Introduction. Financial Analysis. The topic for our rep

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IntroductionFinancial AnalysisThe topic for our report is Financial Analysis which is a process of evaluating businesses,projects, budgets and other finance-related entities to determine their performance is calledFinancial Analysis. Generally, financial analysis is used to analyse whether an entity is stable,solvent, liquid or profitable enough for the investment or not. For a company, financialanalysis is done by analysing the income statement, balance sheet and cash flow statement.[1]The aim of an analyst while doing financial analysis is to:To define financial policies for futureBuilding business plansIdentifying companies which are valuable to invest inFinancial Analysis is done by comparing ratios with other companies, the target company isperforming up to the industry trends, or with the historical data that if the company is growingor falling. For example, return on assets (ROA) is a common ratio used to determine howefficient a company is at using its assets and as a measure of profitability. This ratio could becalculated for several similar companies and compared as part of a larger analysis.Financial analysts often assess the following elements of a firm:Profitability- its ability to earn income and sustain growth in both the short- and long-term. Acompany's degree of profitability is usually based on the income statement, which reports onthe company's results of operations;Solvency- its ability to pay its obligation to creditors and other third parties in the long-term;Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations;Stability- the firm's ability to remain in business in the long run, without having to sustainsignificant losses in the conduct of its business. Assessing a company's stability requires theuse of both the income statement and the balance sheet, as well as other financial and non-financial indicators.Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):Past Performance- Across historical time periods for the same firm (the last 5 yearsfor example),Future Performance- Using historical figures and certain mathematical and statisticaltechniques, including present and future values, this extrapolation method is the mainsource of errors in financial analysis as past statistics can be poor predictors of futureprospects.Financial analysts can also use percentage analysis which involves reducing a series offigures as a percentage of some base amount. For example, a group of items can beexpressed as a percentage of net income. When proportionate changes in the same figureover a given time period expressed as a percentage is known as horizontal analysis. Verticalor common-size analysis, reduces all items on a statement to a “common size” as apercentage of some base value which assists in comparability with other companies ofdifferent sizes. As a result, all Income Statement items are divided by Sales, and all Balance
Sheet items are divided by Total Assets.Another method is comparative analysis. This provides a better way to determine trends.Comparative analysis presents the same information for two or more time periods and ispresented side-by-side to allow for easy analysis. [2]About The Company:JB Hi-Fi is an Australian and New Zealand retailer of consumer goods, specialising in videogames, Blu-rays, DVDs, CDs, electronics/hardware and home appliances.It is one of the fastest growing and most successful businesses of its kind. JB Hi-Fi's maincompetitors are Harvey Norman and The Good Guys, as well as Myer, David Jones andTarget Australia and Big WThe company has its Head Office at Chadstone Shopping Centre in Melbourne. There are112 stores alone combining VIC, NSW, ACT & TAS (South-East Australia).JB Hi-Fi was established in the Melbourne suburb of Keilor East by John Barbuto in 1975.Barbuto sold the business in 1983 to Richard Bouris, David Rodd, & Peter Caserta, whoexpanded JB Hi-Fi into a chain of ten stores in Melbourne and Sydney turning over $150million by 2000, when they sold the majority of their holding to private equity. It wassubsequently floated on the Australian Stock Exchange in October 2003.At first, the company specialised in Hi-Fi equipment. As the mainstream popularity of vinylrecords declined, in 1991 JB Hi-Fi cleared out their entire stock of records and began offeringexclusively CDs, and were one of the first Australian music retailers to do so. This allowed JBHi-Fi to open many new stores in Melbourne and later expand to other states. The chain nowhas stores all around Australia and in New Zealand's largest cities.Recently, while many music stores claim to have been losing money, JB Hi-Fi has increasedprofits by 26% FY10 when compared to 2008/2009. JB also specialises in imported CDs,mainly from the United Kingdom and the United States, although CDs from other places, suchas Africa, Asia and South America are available on special order.JB Hi-Fi has diversified its business from predominantly selling music CDs, and are now amajor retailer for numerous consumer electronics including Plasma and LCD televisions,audio/visual, digital camera photography, portable audio, in-car entertainment,computer/video games, gaming consoles and accessories, white goods (fridges and freezers)and DVD & Blu-ray movies, gadgets and information technology. As of 2012, JB HiFi hasdiversified into other accessories at certain stores, such as CB Radios, IP and fixedsurveillance camera systems, musical instruments such as guitars, electronic keyboards,Ukuleles and guitars, and professional DJ equipment such as CD mixers, microphones andportable DJ P/A docking systems.JB Hi-Fi is also the sole retail chain in Australia that sells Dell Computer hardware in retailstores.In June 2007 that JB Hi-Fi was Australia's biggest CD retailer and is second in terms of salesof computer games, televisions and car stereos.As of 7 June 2016, the company has 184 stores operating across Australia and 15 storesoperating in New Zealand. [3]
The caseThe questions in our case aims at understanding the financial statements specially thebalance sheet of JB Hi-Fi Limited.A balance sheet is a statement which shows the worth of a business at a given point of time, itis a statement which can depict the idea regarding a company’s financial position easily.Itdoes so by outlining the totalassetsthat a company owns and any amounts that it owes tolenders or banks known as the liabilities of the business. [4]The questions of our case aims at checking out our knowledge of the liability side of abalance sheet. The questions revolves around all the components of the liability side of thebalance sheet of JB Hi-Fi Limited:Current Liabilities-Current liabilities are a company's debts or obligations that are due withinone year, appearing on the company's balance sheet and includeshort termdebt,accountspayable, accrued liabilities and other debts.Essentially, these are bills that are due to creditors and suppliers within a short period of time.Normally, companies withdraw or cashcurrent assetsin order to pay their current liabilities.[5]Provisions-A provision can be a liability of uncertain timing or amount. A liability, in turn, is apresent obligation of the entity arising from past events, the settlement of which is expected toresult in an outflow from the entity of resources embodying economic benefits. [6]Non-current Liabilities-Noncurrent liabilities are those obligations not due for settlementwithin one year. These liabilities are separately classified in an entity's balance sheet, awayfrom current liabilities. [7]Ans-1Liabilities of a company is the amount that the company owes to its stakeholders or any otheroutsider. The liabilities of any company can be distributed in two types, one being the currentliabilities and the other one being the non-current liabilities.As can be derived from the name itself current liabilities are the company's debts or any kindof obligations that are short term in nature means which are due within a year and it alsoincludes short-term debt, accounts payable, accrued liabilities and other debts.After going through the financial statements of the JB Hi-Fi Limited for the financial year2015-2016 specifically the balance sheet, we can conclude that the current liabilities for theJB Hi-Fi limited hasincreasedin the financial year 2015-2016 as compared to the financialyear 2014-2015.The current liabilities for JB Hi-Fi Limited has increased by$66497000 (17.48 %)in thefinancial year 2015-2016.Screenshot from JB Hi-Fi Limited Annual Report
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