Business Report: Analysis of JB-Hi-Fi Limited (ACCY801, Finance)

This report provides a comprehensive analysis of JB-Hi-Fi Limited, a major retailer of consumer electronics. It begins with a company overview, followed by an examination of the board of directors, including their characteristics, experience, and remuneration. The report delves into key investment and financing decisions made by the company, corporate governance practices, and external audit functions. It assesses measures taken to ensure ethical judgments and identifies top investors. Ratio analysis is performed to evaluate JB-Hi-Fi's financial performance. The report concludes with recommendations and references, providing a detailed insight into the company's operations and financial health, based on its 2016 annual report.

Subject code and Subject Name: ACCY801: Accounting and Financial Management
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Assignment Title: Business Report-JB-Hi-FI Limited
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JB-Hifi Limited
Executive Summary
Any organization operates under an environment that is surrounded by various factors. Hence, the
investment decisions need to be undertaken in a proper manner. The key accounting policies also come
to the forefront and need to be tackled in a strong manner. In this report, JB-Hifi is selected for the
purpose of the study and various concepts are studied in the light of the company. Matters such as
investing decisions, corporate governance, board policies and ratios are computed to research on the
project. Further, the top investors are noted and an overall analysis of the company is done.
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JB-Hifi Limited
Contents
Introduction.................................................................................................................................................4
a. Company overview..............................................................................................................................5
b. Overview of Board of directors............................................................................................................5
c. Assessment of the Board characteristics.............................................................................................9
d. Important investment or financing decisions.....................................................................................10
e. Key Recommendations of the ASX Corporate Governance Principles..............................................10
f. External audit function......................................................................................................................11
g. Measures to ensure ethical judgments.............................................................................................12
h. Top Investors.....................................................................................................................................12
i. Ratio Analysis.....................................................................................................................................13
Conclusion.................................................................................................................................................15
References.................................................................................................................................................16
Appenndix.................................................................................................................................................18
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JB-Hifi Limited
Introduction
JB Hi-Fi Limited is a pioneer in the retail sector of the home consumer products. It is engaged in the
sale of electrical products that cater to the consumer that includes television, cameras, software, etc. it
has also a diversified business where it focuses on consultation and IT service. For the preparation of
this report, the annual report of 2016 is selected. The report revolves around JB-Hifi and its financial
report. The report initiates with the introduction of the company followed by the activities of the board.
Further, an in-depth analysis is made on the investment and the financial decision made by the
company. The corporate governance mechanism is studied in the light of JB-Hifi. Basically, the
report aims to provide a deep insight into the functioning of the company together with the operations.
Further, the report aims to provide a strong insight into the performance of the company through the
computation of the ratios.
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JB-Hifi Limited
a. Company overview
JB Hifi Ltd is primarily an Australian and New Zealand retailer of consumer items mainly
specialization in video games, CD’s, Blu-rays, electrical home appliances, hardware, etc. The group
also provides various consulting and technology services to its customers. For such purpose, it has
around sixty home branded stores that allow it to provide various kinds of services throughout New
Zealand and Australia. JB Hifi also provides various solutions like government, corporate, and
education sale of items and services, and replacement of insurance services as well. The company is
believed to be one of the fastest growing and successful companies in Australia that is listed on the
ASX and headquartered in Melbourne (JB-Hifi, 2016). Moreover, it also continues to stock various
premium quality products that assist it in redressing the requirements of consumers. Further, in relation
to financial performance in the year 2016, the company attained massive enhancement in the dividend,
sales, and profits that can be attributed to its low-cost operations throughout the year. In 2016, the
Group obtained sales of $3.95 billion that is approximately 8.3% extra in comparison to the last year.
Further, the net tax profit of the company also reported an increased figure of $152.2 million that is
11.5% more than the last year (JB-Hifi, 2016). Similarly, the total dividend also enhanced by ten cents
in the current year that is a positive indicator in terms of fulfillment of objectives. The low cost of
doing the business of the company (15.2%) is the major reason behind such developments in these
segments that allows it to be at a competitive advantage in comparison to other primary competitors.
Overall, the company has full capability to bring brands to life and establish engagement in several
categories. Besides, high range of loyalty and trust from its customers has assisted the company to
make additional developments in various segments (Porter & Norton, 2014).
b. Overview of Board of directors
Name Gender Age Education Remuneration
($)
Career history
Greg
Richards
Male Bachelor of
Economics
(Hons)
2,90,000 He was appointed
to the Board in
2007 and
thereafter, he
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JB-Hifi Limited
became
chairperson in
2012. He also
worked at
Goldman Sachs for
19 years. Presently,
he is the chairman
and member of the
Remuneration
Committee and is
also a non-
executive director
of Vitaco Holdings
Ltd.
Beth
Laughton
Female Bachelor of
Economics
1,66,093 She spent more
than a decade in
corporate finance
after qualifying as
a CA. For the
initial twelve years,
she concentrated
on entertainment,
telecommunication,
and information
technology. Beth
was also the
chairperson and
non-executive
director of Sydney
Farris, a non-
executive director
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JB-Hifi Limited
of Port Adelaide
Maritime
Corporation,
member and non-
executive director
of ASX Audit
Committee. She
became the
chairperson of JB
Hifi in June 2012
but was later
appointed to the
company’s
remuneration
committee (JB-
Hifi, 2016).
Gary Levin Male Bachelor of
Commerce
and LLB
1,56,000 He spent more than
thirty years in the
field of investment,
retail, and
renewable energy
fields. Presently, he
is on the Board of
Baby Bunting
Group Ltd. In JB
Hifi, Gary has been
a director since
2003 and is also a
member of Audit
and Risk
Management
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JB-Hifi Limited
Committee and
Remuneration
Committee (JB-
Hifi, 2016).
Wai Tang Female MBA,
BAppSC,
and GAICD
1,15,201 She became the
member of the
Audit and Risk
Management
Committee of the
company with
significant
experience in retail
industry. She also
served as the
general manager
for Pacific Brands
and co-founded
Happy Lab Retail
Confectionary
Concept (JB-Hifi,
2016). Moreover,
she also served as
non-executive
directors of various
other companies.
Richard
Uechtritz
Male 1,30,000 He is a co-founder
of photo chains like
Kodak Express and
Rabbit Photo. He
also became the
director Kodak.
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JB-Hifi Limited
Moreover, through
high experiences in
retailing, he
became the CEO
and managing
director of JB Hifi
in 2000.
Richard
Murray
Male Chartered
Accountant,
B.Com,
Grad. Dipl.
Finance and
Investment
2,750,596 He started as a
CEO with twenty
years experience in
finance and
retailing. He joined
JB Hifi as a CFO
but before, he
operated under
Deloitte for around
ten years (JB-Hifi,
2016). He is
currently the
chairman of
Australia Charities
Fund Employer
Leadership Group
James King Male B.Com,
FAICD
52,000 Appointed in May
2004 and retired in
October 2015. He
further served as a
chairman
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JB-Hifi Limited
c. Assessment of the Board characteristics
It is solely the responsibility of the board to provide pace to the shareholder values and take it to the expected
price (Deegan, 2011). It is very much obvious that the board holds the key to the performance of the company
which affects the share price and thus the board is totally answerable to the shareholders of the company.
Corporate governance of the company and stabilizing the company are the major tasks of the board (Brealey et.
al, 2011). It is the duty of the Chief Executive Officers of JB Hi-fi to pay attention to the profitability and
stability of the company in order to increase it and to be answerable to the board solely (JB-Hifi, 2016). In
order to fulfill its duty, the key factors that the company look for our experience, skills, diversity, knowledge,
and perspective. These can be attained by undertaking a mixed range of people with these qualities
(Christensen, 2011). These mixed qualities of skills, experience, and gender provide with the exchange of ideas
and advanced thoughts which would be very helpful in governance and decision-making (Spiceland et. al,
2011).
The below-mentioned point is some of the departments in which expertise and skill are needed by the company
to function well and to increase its profit ratio. As per the records put up by the board, it is seen that the
company has a well-proportioned mix of such people who excel in such areas and can lead the company to an
uprising (JB-Hifi, 2016). They can effectively [plan the company’s working and can make the committee’s
decision-making easy.
 Executive/effective experience
 Retail expertise and experience
 Operational management and experience
 Financial Expertise
 Property Expertise
 Mergers & Acquisitions expertise and experience
 Governance expertise and experience
 Other board experience
 Experience in setting executive remuneration
 Risk management expertise and experience
JB has a large percentage of non-executive directors in comparison to that of the executive directors. At present
JB have six directors in its board of which five are non-executive and the only executive one id the chief
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JB-Hifi Limited
executive director. It is a good move for the company to offer electoral or non-electoral data to the shareholders
of the company.
It is also paid attention that the company undergoes a series of exams and scanning procedures before
presenting a candidate for the elections.
d. Important investment or financing decisions
It can be observed from the annual report of the company that it has invested around $52.3 million in
the capital expenditure project that consists of the opening of new stores, conversion of its Home
stores, upgradation, and relocation of stores, and online projects. The Group believes that such
investment activities can assist it in enhancing the growth of earnings in the upcoming tenures.
Besides, the company also believes that online presence can generate a significant impact on its
development. Thus, it continues to make significant developments in its online sites that include
transformation and up-gradation of its sites in New Zealand. The company also intends to maximize its
investments in IT security measures over the years so that breach of such systems can be minimized to
a greater extent. In addition, the company is also focusing on 75 Home stores throughout New Zealand
and Australia, and for such purpose, it makes relevant investments in supply chain, training of staff,
investment in store wages, etc (JB-Hifi, 2016). This can assist in placing the company in a very good
position in the market and enhancing its developments throughout the countries.
e. Key Recommendations of the ASX Corporate Governance
Principles
Director remuneration must be ample to retain and attract high-quality directors
Every listed company must operate responsibly and ethically.
Every listed company must disclose their management roles and process of monitoring their
performance.
Every listed entity must make balanced and timely disclosure of all material items that can
influence decision-making.
Every listed company must have a board of an appropriate composition, size, and skills.
Every listed company must attempt to respect the shareholders’ rights by offering them adequate
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JB-Hifi Limited
facilities and details to assist them in exercising their rights.
f. External audit function
The presented auditing report has been made by keeping in attention the Corporate Act 2001 which deals with
the independence importance of the auditors. It is fully satisfying and legitimate and real that the data of the
Corporate Act 2001 which was provided to the company of JB Hi-fi is similar and fully matches with the one
which is written and depicted in this report of the company (JB-Hifi, 2016). All these instructions were given to
the board of directors at the time of enactment and also at the time of the representation of this report by the
company.
Auditor’s remuneration :
2015 2016
$ $
Audit and other services
Audit and review of group financial statements 333000 323500
Audit and review of subsidiary financial statements 29800 29000
IT services (I) 58216 511507
Total remuneration for audit and other services 421016 864007
(I) Customer Relationship Management Tool was the main plan of the company for which the Deloitte auditing
firm was associated with the company from 30 June 2015 to 30 June 2016.
It is to be mentioned that the auditing firm of the JB Hi-fi company if Deloitte Touche Tohmatsu (JB-Hifi,
2016).
g. Measures to ensure ethical judgments
In order to ensure that the business of the company has a high level of ethics and ethical judgments, it
has adopted a Code of Conduct that is offered to the employees, executives, and directors with
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JB-Hifi Limited
adequate guidance on what acceptable behavior is deemed to be. For such purpose, the company has
attempted to respect the rights, freedom, and dignities of its employees, provided a working
environment that is rewarding, challenging, and safe, respecting the sensitive and personal details of its
employees, customers, and suppliers, compliance with all the rules and regulations, and identifying the
achievements of every employee. Furthermore, the company has also ensured that its auditors always
follow the Australian Accounting Standards for conducting the audit process. Moreover, these
standards necessitate that the auditors comply with the significant ethical requirements in relation to
the engagement of audit and performance of audit in a way that can assure whether the financial
information forming part of the annual report is free from any kind of material misstatement or not
(JB-Hifi, 2016). Overall, the management and Board also endeavor in establishing higher standards of
corporate governance in its framework that ensures fulfillment of ethical responsibilities throughout
the company.
h. Top Investors
The top 5 investors of JB-Hifi are as follows:
Name Equity Percentage
AustralianSuper Pty Ltd. 10,185,705 8.87%
Legg Mason Asset
Management (Australia) Ltd.
9,383,772 8.17%
UniSuper Ltd. 6,847,103 5.96%
Ellerston Capital Ltd. 5,985,908 5.21%
Airlie Funds Management Pty
Ltd.
5,918,853 5.16%
It is to be noted that the major investors or the top five investors of JB-Hifi are corporate. This means
that the percentage of holding is more when it comes to the corporate. It provides a fair indication that
the company is able to deliver and this is the sole reason why the corporate is more involved in it.
Further, the major components of shareholding are derived from other companies that mean the
expectation is high as compared to other companies (Horngren, 2013). The composition of equity
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JB-Hifi Limited
holding by other companies sheds light on the future prospects of the company and provides a general
idea of the fundamentals of the company (JB-Hifi, 2016). The holdings will even give a fair idea how
the equities are divided in terms of individual investors and the companies.
i. Ratio Analysis
The ratio analysis of JB-Hifi Ltd has been done by considering the year 2016. The analysis is as
follows:
i. Liquidity – the liquidity ratio denotes the ability of the company to honor the obligations. It plays
a crucial role in raising funds and loans from banks. As per the computation, it can be
commented that the current ratio of the company is strong as it is more than 1 and near to the
standard ratio of 2:1 so in all probability, it can honor the obligations and raise more funds by
procuring a loan from banks (Choi & Meek, 2011). However, the acid test ratio that excludes
stock is weak for the company as it is below 1 and hence an alert for the management. This
means that including the inventory it has more liquidity (Wagenhofer, 2014).
ii. Efficiency – This ratio denotes the fashion in which the companies have used the resources or
assets to generate income. As per the computation of the ratios, it can be said that the total asset
turnover and the equity turnover of the company is formidable meaning the company has used
the assets effectively (Davies & Crawford, 2012). This provides a strong stability of the
company and is one of the major reasons why the company is earning profits. The total asset
turnover ratio increased in 2016 while the equity turnover declined marginally.
iii. Leverage – It indicates the amount that is funded by debt and equity. In short, the investor’s
contribution and the debt contribution is provided adequate emphasis. The equity ratio
determines the contribution by the investors and in the case of JB-Hifi, it is below .50 meaning
that the contribution is low as compared to the debt funding (Subramanyam & Wild, 2014). On
the other hand, the debt-equity ratio is high that denotes the debt component in the organization
in tune to the equity (Shah, 2013). Any debt-equity ratio above 1 is higher and is an alert to the
management as more reliance is in debt.
iv. Profitability – the profitability indicates the ability of the company to generate returns. The
profitability of JB-Hifi has been determined through the gross profit and the net profit ratio.
Both the ratios are positive for the company. However, the rates of increment in both the ratios
are marginal (Albrecht et.al, 2011). Therefore, the company needs to stress upon the
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JB-Hifi Limited
operational cost so a better profit percentage can be attained. Both the ratio projects how
effectively the company can extract profit from the operations. Hence, the profitability of the
company stands in stable and consistent. (Guerard, 2013)
v. Market value – the market value of the shares can be determined by the earnings per share. The
companies that contain future earnings on a higher note are required to provide more dividends
or appreciate the stock in the future. The PE ratio of JB-Hifi has dropped in 2016 that does not
augur well for the company. However, the total scenario projects that the expected price is
strong as compared to the earnings. This denotes the share value of the company or the worth
that it can fetch. The EPS projects that if the company distributes every dollar of income then
1.51 dollar will be received by the shareholders. Hence, on an overall basis, JB-Hifi has strong
fundamentals and the market value projects that the company can deliver in the long run
(William, 2010).
vi. Cash Flow management – the cash flow management is an important tool that helps in providing
a general idea about the cash inflow or outflow of the company. This has been done for JB-Hifi
by computing the operating cash flow ratio and cash flow margin ratio. The operating cash
flow ratio of JB-Hifi is less than 1 meaning the company has generated less cash to repay the
obligations in the near term (Berk et. al, 2015). A higher ratio is always vouched for in this
scenario. On the other hand, the cash flow margin ratio ranks lower that is not a good indicator
as a higher ratio is always better in terms of investors and other related parties. When the
percentage is higher, the better is the performance (Graham &Smart, 2012).
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JB-Hifi Limited
Conclusion
Going by the overall report, it can be said that the company JB-Hifi has strong fundamentals and
that it has operated in a profitable fashion in the past two years. The overall scenario of the
company is a strong indication of the fact that JB-Hifi has adhered to the accounting policies and
that the structure of the board is presented in a manner that enables proper management. Further,
the compensation is in tune to the activities of the executives and is justified. Moreover, the
company follows string ethical structures and hence, it is highly successful in attaining a topmost
position. The ratio indicates that the company has delivered in the past two years and will
continue to do so going by the strong fundamentals of the company. Few lagging indicators can
be converted to a strong one by the strong activity of the management. Thereby, JB-Hifi ranks
high when it comes to the selection of the companies for the purpose of investing.
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JB-Hifi Limited
References
Albrecht, W, Stice, E. & Stice, J 2011, Financial accounting, Mason, OH: Thomson/South-
Western.
Berk, J, DeMarzo, P & Stangeland, D 2015, Corporate Finance, Canadian Toronto: Pearson
Canada.
Brealey, R, Myers, S & Allen, F 2011, Principles of corporate finance, New York: McGraw-
Hill/Irwin.
Choi, R.D & Meek, G.K 2011, International accounting, Pearson .
Christensen, J 2011, ‘Good analytical research’, European Accounting Review, vol. 20, no. 1, pp.
41-51
Davies, T & Crawford, I 2012, Financial accounting, Harlow, England: Pearson.
Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill.
Graham, J & Smart, S 2012, Introduction to corporate finance, Australia: South-Western
Cengage Learning.
Guerard, J. 2013, Introduction to financial forecasting in investment analysis, New York, NY:
Springer.
Horngren, C 2013, Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group.
JB-Hifi 2016, JB-Hifi Annual report & accounts 2016, viewed 28 September 2017
https://www.jbhifi.com.au/Documents/2016%20JB%20Hi-Fi%20Annual%20Report_ASX.pdf
Porter, G & Norton, C 2014, Financial Accounting: The Impact on Decision Maker, Texas:
Cengage Learning
Shah, P 2013, Financial Accounting, London: Oxford University Press
Subramanyam, K & Wild, J 2014, Financial Statement Analysis, McGraw Hill
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Spiceland, J, Thomas, W. and Herrmann, D 2011, Financial accounting, New York: McGraw-
Hill/Irwin University Press
William, L 2010, Practical Financial Management, South-Western College.
Wagenhofer, A 2014, The role of revenue recognition in performance reporting,
OxfordUniversity Press
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Appenndix
Appendix 1 - Financial statements
JB HI FI LTD (JBH) CashFlowFlag BALANCE SHEET
Fiscal year ends in June. AUD in millions except per share data. 2015-06 2016-06
Assets
Current assets
Cash
Cash and cash equivalents 49 52
Total cash 49 52
Receivables 81 98
Inventories 479 546
Prepaid expenses 4
Other current assets 3 6
Total current assets 617 703
Non-current assets
Property, plant and equipment
Other properties 385 419
Property and equipment, at cost 385 419
Accumulated Depreciation -208 -236
Property, plant and equipment, net 176 184
Equity and other investments 0
Goodwill 36 37
Intangible assets 49 49
Deferred income taxes 17 21
Other long-term assets
Total non-current assets 278 290
Total assets 895 992
Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable 254 302
Deferred income taxes 9 11
Deferred revenues
Other current liabilities 117 134
Total current liabilities 380 447
Non-current liabilities
Long-term debt 139 110
Deferred taxes liabilities
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JB-Hifi Limited
Other long-term liabilities 32 31
Total non-current liabilities 171 141
Total liabilities 552 588
Stockholders' equity
Common stock 57 49
Retained earnings 269 328
Accumulated other comprehensive income 18 27
Total stockholders' equity 343 405
Total liabilities and stockholders' equity 895 992
Income Statement
Cost of revenue
Fiscal year ends in June. AUD in millions except per share data. 2015-06 2016-06
Revenue 3652 3954
Cost of revenue 2854 3089
Gross profit 798 865
Operating expenses
Sales, General and administrative 931 1006
Other operating expenses -334 -361
Total operating expenses 597 644
Operating income 201 221
Interest Expense 6 4
Other income (expense) 1 1
Income before income taxes 196 218
Provision for income taxes 59 66
Minority interest
Other income
Net income from continuing operations 137 152
Other
Net income 137 152
Net income available to common shareholders 137 152
Earnings per share
Basic 1.36 1.51
Diluted 1.35 1.5
Weighted average shares outstanding
Basic 100 100
Diluted 101 101
EBITDA 241 263
Appendix – 2 Ratio
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JB-Hifi Limited
Profitability Ratios
Net Profit Margin 2015 2016
Net Income 137 152
Sales Revenue 3652 3954
Net Profit Margin [(Net Profit after tax/Sales
Revenue)*100] 3.75 3.84
Gross profit Margin
Gross Income 798 865
Sales Revenue 3652 3954
Gross Profit Margin [(Gross Profit /Sales Revenue)*100] 21.85 21.88
Leverage ratio
Debt Equity Ratio 2015 2016
Total Debt 552 588
Total Equity 343 405
Debt Equity Ratio 1.609329446 1.451851852
Equity ratio 2015 2016
Total Equity 343 405
Total Assets 895 992
Equity Ratio 0.383240223 0.408266129
Liquidity ratio
Current ratio 2015 2016
Current Assets 617 703
Current Liabilities 380 447
Current Ratio (Current Assets/Current Liabilities) 1.38 1.57
Acid Test Ratio
2015 2016
Current Assets 617 703
Inventory 479 546
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JB-Hifi Limited
Current Liabilities 380 447
Acid Test [(Current Assets-Inventory)/Current
Liabilities)] 0.36 0.35
Cash Flow ratio
Operating Cash Flows Ratio 2015 2016
Cash Flows From Operations 180 185
Current Liabilities 380 447
Operating Cash Flows Ratio 0.47 0.41
Cash Flow Margin ratio 2015 2016
Cash flow from operating cash flows 180 185
Net sales 3652 3954
Cash Flow Margin ratio 4.92881 4.67881
Efficiency ratio
Total Asset Turnover 2015 2016
Net sales 3652 3954
Average total assets 877.5 943.5
Total Asset Turnover [(Net sales/Average total assets) ×
100] 416.18 419.08
Equity Turnover
2015 2016
Net sales 3652 3954
Average total equity 319 374
Equity Turnover [(Net sales/Average total Equity) × 100] 1144.83 1057.22
Market value
Earnings per share 2015 2016
Earnings per share
Basic 1.36 1.51
Diluted 1.35 1.5
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JB-Hifi Limited
Price earnings ratio 2015 2016
Market value 22.92 21.7
Earnings 1.36 1.51
PE ratio = MV/Earnings 16.85294118 14.37086093
23