Comprehensive Financial Ratio Analysis of JB Hi-Fi for Investors

This report provides an analytical discussion on JB Hi-Fi, an ASX registered company, using financial ratios to offer an overview of its financial condition. The analysis aims to inform investors by examining financial statements, focusing on liquidity, solvency, and profitability ratios. Liquidity ratios indicate JB Hi-Fi's ability to meet obligations, while solvency ratios assess its capital structure and debt management. Profitability ratios evaluate the company's income generation relative to costs, and activity ratios, such as inventory turnover, reflect operational efficiency. The conclusion suggests that JB Hi-Fi's profitability ratios indicate effective resource utilization, potentially offering good returns to shareholders.

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[COMPANY NAME] [Company address]
FINANCE

Contents
Introduction.................................................................................................................................................2
Analysis........................................................................................................................................................2
Conclusion...................................................................................................................................................6
References...................................................................................................................................................7

Introduction
The report brings out an analytical discussion on an ASX registered company with the help of
financial ratios. The aim of the report is to provide an overview of the company`s financial
conditions of JB Hi-Fi. This analysis will help to induce the investors by analyzing the financial
statements. Ratio analysis will help the investors to make an appropriate discussion on whether
to invest in the company or not. It is a tool that analyze the financial conditions of the company
and helps the investors to look into the company`s performance. The report considers all the
relevant financial ratios that can ultimately help the investors to make their decision regarding
investment (Annual report, 2017).
Analysis
Financial ratio is an beneficial indicator of organization`s performance. These ratios are
calculated from the information given in the financial statements. It is used to analyze the trends
and compare the organization`s ratios with the industrial ratios (Breitenlechner, Scharler, and
Sindermann, 2016).
Liquidity ratio
This ratio indicates whether company have sufficient current assets to pay off its obligations. It is
used to determine debtor`s ability to pay the debt obligation without using any external
assistance. Here, in this report, current ratios such as liquidity ratio and current ratio has been
calculated.
Liquidity ratio 2017 2018
Current ratio 1.3 1.3
Quick ratio 0.3 0.3

Form the above table, it can be interpreted that JB Hi-Fi is sufficient enough to pay off its
obligation because the current ratio is 1.3:1 whereas the ideal ratio is 1:1. 1.3:1 indicates that the
company has more current assets as compared to current liabilities (Damjibhai, 2016).
Quick ratio indicates that efficient is the company to pay off short-term obligations. As inventory
is considered liquid than other current assets and 0.3 indicates that JB Hi-Fi has more inventory
in the total of current assets.
Solvency ratio
This ratio indicates the proportion of equity and long-term debt. This is calculated by dividing
non-current liabilities to equity (Damjibhai, 2016).
Capital structure
ratio 2017 2018
Debt- equity 1 5/6 4/5
Interest coverage ratio 24.22 20.15
From the above table, it can be interpreted that debt-to-equity ratio is more than the ideal ratio. In
2017, it is seen that the ratio is approximately 2.5 times whereas in 2018, it was below 2 times
that is 0.8 times. Higher ratio in 2017 reflects that the company is at high potential risk whereas,
in 2018, the company has more contribution of equity in the total capital structure.
Interest coverage ratio is the capacity to honor the debt payment such as interest expense. Lower
is the ICR, higher is the company`s burden of debt which in return increases the possibility of

bankruptcy. When the company is 1.5 or below then the capacity to pay interest is questionable.
It is clearly seen that JB Hi-Fi does not have a considerable capacity.
Profitability ratio
This ratio is used to analyze the ability of the company to generate income as compared to cost
associated with the process during the fiscal year. As a standard income, it can be said that a
business must generate at least 15 to 20 percent of sales revenue.
Gross profit ratio shows the availability of much profit which is generated through sales. It is
calculated from the company`s total sales as higher sale leads to higher profits. Greater is the
ratio, higher is the profit margin ratio which is good for the stakeholders. From the below table, it
can be seen that the company is earning a considerable proportion of gross profit. This indicates
that investors can think of investing in the company due to 22 percent in 2017 and 21 percent in
2018.
Return on equity is the fund invested by the company. It measures how profitable will be
owner`s fund that have been utilized to generate the organization`s profit. The company is
performing well as the return on capital employed is 41 percent in 2017 and 37 percent in 2018.
A high capital turnover ratio determines that the company has enough capability to accomplish
maximum sales with limited amount of capital employed. In 2017, the company is able to
generate 20 cents in its operating income. Same as in 2018, the company is able to generate 25
cents in operating income (Uechi, Akutsu, Stanley, Marcus, and Kenett, 2015).
Profitability Ratios 2017 2018
Gross Profit Margin 22% 21%
Return on Capital 41% 37%

Employed
Return on Equity 20% 25%
Return on Total assets 11% 13%
Return on equity determines how efficient is JB Hi-Fi in using shareholder`s money to generate
gross profit. Other return on investment ratios, return on equity is useful from shareholder`s point
of view. JB Hi-Fi ratios indicate that the company is able to generate 20 percent in 2017 on the
basis of shareholders investment in organization (Myaccountingcourse, 2018).
Return on total assets indicates that how efficiently the company is using its total assets in order
to generate the profits. High ratio reflects that company is using its assets effectively by
employing investors’ finds properly (Myaccountingcourse, 2018).
Activity ratio
Inventory ratio calculates the average number of days in a period of time in which the stock is
held in the company. In other sense, it can be said that how long it will take to sell the current
inventory.
Activity ratio
Efficiency ratio 2017 2018
Inventory turnover ratio 6.43 33.48
Assets turnover ratio 2.27 2.77
From the above table, it can be said that the company buys the inventory 6.43 times in a year in
2017 whereas, in 2018, the company undertakes to buy the stock approximately 33.48 times in a

year. Higher ratio reflects that the company has incurred incredibly excessive sales or it can be
situation that each time they incurred a very less amount of investor (Ready ratio, 2018).
Conclusion
From the above discussion, it can be concluded that profitability ratios are the most important
concern of shareholders to check whether the organization is utilizing its resources properly to
retain maximum sales and profit too. This analysis as indicated that the company is performing
well as the profitability ratio is nearly 15-20 percent in a year, which reflects a good return to the
shareholders.

References
Annual report, (2017) JB hi-fi. Available on:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on 02/03/19]
Breitenlechner, M., Scharler, J. and Sindermann, F., 2016. Banks’ external financing costs and
the bank lending channel: Results from a SVAR analysis. Journal of Financial Stability, 26,
pp.228-246.
Damjibhai, S.D., 2016. Performance Measurement Through Ratio Analysis: The Case of Indian
Hotel Company Ltd. IUP Journal of Management Research, 15(1).
Myaccountingcourse, (2018) Return on Equity (ROE) Ratio. Available on:
https://www.myaccountingcourse.com/financial-ratios/return-on-equity [Accessed on 02/03/19]
Ready ratio, (2018) Meaning and definition of equity ratio. Available on:
https://www.readyratios.com/reference/debt/equity_ratio.html [Accessed on 02/03/19]
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
pp.488-509.
Zainudin, E.F. and Hashim, H.A., 2016. Detecting fraudulent financial reporting using financial
ratio. Journal of Financial Reporting and Accounting, 14(2), pp.266-278.