Financial Analysis of JB Hi-Fi Limited

This case study provides a comprehensive financial analysis of JB Hi-Fi Limited, focusing on its balance sheet and liabilities. It delves into the concepts of current and non-current liabilities, provisions, and borrowings, using data from the company's annual reports. The analysis includes a detailed examination of the company's financial position, highlighting key trends and providing recommendations for future financial strategies. The study also explains various accounting concepts and their application in real-world scenarios, making it a valuable resource for students and professionals in finance.

Introduction
Financial Analysis
The 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 future
 Building business plans
 Identifying companies which are valuable to invest in
Financial 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 W
The 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, such
as 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 case
The 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, it
is a statement which can depict the idea regarding a company’s financial position easily. It
does so by outlining the total assets that 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 within
one year, appearing on the company's balance sheet and include short term debt, 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 cash current assets in 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 to
result 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-1
Liabilities 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

There are various classes of liabilities which can be recorded under the head of current
liabilities: [8]
 Accounts Payable
 Interest Payable
 Accrued Expenses
 Tax liabilities
 Short-term Loans
 Dividends Declared but not paid
Ans-2
The Major liabilities for any company are the one which constitutes of some significant
amount, which after going through the annual report of JB Hi-Fi limited for the financial year
2015-2016 are:
 Trade and other payables amounting to $384928000 out of which $302141000 is the
amount for trade payables only.
 Borrowings amounting to $109736000 which constitutes of the unsecured bank loan
for the same amount.
Ans-3
As the name suggests a provision is an amount which a company set aside from its profits to
meet some future liability or obligation as a result of some past event. As provision is a liability
to the company, it can be both current and non-current liability depending upon the purpose
for which the provision has been created.
There are various items which are included under the heading ‘Provisions’ in the ‘Current
Liabilities’ section of the statement of financial position:
 Provision for bad and doubtful debts
 Provision for taxation
 Provision for discount to debtors
 Provision for repairs and renewals
 Provision for employee benefits
 Provision for loss in the value of stock
The nature of the above-shown items is that all of them are short term in nature, has a
Screenshot from JB Hi-Fi Limited Annual Report

contingency attached to them and will lead to an outflow of the resources.
The way in which a provision can be distinguished from a liability is due to the uncertainty
regarding the amount or timing of the future expenditure or some sort of settlement.
Yes, the items shown above satisfies the definition of provisions as contained in IAS 37/AASB
137 which is, a provision is a "liability of uncertain timing or amount", and requires that all the
following conditions be fulfilled before a provision can be recognized: [9]
 Presently has a liability as a result of a past event;
 Outflow of resources is likely to happen to settle the liability
 The amount of the obligation can be estimated reliably.
As can be seen from the screenshot above it can be seen that the liabilities for employee
benefits has increased by $5288000 in the case of current provisions, whereas by $558000 in
the case of Non-current provisions.
Ans-4
Particulars Financial Year
2015-16($’000)
Financial Year
2014-15($’000)
Cash raised by interest bearing loans - -
Interest bearing loans repaid 30000 40113
It was found after going through the annual report for JB Hi-Fi Limited, that all of the
unsecured borrowings of the company are its interest bearing loans.
From the cash flow statement of the JB Hi-Fi Limited for the Financial Year 2015-2016, it can
be seen that company has not made any additional borrowings neither in the financial year
2015-2016 nor in the financial year 2014-2015. It has just repaid the amount as shown in the
table above, which shows that the company is trying to be debt free, which is a good step to
grow.
Ans-5
A secured liability is a liability on which the payment is guaranteed by an asset. It means that
it has something as collateral and if we won’t be able to pay our liability or debt then, our
Screenshot from JB Hi-Fi Limited Annual Report
Screenshot from JB Hi-Fi Limited Annual Report

creditor has the option to recover the amount through the proceeds from the sale of the
collateral to satisfy the debt.
In the case of JB Hi-Fi Limited none of the non-current liabilities are secured, that is they had
not pledged any asset or lien against their non-current liabilities.
Ans-6
From the balance sheet of the JB Hi-Fi Limited for the financial year 2015-2016, it can be
seen that out of all the non-current liabilities it is just the bank loan which comes under the
heading non-current borrowings.
The actual amount in the balance sheet for bank loans is $109736000 but the total amount
the company will repay is higher, that is because of the presence of interest which the bank
charges for lending the loan to the company.
Particulars Amount ($’000)
Within two years 116,545
Between two and five years -
Beyond five years -
Here we are not including the lease amount as a non-current borrowings, as it is a non-
current liability but not borrowing. We considered only bank loans as the part of non-current
borrowings.
Ans-7
As explained earlier also, a provision is the amount kept aside out of the company’s profits to
a meet present obligation either legal or constructive which occurred as a result of some past
event, it is uncertain that whether the company will settle the obligation and it is possible to
make an appropriate estimate regarding the amount of obligation.
As we saw earlier, the provisions can be both current and non-current depending upon the
requirement.
After going through the annual report of JB Hi-Fi Limited Company we can say that:
Yes, in the case of JB Hi-Fi Limited Company there are two non-current provisions in the
balance sheet.
Screenshot from JB Hi-Fi Limited Annual Report

As the screenshot is showing that there are two Non-current provisions:
 Employee benefits, which in general includes liabilities for salaries and wages, non-
monetary benefits, liability for long service leave measured at the amounts expected to
be paid when the liabilities are settled.
 Lease provision, which in general shows the company’s estimate of the amount
required by them to return the leased property at its original like condition. [10]
Summary
The case helped us to get a better understanding of how a financial analysis is done. As the
case got us through most of the aspects financial analysis, like first we understood what
actually financial analysis is then we tried to get a deep insight about the company that is JB
Hi-Fi Limited, by going through the financial reports of the company. We understood various
accounting concepts like current liabilities, non-current liabilities, provisions, borrowings etc.
During the study we found out that, the current liabilities of the JB Hi-Fi Limited has increased
as compared to the previous financial year, then we found out that major liabilities for the
company are Trade payables and Borrowings and borrowings are the major source of finance
for the company also it will pay back all its current debts within coming two years.
A trade payable is an amount billed to a company by its suppliers for goods delivered to or
services consumed by the company in the ordinary course of business. [11]
After understanding the current and non-current liabilities of the company we tried and studied
the pattern in the provisions that the company had made to meet its liabilities. The company
has both current and non-current type of provisions in its balance sheet which shows the
company is thinking about both short term and long term.
The topic on which we did our project ‘Financial Analysis’ is an important as well as an
interesting topic to study. It is used widely in today’s business environment as the topic helps
an analyst to take up certain decision which if taken wrongly may lead to losses to an
organization and if the analysis is done correctly it may lead to a huge amount of profits.
Finally, we will recommend to the JB Hi-Fi Limited that they are doing well in their respective
field. We saw that the liabilities of the company are increasing but that’s not an issue, it shows
that the company is investing more in the business to grow and become a market leader.
But it will be better for the company that instead of just focussing on interest bearing loans to
raise funds, they would also use other sources of finance like the share capital, debentures
wisely. [12]
Screenshot from JB Hi-Fi Limited Annual Report

References
1. www.investopedia.com/terms/f/financial-analysis.asp
2. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate Accounting (12th
edition). Hoboken, NJ: John Wiley & Sons
3. www.jbhifi.com
4. debitoor.com/dictionary/balance-sheet
5. www.investopedia.com/terms/c/currentliabilities.asp
6. en.wikipedia.org/wiki/Provision_(accounting)
7. http://www.accountingtools.com/noncurrent-liabilities
8. www.yourdictionary.com
9. www.iasplus.com/en/standards/ias/ias37
10. www.jbhifi.com.au/General/Corporate/Shareholder-Matters/Financial-Annual-Reports/
11. http://www.accountingtools.com/trade-payable
12. www.efinancemanagement.com/sources-of-finance/sources-of-finance