Investment Analysis and Portfolio Management Project Report

This report analyzes the financial and strategic performance of JB HI FI and Commonwealth Bank of Australia using ratio analysis, strategic analysis, and non-financial tools. It also examines the impact of trade war on the industries and ethical behavior of professional fund managers.

Running Head: Investment Analysis and Portfolio Management
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Project Report: Investment Analysis and Portfolio Management

Investment Analysis and Portfolio Management
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Contents
Introduction.......................................................................................................................3
Ratio analysis....................................................................................................................3
Strategic analysis and business description......................................................................5
JB HI FI:.......................................................................................................................5
Commonwealth bank of Australia:...............................................................................6
Trade war effect on the industries....................................................................................7
Ethical behavior of professional fund managers..............................................................8
Recommendation and conclusion...................................................................................10
References.......................................................................................................................11
Appendix.........................................................................................................................13

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Introduction:
Investment analysis takes the help of financial analysis tools and non financial tools to
measure the performance of the business. Financial analysis tools include ratio analysis, trend
analysis, cost of capital analysis etc. Whereas, the non financial tools include strategic
analysis, economical performance, industry level etc to identify that whether the investment
into the company would offer great return to the company or not.
In the report, a retail company, JB HI FI and a bank, commonwealth bank of
Australia, has been takes into the concern to apply the approach of investment analysis. In the
paper, ratio analysis, strategic analysis, economical performance, industry level etc tools have
been applied on both the companies to reach over a conclusion about the performance of the
company.
Ratio analysis:
The study of ratio analysis has been performed on both the companies to measure the
overall financial performance and investment level of both the business. The ratio analysis
study on JB HI FI and commonwealth bank of Australia are as follows:
Profitability ratios:
Profitability ratios are one of the important ratios to identify the level of investment in
a business. It measures the profit generation ability of a business against the expenses and
turnover of the business (Madhura, 2014). In the report, profitability level of JB HI FI and
commonwealth bank of Australia has been measured.
The return on asset level of JBH briefs the reduction in the total performance. The
ROs level has been reduced because of improvement in the assets level. Further, the ROE
level of JBH also explains that the level has been reduced from 2016 in 2017. But in 2018, it
shows improved level. The gross profit margin of JBH is quite better. It explains that the
profitability position of JBH is quite better in 2018.
The return on asset level of CBA briefs the reduction in the total profits of the
business. The ROA level has been reduced because of reduction in the total profitability
level. Further, the ROE level of CBA also explains that the level has been reduced from 2016
in 2018, it shows improved level (Morningstar, 2018). The gross profit margin of CBA is

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quite better. It explains that the profitability position of CBA has been improved but the total
profits are quite lower against the profits of JBH.
Liquidity ratios:
Liquidity ratios are one of the important ratios to identify the level of investment in a
business. It measures the debt payment ability of a business against the availed current assets
(Higgins, 2012). In the report, liquidity level of JB HI FI and commonwealth bank of
Australia has been measured
The current liquidity ratio level of JBH briefs the reduction in the total debt payment
ability of the business. But the level is better in the industry. Further, the quick liquidity level
of JBH explains about a similar level in the industry (Morningstar, 2018). It explains that the
overall level of the business is better in terms of managing the liquidity level.
Further, the current liquidity ratio level of CBA briefs the improvement in the total
debt payment ability of the business. But the level is still lower. Further, the quick liquidity
level of JBH explains about a similar level in the industry. It explains that the overall level of
the business is better and still, company is suggested to improve the level of current assets a
bit.
Financing gearing ratios:
Financial gearing ratios are one of the important ratios to identify the level of capital
funds in a business (Gapenski, 2008). It measures the different source of funds of the
business. In the report, gearing level of JB HI FI and commonwealth bank of Australia has
been measured
The debt to asset ratio level of JBH briefs the improvement in the total debt level
against the assets. But the level is required to be improved more. Further, the asset turnover
level of JBH explains about a better position of turnover against the total assets. It explains
that the better gearing level of JBH.
The debt to asset ratio level of CBA briefs the improvement in the total debt level
against the assets. But the level is required to be improved more. Further, the asset turnover
level of JBH explains about a better position of turnover against the total assets still, few
more improvement could be done in the business.
Asset efficiency ratios:

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Asset efficiency ratios are one of the important ratios to identify the level of capital
funds in a business (Krantz, 2016). It measures the cash conversion cycle of the business. In
the report, efficiency level of JB HI FI and commonwealth bank of Australia has been
measured
The inventory turnover and debtors turnover level of JBH briefs the reduction in the
total turnover days. It explains that the activities could be managed by the business is lower
capital as well. On the other hand, the inventory turnover and debtors turnover level of JBH
briefs the reduction in the total turnover days (Kinsky, 2011). It explains that the activities
could be managed by the business is lower capital as well.
The overall evaluation on the companies, JB HI FI and commonwealth bank of
Australia explain that the financial performance of both the companies is strong in their
respective industry. The financial strategies and polices are competitive to help the business
to improve their overall level and market performance.
Strategic analysis and business description:
The study business description and strategically analysis has been performed on both
the companies to measure the overall non financial performance and investment level of both
the business. The strategic analysis study on JB HI FI and commonwealth bank of Australia
are as follows:
JB HI FI:
JB HI FI is among the most leading companies in the Australian market in the
retailing industry of Australia. The company is working since a long time in the Australian
market’s retail industry and it has diversified the market into various new segments and the
market to improve the overall position of the companies. After the acquisition of “the good
guys” the performance of the business has improved at great level. The company is among
the top ASX 100 companies which are registered by the name of JBH (Home, 2018). Total
303 stores are owned by the company in the Australian and New Zealand market. For the
strategically analysis of the company, porter’s five forces model has been evaluated which
are as follows:
Thereat of new entrants:

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The entry of new firms in the industry is quite easier as there are no barriers to enter
into the industry. However, the JB HI FI has managed a great level in the market and it is
leading the industry so the level of thereat is quite lower.
Bargaining power of suppliers:
The bargaining power of suppliers in the industry is quite higher as the firms are in
huge numbers and the suppliers are few so they are in the position to manipulate the prices.
However, the JB HI FI has managed good connection among the suppliers which reduce the
threat for JB HI FI.
Bargaining power of buyers:
The bargaining power of buyers in the industry is quite higher as the firms are in huge
numbers and the buyers are in the position to manipulate the prices. However, the JB HI FI’s
products are different and the brand loyalty is also higher which makes the company more
competitive (Lord, 2007).
Threat from the substitute products:
The threat from the substitute products in the industry is quite higher because various
companies are offering similar products in lower prices. The JBH is recommended to
introduce new technologies and innovation in the product to manage the performance.
Rivalry among the already existing companies in the industry:
The rivalry level among the already existing firms is lower because the JBH is leading
the industry and the market position of the company is higher.
Commonwealth bank of Australia:
Commonwealth bank of Australia is among the most leading banking companies in
the Australian market in the banking industry of Australia. The company is working since a
long time in the Australian markets. It has refined the new ways and technologies to work
efficiently and effectively in the market. The company has launched various new segments in
the market to improve the products and services of the banking industry. The company is
among the top 4 banks of the Australian market. The company is among the top ASX 100
Company which is registered by the name of CBA (Home, 2018). For the strategically
analysis of the company, porter’s five forces model has been evaluated which are as follows:

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Thereat of new entrants:
The entry of new firms in the industry is quite tough as huge investment is required as
well as approval from the reserve bank of Australia is also necessary so the threat level is
lower in the industry.
Bargaining power of suppliers:
The bargaining power of suppliers in the industry is quite higher as the firms are in
huge numbers and the RBA is in the position of supplier. It could make the changes into any
policy at any time.
Bargaining power of buyers:
The bargaining power of buyers in the industry is quite lower as the firms are in huge
numbers but the rules of each firm are similar. Thus the level of threat is reduced (madhura,
2014).
Threat from the substitute products:
The threat from the substitute products in the industry is quite higher because various
companies are offering similar products in lower prices. The CBA is recommended to
introduce new technologies and innovation in the product to manage the performance.
Rivalry among the already existing companies in the industry:
The rivalry level among the already existing firms is higher because the top 4 banks
of the Australian market offers substitute product which could hamper the performance of the
business.
On the basis of the overall strategically position on both the companies, it has been
found that the management of strategies of both the companies are enough competitive in the
industry. Both the companies are leading companies in their respective industry and the
market and financial performance of both the companies are also better.
Trade war effect on the industries:
Trade war is an economical conflict which rises among the two or more countries. In
this process, a state creates the trade barrier in other state to downwards the economical
performance of that state. Currently, the United States has created a barrier in the china

Investment Analysis and Portfolio Management
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market and Australian market (Reuters, 2018). The new trade policies of trump government
have affected the trade of Australian market at huge level. The study on the retail industry
and Bank industry has been done to measure the impact of trade war on the JB HI FI and
commonwealth bank of Australia.
On the basis of the study on the retail industry of Australia, it has been found that the
trade war has affected the performance of retail industry at a huge level. The Australian
retailers have already started struggling into the market because of the trade war impact; the
export level of Australia has been affected at great level which has lowered the sales and total
turnover of retail industry of Australia (AFR, 2018). A report brief the trade war would create
harm on the Australian retail industry at huge level. The retail industry is one of the most
affected industries because of trade war. However, the Australian government and the retail
industry have made few strategies to help the economy from the breakdown level and
maintain the sales level of the business (CNBC, 2018). In case of JB HI FI, the impact of
trade war is fewer because of various areas of operations of the business.
Further, the study on the banking industry of Australia has been done. Through the
study, it has been found that the trade war would breakdown the entire economical position of
the Australian market. The banking industry of Australia is supposed to make few strong
policies and rules to reduce the level of impact on the industry. A report brief after the global
financial crisis, few changes have been done by reserve bank of Australia and due to those
policies, the banking firm would be enough strong to save itself from any harm because of
trade war (SMH, 2018). The banking industry is one of the huge industries of Australian
market and the policies of the industry would help the Australian economy from the
breakdown level and maintain the sales level of the business (CNBC, 2018). In case of
commonwealth bank of Australia, the impact of trade war is fewer because of great policies
and strategies.
Ethical behavior of professional fund managers:
Acting ethically and professionally is the fundamental principle of professional fund
managers. The mangers strive to achieve the level of professionalism and the ethical level.
But along with the time, and various scandals, it has been found that the professional fund
managers are not much active in their work and they are not working ethically which lead to
the higher scandals in the industry. One of the biggest examples of the unethical behaviour in

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the professional fund industry is Enron scandal. Because of lack of ethics, the scandal has
taken place in the industry. The professionalism and the ethics were not introduced in the
company which lead to such a big scandal in the industry (Kelly, 2012).
One of the other high profile scandals was done by Bernie Madoff. He stole millions
of dollar from the business. He has wiped out various retirement accounts and nest eggs. He
is one of the biggest examples of lack of professionalism and integrity in the business. After
such scandals and issues in the industry, few new rules have been implied in the industry to
reduce the level of scandals and improve the level of trust in the industry. Some of the
guidelines for the professional fund managers are as follows:
Ethical behaviour:
This is among the main principles of professional fund managers. A manager could
manage all the assets of the client and make the investment decision through focusing on the:
integrity, competence, respect, diligently along with the ethical manner. A manager is
required to place the interest of client at first place which would help him to make a better
investment decision. In order to achieve the ultimate goal of capital market which benefits the
society, a manager is required to reflect the action on the society as whole.
Professionalism:
It is required for the manager to focus on the basic rule which is professionalism. A
manager should work professionally. He must keep the family and friend relationship aside
and manager is required to work in such professional and ethical manner that it could be
reflect on the action on the society as whole. Managers should not misrepresent their
performance, skill and process (Stewart, Piros and Heisler, 2011).
Capital market:
It is important for the professional fund managers to avoid the peers and friends in the
industry and must work with the integrity in the market. The best information should be
offered to the investors of the market about the companies in which they want to invest.
Conflict of interest:
At the time of arise the conflict of interest among the company and the stakeholders
of the business, a fund manager is required to work ethically a must done the correct way

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besides thinking that how strongly it would affect the position and the performance of the
business (Dent and Whitehead, 2013).
Clients:
The clients are the main people for whom the professionals work and paid. It is
essential for them to work ethically with them and offer them true information about the
companies and the asset in which they want to invest.
These principles would help the business to resolve the level of the scandal and
unethical practices in the industry and it would lead to the business towards better
performance.
Recommendation and conclusion:
Through evaluation on both the companies and their industry, it has been concluded
that both of them are leading companies and managing their operations at great level in the
industry. The overall financial evaluation on the companies, JB HI FI and commonwealth
bank of Australia explain that the financial performance of both the companies is strong in
their respective industry. The financial strategies and polices are competitive to help the
business to improve their overall level and market performance.
Further, the strategic position on both the companies explain that the management of
strategies of both the companies are enough competitive in the industry. Both the companies
are leading companies in their respective industry and the market and financial performance
of both the companies are also better. The trade war evaluation brief that both the companies
could maintain a better level in the industry and the trade war could not impact much at both
the companies.
Thus, it is concluded to the investors to buy and hold the stock of both the companies
for better return in the future. The future forecast of both the industries are impressive and it
explains that the stock of the companies would offer great return in near future.

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References:
AFR. 2018. Trump’s trade war. [online]. Available at:
https://www.afr.com/news/economy/trump-administrations-trade-war-claims-first-australian-
victim-20180304-h0wylv (accessed 4/9/18).
CNBC. 2018. Trade war impact. [online]. Available at:
https://www.cnbc.com/2018/04/11/anz-ceo-shayne-elliott-on-potential-impacts-of-a-trade-
war.html (accessed 4/9/18).
Dent, M. and Whitehead, S. 2013. Managing professional identities: Knowledge,
performativities and the'new'professional (Vol. 19). Routledge.
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Home. 2018. Commonwealth bank of Australia. [online]. Available at:
https://www.commbank.com.au/ (accessed 4/9/18).
Home. 2018. JB HI FI. [online]. Available at: https://www.jbhifi.com.au/ (accessed 4/9/18).
Kelly, K.S., 2012. Effective fund-raising management. Routledge.
Kinsky, R. 2011. Charting Made Simple: A Beginner's Guide to Technical Analysis. John
Wiley & Sons.
Krantz, M. 2016. Fundamental Analysis for Dummies. London: John Wiley & Sons.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3.
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Morningstar. 2018. Commonwealth bank of Australia. [online]. Available at:
https://www.morningstar.com/stocks/xasx/cba/quote.html (accessed 4/9/18).
Morningstar. 2018. JB HI FI. [online]. Available at:
http://financials.morningstar.com/income-statement/is.html?t=JBH&region=aus (accessed
4/9/18).

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Reuters. 2018. Trade war would damage Australia's economy - c.bank governor. [online].
Available at: https://www.reuters.com/article/australia-economy-rba/trade-war-would-
damage-australias-economy-c-bank-governor-idUSS9N1QG00B (accessed 4/9/18).
SMH. 2018. Trade war of australia. [online]. Available at:
https://www.smh.com.au/business/markets/how-trade-war-with-us-can-hurt-china-and-
economies-including-australia-20180706-p4zpv2.html (accessed 4/9/18).
Stewart, S.D., Piros, C.D. and Heisler, J., 2011. Running money: Professional portfolio
management. McGraw-Hill Irwin.

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Appendix:
Ratio Calculations 2016 2017 2018
JB HI FI
Profitability Ratios: 2016 2017 2018
Return on assets
Net profit / 152,181 172,400 233,200
Total Assets 992,381 2,452,300 2,491,700
Answer: % 15.33% 7.03% 9.36%
Return on equity
Net profit / 152,181 172,400 233,200
Total equity 404,702 853,500 947,600
Answer: 37.6% 20.2% 24.6%
Gross profit margin
Gross profit / 865408 1230500 1470200
Sales Revenue 3954467 5628000 6854300
Answer: 21.9% 21.9% 21.4%
JB HI FI
Liquidity Ratios 2016 2017 2018
Current Ratio
Current Assets / 702,518 1,170,700 1,210,500
Current liabilities 446,833 885,800 917,200
Answer: 1.57 1.32 1.32
Quick ratio
Current Assets - Inventory / 156,081 310,800 319,400
Current Liabilities 446,833 885,800 917,200
Answer: 0.35 0.35 0.35
JB HI FI
Financial Gearing 2016 2017 2018
Debt to asset ratio
Total debt 140,846 713,000 626,900
Total assets 992,381 2,452,300 2,491,700

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Answer: 0.142 0.291 0.252
Asset turnover
Net sales / 3,954,467 5,628,000 6,854,300
Average fixed assets 289,863 1,281,600 1,281,200
Answer: 13.643 4.391 5.350
JB HI FI
Asset Efficiency Ratios 2016 2017 2018
Inventory Turnover (days)
Average Inventory / 546,437 859,900 891,100
Cost of Sales
#
days 3,089,059 4,397,500 5,384,100
Answer: (note the above needs to be x
365) 64.57 71.37 60.41
Receivables Turnover (days)
Average trade debtors /
98,07
3
196,60
0
204,70
0
Sales revenue (note used operating
revenue)
#
days
3,954,46
7
5,628,00
0
6,854,30
0
Answer: (note the above needs to be x
365) 9.05 12.75 10.90
Ratio Calculations 2016 2017 2018
CBA
Profitability Ratios: 2016 2017 2018
Return on assets
Net profit / 9,227,000 9,928,000 9,329,000
Total Assets 933,078,000 976,374,000 975,165,000
Answer: % 0.99% 1.02% 0.96%
Return on equity
Net profit / 9,227,000 9,928,000 9,329,000
Total equity 60,206,000 63,170,000 67,306,000
Answer: 15.3% 15.7% 13.9%
Gross profit margin

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Gross profit / 16935000 17600000 18341000
Sales Revenue 33817000 33293000 34543000
Answer: 50.1% 52.9% 53.1%
CBA
Liquidity Ratios 2016 2017 2018
Current Ratio
Current Assets / 706,989,000 741,799,000 752,587,000
Current liabilities 829,316,000 865,483,000 864,397,000
Answer: 0.85 0.86 0.87
Quick ratio
Current Assets - Inventory / 695,398,000 731,762,000 743,365,000
Current Liabilities 829,316,000 865,483,000 864,397,000
Answer: 0.84 0.85 0.86
CBA
Capital Structure ratio 2016 2017 2018
Debt to asset ratio
Total debt 15,544,000 18,726,000 22,992,000
Total assets 933,078,000 976,374,000 975,165,000
Answer: 0.017 0.019 0.024
Asset turnover
Net sales / 33,817,000 33,293,000 34,543,000
Average fixed assets 35,765,000 35,778,000 36,700,000
Answer:
0.94
6
0.93
1
0.94
1
CBA
Asset Efficiency Ratios 2016 2017 2018
Inventory Turnover (days)
Average Inventory / 11,591,000 10,037,000 9,222,000
Cost of Sales
#
days 16,935,000 17,600,000 18,341,000
Answer: (note the above needs to be x
365) 249.82 208.15 183.52
Receivables Turnover (days)
Average trade debtors /
11,591,00
0
10,037,00
0
9,222,00
0

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Sales revenue (note used operating
revenue)
#
days
33,817,00
0
33,293,00
0
34,543,00
0
Answer: (note the above needs to be x
365) 125.11 110.04 97.44