Financial Analysis of JB Hi-Fi Limited: Understanding the Liability Side of the Balance Sheet
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Added on 2019-09-20
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This report provides an analysis of the liability side of the balance sheet of JB Hi-Fi Limited. It covers current liabilities, provisions, non-current liabilities, and more. The report also includes information about the company's history, competitors, and diversification.
Financial Analysis of JB Hi-Fi Limited: Understanding the Liability Side of the Balance Sheet
Added on 2019-09-20
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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 called Financial 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, financial analysis 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 is performing up to the industry trends, or with the historical data that if the company is growing or falling. For example, return on assets (ROA) is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated 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. A company's degree of profitability is usually based on the income statement, which reports on the 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 sustain significant losses in the conduct of its business. Assessing a company's stability requires the use 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 years for example),•Future Performance - Using historical figures and certain mathematical and statistical techniques, including present and future values, this extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis. Vertical or common-size analysis, reduces all items on a statement to a “common size” as a percentage of some base value which assists in comparability with other companies of different 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 is presented 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 video games, 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 main competitors are Harvey Norman and The Good Guys, as well as Myer, David Jones and Target Australia and Big WThe company has its Head Office at Chadstone Shopping Centre in Melbourne. There are 112 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, who expanded JB Hi-Fi into a chain of ten stores in Melbourne and Sydney turning over $150 million by 2000, when they sold the majority of their holding to private equity. It was subsequently floated on the Australian Stock Exchange in October 2003.At first, the company specialised in Hi-Fi equipment. As the mainstream popularity of vinyl records declined, in 1991 JB Hi-Fi cleared out their entire stock of records and began offering exclusively CDs, and were one of the first Australian music retailers to do so. This allowed JB Hi-Fi to open many new stores in Melbourne and later expand to other states. The chain now has 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 increased profits 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 a major 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 has diversified into other accessories at certain stores, such as CB Radios, IP and fixed surveillance camera systems, musical instruments such as guitars, electronic keyboards, Ukuleles and guitars, and professional DJ equipment such as CD mixers, microphones and portable DJ P/A docking systems.JB Hi-Fi is also the sole retail chain in Australia that sells Dell Computer hardware in retail stores.In June 2007 that JB Hi-Fi was Australia's biggest CD retailer and is second in terms of sales of computer games, televisions and car stereos.As of 7 June 2016, the company has 184 stores operating across Australia and 15 stores operating in New Zealand. [3]
The caseThe questions in our case aims at understanding the financial statements specially the balance 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. It does so by outlining the totalassetsthat a company owns and any amounts that it owes to lenders 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 a balance sheet. The questions revolves around all the components of the liability side of the balance 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,accounts payable, 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 a present 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 settlement within one year. These liabilities are separately classified in an entity's balance sheet, away from current liabilities. [7]Ans-1Liabilities of a company is the amount that the company owes to its stakeholders or any other outsider. The liabilities of any company can be distributed in two types, one being the current liabilities 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 kind of obligations that are short term in nature means which are due within a year and it also includes 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 year 2015-2016 specifically the balance sheet, we can conclude that the current liabilities for the JB Hi-Fi limited has increased in the financial year 2015-2016 as compared to the financial year 2014-2015.The current liabilities for JB Hi-Fi Limited has increased by $66497000 (17.48 %) in the financial year 2015-2016.Screenshot from JB Hi-Fi Limited Annual Report
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