is now a days considered to be the most suitable aspects that
would help in gaining maximum advantages for the people. But if they are using outdated
techniques in production of products and services this would increase chances of low
profit to the company. It has been seen that over a last period of 5 years the industry that
has been transforming more fast. By the help of latest technology JB HI FI company can
deal directly with its competitors.
 Environment factor: It has been observed that various norms or standards that can make
impacts the profitability of an JB HI FI in various marketplaces. There are various laws
and liability laws that are required to be followed by the company so that their financial
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stability can be maintain in more effective manner. It can be affected because of climate
change, waste management in retailing sectors and other aspects those are associated with
the operations of an organisation.
 Changing in regulation: It can be said that by the modification in various rules and
regulation regarding production processing of any business units can leads to impacts
more on company;s financial performances (Snyder and Robert, 2011).
Assessing financial viability:
In order to analyse financial viability, managers needs to make use of corrective tools and
techniques that can assist them to determine current financial position of the company. It should
be identified with the scale, nature and all relative risk that are available in a project (JB HI FI,
2018). The company needs to conduct viability assessment in order to control costs and time for
an organisation. In business sense, it is an ability for any business form to survive ultimately
connected to financial performance as well as their present position. This seems to make
strategies for analysing total return as profit they are getting during an accounting period. This is
more sufficient to deliver positive return in order to make business more safe and secure in
meeting future aims and objectives.
It has been notice that if it is related with financial viability of JB HI FI company
performances. There are certain tools are required to be useful in for the purpose of making
proper assessment where any crucial investment is considered. Some of the tools that can
applicable in this context are mention underneath:
Return on investment: It is known as crucial facts that a company needs to gather from
different sources in order to make any long term investments planning. This amount is helpful to
create assets and operations that use to incur sufficient amount of surplus for an organisation.
Depreciation: As it has been seen that depreciation can reduce the profit. It is a non cash
provision which make in recovering the real investment. Hence, cash gains of an organisation is
maximum to extent of depreciation. Viability aspects help the company to overcomes the
restriction of traditional financial analysis tools in addressing total risk and quality present
internally in the department. In case of any particular company, a financial analysis needs to
conduct a well organise analysis by targeting its various statements such as income and balance
sheet.
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Debt services coverage ratio: For the purpose of running an organisation with the help
of financial support from various financial institutions they needs to grab loans from them and in
context to this they needs to paid interest as well.
However, continuous financial analysis can ensure timely change in planning of business
for the betterment of an organisation goodwill (Elterich and Fmr Llc, 2011).
There are some specific events that make huge impacts on world economy in present
time. With the increase in new product into market can carries some kind of financial implication
that leads to make increase and decrease in profitability of an organisation. JB HI FI is intent on
enhancing on increasing its share from $ 20 billion in consumer electronic and other appliance
markets. These are seen with the strongest increase in sales and earning rate. Hence, the financial
crisis is listed on its current status as one of the biggest Australian best retailer company which is
dealing in electronic segment of products and services.
Impacts of GFC: The global financial crisis is most common believed that has started
with the rise in credit crunch. The financial cause by inappropriate regulation in the financial
sectors that assists bank to involve in hedging capital trading with other other derivatives. At that
time bank asked to support the profitable sales of those useful derivatives. It is an economic
implications that are experience by marketers and various consumer of JB HI FI.
Supply chain network at JB HI FI:
They are attaining flexibility in their supply chain network by integrating its supply of
products from importing then from international or domestic suppliers. They are equipped with
executive buying authorities planning. They are using real time tracking system which allows
them to take valuable decision making process. The issues with JB HI FI is that it has high
categories of goods to sell but they required bit more modification in supply chain management
to track supply of products (Oh, Yang and Lee, 2012).
Impacts of finance on financial statements
In every business organisation, it is necessary for them to make proper analysis of their
financial statements so that chances of getting better results can be create in more quick time.
Finance is utilised by JB HI FI company in accordance to manager and control various operation
of their department for the purpose of evaluating specific activities of an organization. Financial
statements consists of crucial information about implications can that is used by the company to
meet out its every day requirements. Some of them are discuss underneath:
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Balance sheet: It is known as one of the main financial statements which is used to
record various information about total assets and liabilities of the company. It is more reliable
report which is helpful for outside investors to determine current year financial position of the
company. This would provide more relevant idea for investors about total assets and debts
carried by JB HI FI limited (Bridoux and Stoelhorst, 2014).
Profit and loss statement: It is known as perfect account that represent an organisation
an idea about total income and gains which is credited or expenses are debited. This is used to
analyse total net profitability and loss occur by the company from use of available resources in a
specific period of time. With any extra involvement of financial transaction can impact directly
to their financial performances.
Ratio Analysis:
Ratio Analysis
Liquidity ratio Formula 2017 2016
Current ratio Current assets/ Current liability 1.32 1.57
Acid test ratio
liquid assets(Current assets- stock) / Current
liability 0.35 0.35
Profitability ratio Formula 2017 2016
Gross profit ratio Gross profit/Total sales *100 21.86 21.88
Net profit ratio Net profit /Total sales *100 3.06 3.85
Return on assets Net income /Average total assets*100 7.03 15.34
Return on equity Net income/ Average total equity*100 20.2 37.61
Return on capital
employed EBIT/ Avg. Total capital 36.26 55.65
Leverage Ratio
Debt equity ratio Long term debts/Equity fund 0.65 0.27
Interest coverage ratio EBIT/ Interest charges -28.93 -57.74
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According to the above calculated ratio's which has been effectively use for the purpose
of making positive analysis of present year performance with last year. These are computed by
taking necessary information from income statements as well as balance sheet of JB HI FI
limited. The data is selected for two year such as 2017 and 2016. These two sources of financial
statements are more reliable for making proper analysis of company's present year fluctuation. In
case of liquidity position of the company: It is used to determine total liquidity aspects of the
company whether they are able to meet out its outstanding liabilities in short-term basis or
having large amount as outstanding (Kardes and et. al., 2013). This will help to collected more
useful information for investors to make decision before taking any consideration about capital
investment. It consists of various ratios such as:
Current ratio is 1.32 times which means that current assets are 1.32 time more as compare
to its current liabilities. It means that company is sufficiently able to meet out its requirements
of cash-flows in an accounting year. Whereas, by the help of acid test ratio it has been found that
in both year they are having same position. There is not much different in terms of outcomes
because in last year 2016 it was 0.35 which again the same in 2017.
Profitability analysis: It is used to determine company's profitability position by
measuring management overall effectiveness by identifying total returns on business as a whole.
It consists of various lists of ratios that can help a company to analysis its chances of getting
higher productivity (Massingham, 2014). Some of them are mention underneath:
Gross profitability ratio of the company as well as net profit both are consistence in both
the year. They are sufficiently effective enough in accordance with profitability they are getting
in every year. They are performing well as compare to its other competitors and other businesses.
This means that they are neither making any extra investments for the purpose to make further
planning. 21.8 % of gross margin they are getting from their total sales of electronic products in
a financial year. However, they are getting minimum return from its total assets. It is just 7.03 in
2017 which is much higher with 15 % in last year. Likewise, in case of ROE and ROCE they all
are getting low return from previously. In accordance to making further expansion of their
businesses it must be higher so that profitability can be enhanced. It is more sustainable for the
purpose of increasing wealth of an organisation. They need to increase their production capacity
so that changes of getting more superior and healthy return can get increase. It will be helpful for
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the investors to make investments after making proper analysis about financial condition of the
company.
Leverage ratio: It is use to measure the total amount of capital provided by owners as
compare to its cost of capital deliver by creditors. It is basically, the extent to which a firm has
been financed through using its total debt (Coombs,2014). The interpretation can be done by
analysing crucial ratio's that are associated with this. It has been seen that if higher will be the
ratio, it will create more risk for creditor. Henceforth, high ratio make it hard to get credit
amount from any financial institution. A figure of 0.5 or less is more suitable for Leverage ratio.
According to the information collected from debt equity ratio is high in 2017 with 0.63
from last year. Whereas, interest coverage ratio's is much more positive in sufficient enough for
the company.
CONCLUSION
From the above project, it has been analysed various financial aspects of the company.
The main focus was to evaluate financial performance and position in present time. This project
help in examining various important ways through financial position of JB HI FI company can
be analyse in more effectively. Various implication that are affecting them to reach at their goal
would be evaluated to perfectly so that chance of getting maximum return can be enhance. Use
of financial ratio's to analyse present year position has been done clearly.
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REFERENCES
Books and Journals:
Broadbent, M. and Cullen, J., 2012. Managing financial resources. Routledge.
Renz, D.O. and Herman, R.D. Eds., 2016. The Jossey-Bass handbook of nonprofit leadership
and management. John Wiley & Sons.
Cascio, W., 2018. Managing human resources. McGraw-Hill Education.
Cases, M. and et. al., 2011. Managing organizational resources. U.S. Patent 7,987,110.
Epstein, M.J. and Buhovac, A.R., 2014. Making sustainability work: Best practices in managing
and measuring corporate social, environmental, and economic impacts. Berrett-Koehler
Publishers.
Snyder, J. S. and Robert, A. B., 2011. System for scheduling classes and managing educational
resources. U.S. Patent 8,052,426.
Elterich, S., Fmr Llc, 2011. Financial account management. U.S. Patent 8,069,113.
Oh, J., Yang, J. and Lee, S., 2012. Managing uncertainty to improve decision-making in NPD
portfolio management with a fuzzy expert system. Expert Systems with Applications.
39(10). pp.9868-9885.
Kardes, I. and et. al., 2013. Managing global megaprojects: Complexity and risk management.
International Business Review. 22(6). pp.905-917.
Massingham, P., 2014. An evaluation of knowledge management tools: Part 1–managing
knowledge resources. Journal of Knowledge Management. 18(6). pp.1075-1100.
Coombs, W. T., 2014. Ongoing crisis communication: Planning, managing, and responding.
Sage Publications.
Bridoux, F. and Stoelhorst, J. W., 2014. Microfoundations for stakeholder theory: Managing
stakeholders with heterogeneous motives. Strategic Management Journal. 35(1).
pp.107-125.
Online
JB HI FI. 2018.[Online]. Available through:
<https://www.jbhifi.com.au/General/Corporate/Consumer-Matters/About-Us/>.
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APPENDIX:
I): Profit and loss statements of JB HI FI limited company
Income statement All numbers in thousands
Revenue 30/06/2017 30/06/2016
Total revenue 56,28,000 3954500
Cost of revenue 43,97,500 3089100
Gross profit 12,30,500 865400
Operating expenses
Research development -0 -0
Selling general and administrative 8,64,900 605600
Non-recurring -0 -0
Others 56,100 34600
Total operating expenses 5318500 3729300
Operating income or loss 3,09,500 225200
Income from continuing operations
Total other income/expenses net -50300 -7400
Earnings before interest and taxes 3,09,500 225200
Interest expense -10700 -3900
Income before tax 2,59,200 217800
Income tax expense 86,800 65600
Minority interest -0 -0
Net income from continuing ops 1,72,400 152200
Non-recurring events
Discontinued operations -0 -0
Extraordinary items -0 -0
Effect of accounting changes -0 -0
Other items -0 -0
Net income
Net income 1,72,400 152200
Preferred stock and other adjustments -0 -0
Net income applicable to common shares 1,72,400 152200
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II): Balance sheet statements of JB HI FI Limited
Balance sheet (All numbers in thousands)
Period ending 30/06/17 30/06/16
Current assets
Cash and cash equivalents 72,800 51900
Short-term investments - -
Net receivables 1,96,600 98000
Inventory 8,59,900 546400
Other current assets 11600 3000
Total current assets 11,70,700 702400
Long-term investments - -
Property plant and equipment 208200 183600
Goodwill 7,36,300 49500
Intangible assets 2,90,300 49000
Accumulated amortisation - -
Other assets 46,800 7800
Deferred long-term asset charges - 7800
Total assets 24,52,300 992300
Current liabilities
Accounts payable 5,83,700 302100
Short/current long-term debt 5,59,400 109700
Other current liabilities 2,04,000 77,,300
Total current liabilities 8,85,800 446800
Long-term debt 5,58,800 109700
Other liabilities 1,54,200 31100
Deferred long-term liability charges - -
Minority interest - -
Negative goodwill - -
Total liabilities 1598800 587600
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