Financial Position and Performance Analysis of JB Hi-Fi Report

This report presents a comprehensive financial analysis of JB Hi-Fi, evaluating its financial position and performance from 2012 to 2017. The analysis encompasses various financial statements, including the income statement and balance sheet, and employs a range of financial ratios to assess the company's performance. Profitability ratios such as return on equity, return on assets, and earnings per share are examined to gauge the company's ability to generate profits. Solvency ratios, including times interest earned and debt-to-equity, are used to assess the company's ability to meet its long-term obligations. Liquidity ratios, such as cash ratio, current ratio, and quick ratio, are evaluated to determine the company's short-term financial health. Market-based ratios, including price-earnings ratio and dividend yield ratio, are analyzed to provide insights into investor sentiment and the company's valuation. The report also discusses the accounting practices followed by JB Hi-Fi in preparing its annual report and concludes with an opinion on the company's future prospects based on the financial analysis.

Running head: FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Financial Position and Performance Analysis of JB Hi-Fi
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1FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Table of Contents
1. Purpose of Financial Accounting Statements..................................................................2
2. Accounting Practices of JB Hi-Fi to Produce Annual Report.........................................2
3. Financial Ratio Analysis of JB Hi-Fi...............................................................................3
3.1. Profitability Ratios....................................................................................................3
3.2. Solvency Ratios............................................................................................................6
3.3. Liquidity Ratios........................................................................................................8
3.4. Market Based Ratios...............................................................................................11
4. Opinion on Future of JB Hi-Fi.......................................................................................12
Reference List....................................................................................................................14

2FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
1. Purpose of Financial Accounting Statements
The purpose of financial accounting statements is to offer relevant information regarding
the financial position, performance as well as variations in financial position of JB Hi-Fi
Company. Moreover, analyzing financial statements of the selected company can be useful to all
its users in order to make certain economic decisions. 1 Due to such relevance, financial
statements must be relevant, understandable, comparable and reliable. Major financial statements
of the company include income statement, balance sheet and cash flow along with retained
earnings that are used by the management in decision making regarding the business. Financial
statements are used by JB Hi-Fi Company all through the year for facilitating its investors and
creditors to get involved in better decision making. These statements are used by the company’s
investors for determining the viability of making investments in the company.
2. Accounting Practices of JB Hi-Fi to Produce Annual Report
Certain accounting policies are followed by JB Hi-Fi in preparation of its annual report.
The company has prepared the annual report in accordance with the requirements of
Corporations Act 2001. 2 Moreover auditing of the annual report is conducted in compliance with
1 Babalola, Y. A., and F. R. Abiola. "Financial ratio analysis of firms: A tool for decision
making." International journal of management sciences 1, no. 4 (2013): 132-137.
2 Baños-Caballero, Sonia, Pedro J. García-Teruel, and Pedro Martínez-Solano. "Working
capital management, corporate performance, and financial constraints." Journal of
Business Research 67, no. 3 (2014): 332-338.

3FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
ethical needs of “Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants”. New accosting standards are also followed by the
company such as AASB 16 leases in classifying its cash flows affected by operating lease
payments. Moreover, preparation of the financial statements is in accordance with “Australian
Accounting Standards and Corporations Regulations 2001”. 3 JB Hi-Fi considers employing full-
disclosure principle that indicates that accountants maintain all important information within the
financial statement. The company also considers extra information such as unusually high
earnings of the company must be disclosed in the financial statements section following full
disclosure principle.
3. Financial Ratio Analysis of JB Hi-Fi
3.1. Profitability Ratios
Return of equity
Return on equity ratio of the company is observed to decrease over the years from 2012
to 2017. This is because of the reason that the company is not able to measure its capability to
gather profits from its shareholders investment in the company. The company is not able to make
enough profits for every dollar that is generated by common stockholders’ equity. 4 Return on
3 Brigham, Eugene F., and Michael C. Ehrhardt. Financial management: Theory & practice.
Cengage Learning, 2013.
4 Delen, Dursun, Cemil Kuzey, and Ali Uyar. "Measuring firm performance using
financial ratios: A decision tree approach." Expert Systems with Applications 40, no. 10
(2013): 3970-3983.

4FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
equity has decreased in 2017 in comparison to 2016 as the company has raised capital and the
stock offering might negatively affect the common stock value of the company.
Particulars 2012 2013 2014 2015 2016 2017
Return on equity 75.91% 54.33% 47.58% 42.95% 40.64% 27.32%

5FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Return on assets
Return on assets ratio of the company is observed to increase till 2016 and then decrease
in 2017. This indicates that JB Hi-Fi was capable to manage its assets effectively in generating
earnings that did not happen in the year 2017. This is because of the reason that it was not able to
generate enough earnings from capital invested. The company needs to convert its money
effectively for investing within the net income. 5
Particulars 2012 2013 2014 2015 2016 2017
Return on assets 13.18%
14.03
% 15.03% 15.61%
16.11
% 9.99%
Financial leverage
Financial leverage of the company is observed to decrease till year 2016 and then it
increased in 2017. Low ratio till 2016 indicates that JB Hi-Fi has efficiently repaid its debts that
decreased its risks of bankruptcy and increased shareholders return in investment. However, an
increased ratio in 2017 indicates it is facing issues in repaying its borrowed money or debts. 6
5 Feng, Mei, Chan Li, Sarah E. McVay, and Hollis Ashbaugh Skaife. "Does ineffective
internal control over financial reporting affect a firm’s operations? Evidence from firms’
inventory management." (2014).
6 Francis, Jere R., Matt Pinnuck, and Olena Watanabe. "Auditor style and financial
statement comparability." (2013).

6FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Such increase is also because of the reason that the company decreased its equity as assets
percentage through increasing its debt. Due to such decision made by the company financial
leverage figure enhanced that increased return on equity.
Particulars 2012 2013 2014 2015 2016 2017
Financial leverage 1.09 1.06 1.05 1.03 1.02 1.04
Asset turnover
Asset turnover ratio is observed to increase over the years from 2012 to 2017. This is
because of the reason that the company is capable to generate increased sales from its assets
through comparing net sales with average total assets. JB Hi-Fi is efficiently utilising its assets in
generate sales. 7 A high increase in asset turnover ratio for the company is observed in 2017 in
comparison to 2016 for the reason that it is continuously employing its assets and decreasing
inventory purchase through enhancing sales.
Particulars 2012 2013 2014 2015 2016 2017
Earnings per share 1.06 1.16 1.27 1.36 1.51 1.54
Earnings per share
7 Francis, Jere R., Matt Pinnuck, and Olena Watanabe. "Auditor style and financial
statement comparability." (2013).

7FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Earnings per share ratio are observed to increase over the years from 2012 to 2017. This
indicates that the company is attaining increased dollars of net income for each share of common
stock. This also signifies that overall profitability of the company is experiencing an increasing
trend. 8
Particulars 2012 2013 2014 2015 2016 2017
Earnings per share 1.06 1.16 1.27 1.36 1.51 1.54
3.2. Solvency Ratios
Times interest earned
Times interest earned ratio of JB Hi-Fi Company is observed to increase over the years
from 2012 to 2017. This is for the reason that the company is gathering enough income in order
to pay for its overall interest expenses. A high ratio can be observed for the reason that the
company is able to pay all interests with before tax income in less amount of time. As lower ratio
indicates credit risk, it can be said that JB Hi-Fi is free from such risks and its creditors are
favouring the company. 9
Particulars 2012 2013 2014 2015 2016 2017
8 JB Hi-Fi. 2017.
http://file:///C:/Users/User/Desktop/New%20folder/1812542_1491200796_2017AnnualR
eport.
9 Jordan, Bradford. Fundamentals of investments. McGraw-Hill Higher Education, 2014.

8FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Times interest
earned 11.64 17.80 21.22 33.50 55.25 24.36
Cash coverage ratio
This ratio measures dollar amounts present in company’s bank account that can be
converted any cash immediately. Times interest earned ratio of JB Hi-Fi Company is observed to
increase over the years from 2012 to 2017. This is for the reason that it has enough cash
available for paying interest expenses of its borrowers. A high ratio signifies the company’s
strong liquidity position over the long run and its capability to address current debts. It can pay
all its current liabilities by cash and cash equivalents easily and in lesser time. 10
Particulars 2012 2013 2014 2015 2016 2017
Cash coverage ratio 11.64 17.80 21.22 33.50 55.25 24.36
10 Kim, Seil, Pepa Kraft, and Stephen G. Ryan. "Financial statement comparability and
credit risk." Review of Accounting Studies 18, no. 3 (2013): 783-823.

9FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Debt-to-equity ratio
Times interest earned ratio of JB Hi-Fi Company is observed to increase over the years
from 2012 to 2017. This is for the reason that the financial policies of the company are sound.
High ratio indicates the company increased protection of money and likely benefits that can be
attained by shareholders from funds offered by creditors. This ratio has increased in 2017 in
comparison to 2016 for the reason that the company is having more debt than equity and is
getting financed by creditors rather than through internal positive cash flow.
Particulars 2012 2013 2014 2015 2016 2017
Debt-to-equity 1.02 0.65 0.72 0.50 0.35 0.83
3.3. Liquidity Ratios
Cash ratio
Cash ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2016
and decreased in 2017. This is for the reason that the company has enough cash available to meet
its short term liabilities and is able to address its liabilities with cash and cash equivalents. High
ratio indicates that the company maintains enough cash balances to deal with its current debts. 11
Particulars 2012 2013 2014 2015 2016 2017
Cash ratio 0.09 0.15 0.12 0.13 0.12 0.08
11 Konchitchki, Yaniv, and Panos N. Patatoukas. "Taking the pulse of the real economy
using financial statement analysis: Implications for macro forecasting and stock
valuation." (2013).

10FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
Current ratio
Current ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to
2016 and decreased in 2017. This is for the reason that the company has adequate short time
assets to address all its short-term liabilities. Such ratio ensures strong liquidity position of the
company. Due to this reason, creditors agree to extend credit through observing that it has
resources to address debt obligations within a year. 12 However, current ratio of the company is
observed to decrease in 2017 in comparison to 2016 for the reason that the company is facing
issues regarding inventory management, inefficient standards for gathering receivables and high
rate of cash expense.
Particulars 2012 2013 2014 2015 2016 2017
Current ratio 1.22 1.28 1.64 1.62 1.57 1.32
Quick ratio
Quick ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to
2016 and decreased in 2017. This is for the reason that the company is capable enough to make
12 Li, Kevin, and Partha Mohanram. "Fundamental Analysis: A comparison of Financial
Statement Analysis Driven and Intrinsic Value Driven Approaches." Maystadt, P.(2013).
Should IFRS standards be more “European”. Mission to reinforce the EU’s contribution
to the development of international accounting standards. Report to the (2014).

11FINANCIAL PERFORMANCE ANALYSIS OF JB HI-FI
its cash and current asset easily convertible to cash in comparison to its short term obligations.
High quick ratio is deemed to provide enough leverage against liquidity risk considering the
volatility and predictability of the business.
Particulars 2012 2013 2014 2015 2016 2017
Quick ratio 0.24 0.30 0.33 0.35 0.35 0.32
Receivables turnover
Receivables turnover ratio of JB Hi-Fi Company is observed to increase over the years
from 2012 to 2017. This is for the reason that the company is able to collect average accounts
receivables numerous times over a year. A high ratio also indicates that the company is highly
efficient in gathering credit sales from its consumers. From cash flow position such ratio
situation is favourable as this is an indication of the company’s high quality credit sales and
receivables. 13 Receivables turnover of the company increased from the year 2016 to 2017 for the
reason that it is increasing its capability of issuing credit efficiently to all its consumers along
with gathering funds from them in a desired time.
Particulars 2012 2013 2014 2015 2016 2017
Receivables turnover 6.77 6.73 7.07 7.60 8.26 9.57
13 Li, Kevin, and Partha Mohanram. "Fundamental Analysis: A comparison of Financial
Statement Analysis Driven and Intrinsic Value Driven Approaches." Maystadt, P.(2013).
Should IFRS standards be more “European”. Mission to reinforce the EU’s contribution
to the development of international accounting standards. Report to the (2014).