Financial Statement Analysis of JB Hi-Fi Limited

This report contains detailed analysis of financial statement of JB Hi-Fi Limited. JB Hi-Fi is a large Australian consumer goods retailer operating through numerous retail outlets and through online platform. They have been performing well since its imitation and as compared to their competitors. In this report, their financial and operational performance of JB Hi-Fi Limited is analysed based on the information available in their 2014 annual report. Lastly, the paper concludes with outlining some key success factors for their financial and operational Excellencies.

Running head: FINANCIAL STATEMENT ANALYSIS OF JB HIFI LIMITED
Financial Statement Analysis of JB Hi-Fi Limited
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Executive Summary:
This report contains detailed analysis of financial statement of JB Hi-Fi Limited. JB Hi-Fi is a
large Australian consumer goods retailer operating through numerous retail outlets and through
online platform. They have been performing well since its imitation and as compared to their
competitors. In this report, their financial and operational performance of JB Hi-Fi Limited is
analysed based on the information available in their 2014 annual report. Lastly, the paper
concludes with outlining some key success factors for their financial and operational
Excellencies.

2FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Table of Contents
Introduction:....................................................................................................................................4
Part A:..............................................................................................................................................4
1. Financial performance and financial position parameters based on 2014 Annual report of JB
Hi-Fi:............................................................................................................................................4
2. Normal balance of above accounts and effects for decrease in balance:.................................5
Part B:..............................................................................................................................................7
1. Different types of revenues generated by consolidated group of JB Hi-Fi:............................7
2. Assets classification of JB Hi-Fi:............................................................................................7
3. Categories of JB Hi-Fi group’s equity and number of ordinary shares:..................................8
4. Current Liability for dividends and dividend calculations:.....................................................8
5. Comparison of dividend per share with earnings per share:....................................................9
Part C:............................................................................................................................................10
Requirement 1:...........................................................................................................................10
Requirement 2:...........................................................................................................................11
Conclusion:....................................................................................................................................11
Bibliography:.................................................................................................................................12

3FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Introduction:
Financial statement analysis is a tool to analyse the financial and operational performance
of an organisation based on the figures available in the annual report1. JB Hi-Fi Limited’s
financial performance and financial position can be analysed classifying the information in
various groups. To achieve that purpose, their financial parameters have been pointed and
interpreted meaningfully to understand their financial strengths and weaknesses.
Part A:
1. Financial performance and financial position parameters based on 2014 Annual report
of JB Hi-Fi:
Financial Performance and
Financial position parameters
Figures from
Annual report 2014 Brief Interpretation
Cash and cash equivalents $43,445,000
Cash and cash equivalent includes liquid
cash and any other short-term securities or
financial instruments which can easily be
converted into cash. It helps in maintaining
daily business activities and paying off short
term financial obligations.
Inventories $458,625,000
The total consolidated value of inventories
includes all the finished goods inventories
and semi finish goods inventories. They
value their closing inventory based on lower
of cost or market value whichever is lower.
Sales Revenue $3,483,755,000
Total sales revenue includes all the sales of
their subsidiaries. It is the main source of
earning of JB Hi-Fi.
Other Income $520,000 Other income of JB Hi-Fi includes interest
income and many other hedging gains. They
have presented it separately in their income
1 Easton, McAnally, and Zhang Sommers. "Financial Statement Analysis & Valuation, 5e." (2018).

4FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
statement and a respective foot not
explaining the details also included in the
notes.
Plant and Equipment $181,564,000
They have reported their total plant and
equipment in their annual report 2014 with a
detailed breakup of the block of assets
including accumulated depreciation. They
have shown their plant and equipment netted
with accumulated depreciation.
Interest Expenses (Finance
Costs) $8,845,000
They have reported their total finance costs
or the Interest expense in their annual report
with a note explaining the components of
their net finance costs.
Sales and Marketing Expense $365,694,000
They have reported a significant amount of
sales and marketing expenses in their 2014
annual report, which implies they have spent
a huge amount in the sales promotional
activities.
Occupancy Expenses $148,969,000
It includes expenses relating to occupying a
office or building. Expenses such as Rent,
Rates and taxes are included in It.
Trade and other payables $302,979,000
They have stated their trade and other
payables at amortised costs. Their trade and
other payables include, trade payables, GST
payables, other credits and accruals and
deferred incomes.
Borrowings (Non-current) $179,653,000
Their noncurrent borrowing mainly includes
unsecured bank loans. They are having a
significant amount of long-term borrowings
to finance their long-term financial needs.
2. Normal balance of above accounts and effects for decrease in balance:
Name of Accounts Normal Balance Effect of decrease in normal balance

5FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Cash and cash equivalents Debit
Normally the cash and cash equivalent have a
debit balance. It needs to be Credited for
decrease in the balance. Therefore, the credit
side is affected.
Inventories Debit
Inventory is a current assets. It also has debit
balance normally, and the credit side needs to
be increased for decreasing the balance of
inventories. Therefore, the credit side gets
affected.
Sales Revenue Credit
As per AASB, all the income accounts are
credited. Hence, normally it has credit
balance. To decrease the balance of sales
revenue, it is to be debited.
Other Income Credit
As like Sales revenue, this one also has a
credit balance normally, and the debit side is
affected for decrease in the balance.
Plant and Equipment Debit
Plant and Equipment is a Fixed asset and
have debit balance normally. To decrease the
balance of such account, its credit side gets
affected.
Interest Expenses (Finance
Costs) Debit
As it is an expense, normally it has a debit
balance, and to decrease its balance, it needs
to be credited.
Sales and Marketing Expense Debit
It also have a debit balance normally ant to
decrease the balance credit side of the
account gets affected.
Occupancy Expenses Debit
Occupancy expenses also have a debit
balance favourably and the credit side of the
account gets affected for decrease.
Trade and other payables Credit
It is a current liability and has a credit
balance normally. It needs to be debited for
decrease in the balance of the account.
Borrowings (Non-current) Credit This is a long-term liability. It has a credit
balance favourably, and it needs to be

6FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
debited for decreasing the balance.
Part B:
1. Different types of revenues generated by consolidated group of JB Hi-Fi:
JB Hi-Fi is having various subsidiaries operating in different business segments. Their
retail segment earns revenue from retail sale of goods through retail outlets and online stores.
Some of their subsidiary acts as a subsidiary to other companies and they earn commission as the
revenue from those services2. They are also rendering various services to their clients and
customers and they earn service revenue from there. Some of their subsidiaries provide various
such services where from they earn subscription revenue. Their total revenue also includes some
interest income and dividend income from some deposits and investments.
Therefore, it can be concluded that they have generated their total revenue from retail
selling of various consumer goods and rendering of various services and it also includes some
interest and investment incomes.
2. Assets classification of JB Hi-Fi:
JB Hi-Fi reported $859,841,000 of total assets in their balance sheet. They have presented
their total assets classifying in two broad heads, Current assets and Noncurrent assts. Again they
have classified their assets in various groups and sub groups for better and clear presentation of
their financial position. Their total current assets include, cash and cash equivalent, trade and
other receivables, inventories and other current assets. Their total noncurrent assets include,
financial assets, plant and equipment, deferred tax assets and intangible assets, which includes
goodwill. They have reported sufficient amount of information in the notes of the financial
statement to explain the components of their assets3.
2 JB Hi-Fi Limited. (2014). JB Hi-Fi Annual report 2014 [Ebook]. Auustralia. Retrieved from http://Feltham, Gerald
A., and James A. Ohlson. "Valuation and clean surplus accounting for operating and financial activities."
Contemporary accounting research 11.2 (1995): 689-731.
3 JB Hi-Fi Limited. (2014). JB Hi-Fi Annual report 2014 [Ebook]. Auustralia. Retrieved from http://Feltham, Gerald
A., and James A. Ohlson. "Valuation and clean surplus accounting for operating and financial activities."
Contemporary accounting research 11.2 (1995): 689-731.

7FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
3. Categories of JB Hi-Fi group’s equity and number of ordinary shares:
Equity section of the balance sheet shows the owners interest in the business. JB Hi-Fi
reported $294,262,000 of total equity in their balance sheet. Their total equity includes,
Contributed equity, reserves and retained earnings. Contributed equity includes the issued and
paid up value of their common shares and share options. Reserves include some general and
special purpose reserves. The retained earnings include accumulated balance of income
unattributed to the shareholders. It can be observed from their balance sheet that, most of the part
of their total equity consists the retained earnings.
They have reported 98,947,309 numbers of ordinary shares issued and paid up as at 30th
June 2014. Each fully paid ordinary share carries one voting right4.
4. Current Liability for dividends and dividend calculations:
They had declared and paid an interim dividend in the year 2014 and they have duly
recognised in their books of account. Later on they have declared 29 cents per share as final
dividend totally $28,695 which is payable. Hence, it includes in their current liability for
dividend.
They have declared a total dividend of 84 cents per ordinary shares in the year 2014
including the final dividend. If 100 ordinary shares are held, then total dividend receivable can
be computed as under.
Computation of total dividend receivable for 100 ordinary shares:
Interim Dividend declared, paid and recognized $ 0.55
Final Dividend $ 0.29
Total dividend per share for 2014 $ 0.84
Number of shares held 100
Total Dividend for 100 shares $ 84.00
4 JB Hi-Fi Limited. (2014). JB Hi-Fi Annual report 2014 [Ebook]. Auustralia. Retrieved from http://Feltham, Gerald
A., and James A. Ohlson. "Valuation and clean surplus accounting for operating and financial activities."
Contemporary accounting research 11.2 (1995): 689-731.

8FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
The company declared an interim dividend of 55 cents per share in 2014 and in August
2014, they have declared a finance dividend of 29 cents per share in addition. Therefore, they
have declared a total 84 cents dividend per share in the year 2014.
Computation of total dividend per share for 2014
Cents
Interim dividend 55
Final dividend 29
Total dividend per share 84
From the 2014 annual report of JB Hi-Fi, note number 31 in page 93, dividend section, it
can be noticed that they have paid 29 cents per share of final dividend per share in the year 2014
relating to the year 2013. In amount, it becomes $21,973,0005.
5. Comparison of dividend per share with earnings per share:
In the above analysis, it can be seen that, they have paid a total of 84 cents of dividend
per share while they were having an EPS of 128.4 cents per share. Comparing these two figures,
it can be said that they have paid 65% of their earnings per share as dividend.
Computation of Dividend payout ratio for 2014
Earnings per share (EPS) in cents 128.40
Dividend per share (DPS) in cents 84.00
Dividend payout ratio (DPS/EPS) 65%
They have reported an after tax net operating profit of $128.36 million. On the other hand
they have paid a total of $28,695,000 amount of dividend. Therefore, their total paying out ratio
can be computed as follows.
5 JB Hi-Fi Limited. (2014). JB Hi-Fi Annual report 2014 [Ebook]. Auustralia. Retrieved from http://Feltham, Gerald
A., and James A. Ohlson. "Valuation and clean surplus accounting for operating and financial activities."
Contemporary accounting research 11.2 (1995): 689-731.
Computation of Payout ratio compared to profit for
2014
Net operating profit after tax (NOPAT) 128360000
Total dividend for the year 2014 28695000
Payout ratio (Dividend/NOPAT) 22%

9FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Part C:
Requirement 1:
Cash flow statement shows inflows and outflows of cash from various activities, which
are classified in three broad heads, operating activities, financing activities and investing
activities6. Based on that, following transactions’ effect on journals can be summarised as
follows.
Transaction Journal in which it will appear
a. Receipts from customers
It will appear in the journal recording collection from debtors. For
recording such transaction, cash account will be debited and the
accounts receivable account will be credited
b. Payment to suppliers and
employees
Payment to suppliers will appear in the payment journal recording the
payments made to the suppliers. To record this transaction, Accounts
payable accounts will be debited and cash account will be credited.
Payment to employees will be recorded in the payroll journal recording
payment of remuneration to the employees. To record such transaction,
Salaries and wages payable account will be debited and cash account
will be credited.
c. Dividend paid to members
of the parent company.
It will be included in the journal recording the payment of dividend. To
record the payment of dividend, Dividend payable account is to be
debited and cash account id to be credited
d. Payment for Property, Plant
and equipment
It will be appearing in the purchase of assets journal recording the event
of purchase of property, plant and equipment. To record this event,
property, plant and equipment account will be debited and cash account
will be credited
Requirement 2:
From the income statement, various revenues and expenses accounts balances can be
taken7. Based on those balances and nature of those accounts their effects can be summarised as
below.
6 Coates IV, John C. "Cost-benefit analysis of financial regulation: Case studies and implications." Yale LJ 124
(2014): 882.
7 Damodaran, Aswath. Damodaran on valuation: security analysis for investment and corporate finance. Vol. 324.
John Wiley & Sons, 2016.

10FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Transaction Journal in which it will appear
a. Cost of sales expense
It will appear in the journal recording cost of goods sold. To record the
transaction, the cost of sales account is debited and the inventory
account is credited.
b. Sales and marketing
expenses
Sales and marketing expenses account is also recorded in the payment
of expense journal. If the expenses is recognised at the time of payment
then, the expense account is debited and the cash account is credited
c. Other income It is an income, hence to record this transaction, the cash account is to
be debited and the other income account is to be credited
d. Occupancy expenses
This is a period expenses, it is recorded on due basis, when the payment
for rent, rates and taxes are made, the prepaid expenses account is
debited and the cash account is credited. At the time of recognising the
expense, the expense account is to be debited and the prepaid expense
account is to be credited.
Conclusion:
From the above financial statement analysis of JB Hi-Fi Limited, it can be concluded
that, they have been performing well in 2014, and by analysing there financial statement in the
view of above perspectives, various accounting techniques and relationships can be well
understood.

11FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Bibliography:
Baños-Caballero, Sonia, Pedro J. García-Teruel, and Pedro Martínez-Solano. "Working capital
management, corporate performance, and financial constraints." Journal of Business
Research 67.3 (2014): 332-338.
Berk, Jonathon, et al. Fundamentals of corporate finance. Pearson Higher Education AU, 2013.
Carter, Michael M. "Engine, system and method of providing cloud-based business valuation and
associated services." U.S. Patent No. 8,666,851. 4 Mar. 2014.
Coates IV, John C. "Cost-benefit analysis of financial regulation: Case studies and
implications." Yale LJ 124 (2014): 882.
Damodaran, Aswath. Damodaran on valuation: security analysis for investment and corporate
finance. Vol. 324. John Wiley & Sons, 2016.
Easton, McAnally, and Zhang Sommers. "Financial Statement Analysis & Valuation, 5e."
(2018).
Feltham, Gerald A., and James A. Ohlson. "Valuation and clean surplus accounting for operating
and financial activities." Contemporary accounting research 11.2 (1995): 689-731.
Fracassi, Cesare. "Corporate finance policies and social networks." Management Science 63.8
(2016): 2420-2438.
Healy, Paul M., and Krishna G. Palepu. Business analysis valuation: Using financial statements.
Cengage Learning, 2012.
Idowu, Samuel O., et al. Encyclopedia of corporate social responsibility. Vol. 21. New York:
Springer, 2013.
JB Hi-Fi Limited. (2014). JB Hi-Fi Annual report 2014 [Ebook]. Auustralia. Retrieved from
http://Feltham, Gerald A., and James A. Ohlson. "Valuation and clean surplus accounting for
operating and financial activities." Contemporary accounting research 11.2 (1995): 689-731.

12FINANCIAL STATEMENT ANALYSIS OF JB HI-FI LIMITED
Mathuva, David. "The Influence of working capital management components on corporate
profitability." (2015).
Mathuva, David. "The Influence of working capital management components on corporate
profitability." (2015).
Ross, Stephen A., et al. Corporate finance. McGraw-Hill/Irwin, 2013.
Trugman. Understanding business valuation: A practical guide to valuing small to medium sized
businesses. John Wiley & Sons, 2016.