Analysis and Recommendation for JB Hi-Fi Limited

The analysis of JB Hi-Fi Limited's financial statements and ratios reveals that while the company is expanding through investing activities, its profitability position appears to be improving with increasing operating cash flows. The major source of financing is equity, with debt representing a smaller portion. The current ratio indicates inefficient use of working capital, while the long-term solvency ratio suggests that the company's debt-to-equity ratio is relatively high compared to industry averages. The net profit margin and price earnings ratio are significantly lower than industry averages, indicating potential areas for improvement. Despite these weaknesses, the company has been able to provide positive returns to shareholders over the past five years. Therefore, it can be recommended that investors consider investing in JB Hi-Fi Limited.

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction to accounting and finance
Name of the student
Name of the university
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1INTRODUCTION TO ACCOUNTING AND FINANCE
Table of Contents
Part I – Introduction...................................................................................................................2
Part II – Industry situation and company plans..........................................................................2
Industry situation....................................................................................................................2
Future plans of the company..................................................................................................3
Part III – Financial statement analysis.......................................................................................3
Statement of financial performance.......................................................................................3
Statement of financial position...............................................................................................5
Statement of cash flows.........................................................................................................6
Part IV – Ratio analysis..............................................................................................................7
Part V – Conclusion...................................................................................................................8
Findings..................................................................................................................................8
Recommendation....................................................................................................................8
Decision and rational..............................................................................................................9
Reference..................................................................................................................................10

2INTRODUCTION TO ACCOUNTING AND FINANCE
Part I – Introduction
JB Hi-Fi is the largest retailer for home entertainment that established in Australia.
They are the market leader due to the competitive price, big brands and wide range of
products like headphones, iPads, wireless speakers, home theatre, mobile phones, laptops and
televisions. The company identifies the significance of environmental, social and governance
related matters towards the shareholders, customers and suppliers. Other details related to the
company are as follows –
 Name of the CEO – Mr Richard Murray since 1st July 2014
 Home office – Chadstone, Australia
 Closing date of the latest fiscal year – 30th June 2017
 Primary service and products – the company is the speciality retailer for the products
related to home entertainment like headphones, iPads, wireless speakers, home
theatre, mobile phones, laptops and televisions.
 Primary geographic area of activity – Australia and New Zealand
 Name of independent auditor – Deloitte Touche Tohmatsu
 Auditor’s opinion on financial statement – as per the opinion of the independent
auditor the financial report of the company is in compliance with Corporation act
2001 and includes –
 The financial statement of the company presents the true and fair view of the financial
position of the company as on 30th June 2017 and the financial performance of the
company for the year ended on the mentioned date (JB Hi-Fi | JB Hi-Fi - Australia's
Largest Home Entertainment Retailer, 2017)
 Complies with the AAS (Australian Accounting Standards) and Corporation
Regulation act 2001.
 Most recent share price of the company - $ 23.37 as on 30th June 2017.
 Dividend per share –
 Final dividend as on 25th August 2017 – 46 cents
 Interim dividend as on 24th February 2017 – 72 cents

3INTRODUCTION TO ACCOUNTING AND FINANCE
Part II – Industry situation and company plans
Industry situation
JB Hi-Fi Limited belongs to the retail industry in Australia and though the retail
industry is becoming stronger as compared to the past years. Retailing sector in Australia
increased by 3% during 2016 with regard to the current value terms that is the growth line
recognized during the period. Though the growth is positive, it is slower as compared to the
year 2015 as the country became cautious regarding its discretionary spending owing to the
low growth in income (Post & Byron, 2015). Wesfarmers was the biggest retailer during
2016 along with it being the leader over all the multiple categories for retailing. Their value
growth was mainly driven by strong performance in home related products. Therefore, JB Hi-
Fi will continue to have a strong competition with Wesfarmers during the current year as well
as in the future years.
Further, retail industry in Australia is expected to grow at the value CAGR for 3% at
constant rate. This growth will mainly driven by the home entertainment, garden specialist
and internet retailing that are expected to grow owing to the increase in demand for new
home related products and new technologies adoption.
Future plans of the company
The solution from JB Hi-Fi is the key driver for their success. They will continue with
the plan of aggressive recruitment along with the expansion of the services and products they
offer. They are planning to set up the play in the integrating related products and the services
towards the education sector, government and business sectors through the JB Hi-Fi solutions
arm. Further, it is expected to provide $ 500 million per year with regard to sales through the
strategic acquisitions and organic growth (Hunjra & Bashir, 2014). Moreover, the company
has a plan to expand their store with regard to home branded to 75 from 43 outlets. Each new
outlet for JB Hi-Fi store contributes towards the growth of the customer awareness, supplier
support and market share. As per the CEO, Mr Murray, in association with the ongoing
investment towards the store wages, supply chain and staff training put the company in strong
position so that they can continue with the expansion.

4INTRODUCTION TO ACCOUNTING AND FINANCE
Part III – Financial statement analysis
Statement of financial performance
Determination of gross profit, net income and income from operation
Particulars
2013($
m)
2014($
m)
2015($
m)
2016($
m)
2017($
m)
Gross profit 699 739 798 865 1231
Income from
operation 178 191 201 221 268
Net income 116 128 137 152 172
Gross profit - It is identified from the above table that the gross profit of the company is in
increasing trend and it reached to $ 1,231 million for the year ended 2017 from $ 699 million
in the year 2013. Further, with the increase in revenue the company is able to increase its
gross profit from sales. Therefore the profitability position of the company seems good.
Income from operation - It is identified from the above table that the income from operation
of the company is in increasing trend and it reached to $ 268 million for the year ended 2017
from $ 178 million in the year 2013. Further, with the increase in revenue the company is
able to increase the income from operation from sales. Therefore, the profitability position of
the company seems good.
Net income - It is identified from the above table that the net income of the company is in
increasing trend and it reached to $ 172 million for the year ended 2017 from $ 116 million in
the year 2013. Further, with the increase in income from operation the company is able to
increase the net income from sales. Therefore, the profitability position of the company
seems good.
Trend analysis
HORIZONTAL ANALYSIS
Particulars
2013($m
) 2014($m)
2015($m
) 2016($m) 2017($m) 2013 2014 2015 2016 2017
Gross profit 699 739 798 865 1231 100% 106% 114% 124% 176%
Income from
operation 178 191 201 221 268 100% 107% 113% 124% 151%
Net income 116 128 137 152 172 100% 110% 118% 131% 148%
Significant accounting policies

5INTRODUCTION TO ACCOUNTING AND FINANCE
The financial statement of the company has been prepared in compliance with the
IFRS (International financial reporting standard) that is issued by IASB (International
Accounting Standards board). Further, the general purpose financial statements are prepared
as per the AAS (Australian accounting standards and the interpretations released by AASB
(Australian accounting standard board) and Corporation act 2001.
Items different from industry norm
Though the retail industry in Australia is growing rapidly, the increase in gross
margin of the company seems to be unrealistic as the increase from 2016 to 2017 amounted
from $ 865 million to $1231 million.
Statement of financial position
Particulars
2013($m
)
2014($m
)
2015($m
)
2016($m
)
2017($m
)
Total Liabilities 600 565 552 588 1599
Shareholder’s equity 243 295 343 405 854
Total assets 843 860 895 993 2452
VERTICAL ANALYSIS
Particula
rs
2013($
m)
2013($
m)
2014($
m)
2014($
m)
2015($
m)
2015($
m)
2016($
m)
2016($
m)
2017($
m)
2017($
m)
Total
Liabilities
600 71% 565 66% 552 62% 588 59% 1599 65%
Sharehold
er’s equity
243 29% 295 34% 343 38% 405 41% 854 35%
Total
assets
843 100% 860 100% 895 100% 993 100% 2452 100%

6INTRODUCTION TO ACCOUNTING AND FINANCE
HORIZONTAL ANALYSIS
Particulars 2013($m) 2014($m
)
2015($m) 2016($m) 2017($m
)
2013 2014 2015 2016 2017
Total Liabilities 600 565 552 588 1599 100% 94% 92% 98% 267%
Shareholder’s
equity
243 295 343 405 854 100% 121% 141% 167% 351%
Total assets 843 860 895 993 2452 100% 102% 106% 118% 291%
Significant accounting policies
Property and equipment – the impairment loss with regard to the assets is recognised where
the varying amount is more than the recoverable amount. Further, the assets is derecognised
when it is probable that the there will be no economic benefits that will arise from the asset or
the asset is disposed off (Wagner, Block, Miller, Schwens & Xi, 2015).
Inventories – inventories are shown in the balance sheet at the lower among the net realisable
value and cost. Determination of net realisable value is depended upon the key assumptions
those are required under the management judgement.
Receivables – the receivables are reviewed on continuous basis. Allowance for the bad debt
is is used when it is probable that the amount will not be collected. Further, the amount of the
allowance for impairment is the difference between carrying amount of the asset and the
amount that is expected to be collected.
Goodwill – goodwill is measured as the excess of cost of acquisition over its fair value for the
company’s share of net recognizable asset at the acquisition date
Intangibles – Other intangible assets like location premiums, rights to share of profit and
brand names are measured as they have indefinite asset life. These assets are carried in the
balance sheet at the cost reduced by the accumulated losses for impairment (Bailey, Price,
Pyman & Parker, 2015).
Items different from industry norm

7INTRODUCTION TO ACCOUNTING AND FINANCE
Though the retail industry in Australia is growing rapidly, the increase in total assets
of the company seems to be unrealistic as the increase from 2016 to 2017 amounted from $
993 million to $2452 million.
Statement of cash flows
Particulars
2013($m
)
2014($m
)
2015($m
)
2016($m
)
2017($m
)
Operating cash flow 178 191 201 221 268
Net income 116 128 137 152 172
Net income % 65% 67% 68% 69% 64%
It can be identified that the net income percentage after deducting the expenses from
operating cash flows are in increasing trend. Therefore, it can be said that the profitability
position of the company is improving along with the increase in operating cash flow of the
company (Graves & Shan, 2014).
It is recognized that the company is sufficiently expanding though the investing
activities and it increased from $38 million in 2013 to $ 886 million in 2017. However, the
increase from the year 2016 to 2017 was significant as the increase was from $ 52 million to
$ 886 million seems unrealistic.
The most important source of financing for the company is through equity as more
percentage of finance is raised through equity as compared to raising through debt. During
the year ended 30th June 2016, shareholder’s equity represents the amount of $854 million
whereas, the amount of debt amounted to $ 559 million.
Item 2013($m) 2014($m) 2015($m) 2016($m) 2017 ($m)
Cash 67 43 49 52 73
It can be identified from the above table that there is no specific trend for the cash of
the company over the past five years. During 2013, the amount of cash under balance sheet
was amounted to $ 67 million and started decreasing and reached to $ 52 million in 2016.
However, during 2017 it again increased and reached to $ 73 million.
The major points of interest regarding the above findings concerning the cash flow
statement is that with regard to investing activities, the increase from the year 2016 to 2017
was significant as the increase was from $ 52 million to $ 886 million seems unrealistic.

8INTRODUCTION TO ACCOUNTING AND FINANCE
Further, the net cash provided from financing activities were in negative till the year 2015.
However, it went up to $716 million at the closing of the period 30th June 2017. The reason
behind this must be found out.
Part IV – Ratio analysis
TYPE FORMULA 2013 2014 2015 2016 2017
Industr
y
average
liquidity ratio
Current ratio
Current asset/current
liabilities 1.27 1.64 1.62 1.57 1.32 1
long term solvency
ratio
Debt-Equity ratio Total debt/total equity 0.51 0.21 0.41 0.27 0.65 0.5
profitability ratio
Net profit margin Net profit/net sales *100 3.52 3.69 3.74 3.85 3.06 7%
cash flow adequacy ratio
Cash flow to asset ratio
Cash flow from
operation/total assets 0.19 0.05 0.20 0.19 0.08 0.20
Market strength ratio
Price earnings ratio Price/earning
18.3
7 12.44 14.30 18.66 15.08
29
Analysis of the ratios
From the above table of ratios, it is recognized that the current ratio of the company
are moving around 1.27 to 1.64. However, during the year 2014, 2015 and 2016 it is more
than 1.50 that indicates that the company may not using their working capital efficiently.
Further, there is no specific trend for the solvency ratio. During the year 2013, 2015 and
2017, it was more or less as per the industry average (Bodie, 2013). However, for the year
2014 and 2016 it was significantly low as compared to the industry average. Further, the net
profit margin of the company for the last 5 years were significantly lower as compared to the
industry average and it was moving around 3% only. The cash flow from operation was as
per the industry average only for the year ended 2013, 2015 and 2016. However, for the other

9INTRODUCTION TO ACCOUNTING AND FINANCE
years the ratio was significantly low. Moreover, the price earnings ratio of the company
almost half for all the years as compared to the industry average.
Part V – Conclusion
Findings
It is found from the above analysis that the company is performing steadily. However,
the net profit margin of the company of the company for the last 5 years was significantly
lower as compared to the industry average of 7% and it was moving around 3% only. Further,
the price earnings ratio of the company for all the years under consideration is considerably
low as compared to the industry average of 29.
Recommendation
As the net profit margin of the company is significantly low as compared to the
industry average, the company shall find out the areas of wastages and minimize the expenses
as far as possible. Further, the company shall try to create shareholder’s value through
generating income from sales and increasing the shareholders value.
Decision and rational
As it is identified that the company’ performance with respect to all aspect are in
increasing trend and company is regular in payment of dividend to the shareholders. Though
the price earnings ratio is lower as compared to the industry average, it is found that the
company is able to provide positive return to the shareholders throughout the period of 5
years that is under consideration. Therefore, it will be a good decision to invest in JB Hi-Fi
Limited.

10INTRODUCTION TO ACCOUNTING AND FINANCE
Reference
Bailey, J., Price, R., Pyman, A., & Parker, J. (2015). Union power in retail: contrasting cases
in Australia and New Zealand. New Zealand Journal of Employment Relations
(Online), 40(1), 1.
Bodie, Z. (2013). Investments. McGraw-Hill.
Graves, C., & Shan, Y. G. (2014). An empirical analysis of the effect of internationalization
on the performance of unlisted family and nonfamily firms in Australia. Family
Business Review, 27(2), 142-160.
Hunjra, A. I., & Bashir, A. (2014). Comparative Financial Performance Analysis of
Conventional and Islamic Banks in Pakistan. Bulletin of Business and Economics
(BBE), 3(4), 196-206.
JB Hi-Fi | JB Hi-Fi - Australia's Largest Home Entertainment Retailer. (2017). Jbhifi.com.au.
Retrieved 13 September 2017, from https://www.jbhifi.com.au/
Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-
analysis. Academy of Management Journal, 58(5), 1546-1571.
Wagner, D., Block, J. H., Miller, D., Schwens, C., & Xi, G. (2015). A meta-analysis of the
financial performance of family firms: Another attempt. Journal of Family Business
Strategy, 6(1), 3-13.