Financial Analysis of Company: JB Hi-Fi and Decision Making Process

This report provides a comprehensive financial analysis of a company, focusing on the financial health and decision-making processes. The executive summary highlights the use of financial tools such as ratio analysis, capital budgeting, and bottom-up analysis to evaluate financial problems and determine optimal courses of action. The report evaluates the decision to continue or discontinue a business line, considering factors like opportunity cost and contribution margin. The second part of the report delves into the financial performance of JB Hi-Fi, utilizing ratio analysis and other tools to assess the company's growth, business functioning, and financial capacity. The report aims to guide investors on making informed decisions based on the company's financial performance and offers insights into the key financial performance measures of JB Hi-Fi, supporting recommendations for investment strategies.

RUNNING HEAD: Financial analysis of Company
1
Name of the student-
Topic - Financial analysis of Company
University name-

Financial analysis of Company 2
Executive summary
This report is prepared with a view to analysis the financial problems and financial
decision making process of the investors. There are several financial tools such as ratio analysis,
capital budgeting tools, NPV, IRR and bottom up analysis. These financial tools are used to
evaluate the financial problems and identify the best suitable course of action to make effective
use of resources. It is evaluated that if company wants to discontinue its business then it should
consider all the internal and external factors such as its opportunity cost, investment capital and
loss to the organization. This report has reflected how organization should take investment
decision to create value on the invested capital. In addition to this, another part of the report
divulges the key financial performance of JB Hi-Fi Company throughout the time. It will give
brief idea to investors about how they could create value on their investment if they invest their
money in JB Hi-Fi Company.

Financial analysis of Company 3
Table of Contents
Executive summary............................................................................................................2
Introduction.......................................................................................................................4
Question-1......................................................................................................................... 5
Answer to question no-a................................................................................................5
Answer to question- b....................................................................................................7
Question no-2.................................................................................................................... 9
Introduction.......................................................................................................................9
Present description of company........................................................................................9
Financial analysis of the JB HI-FI company...................................................................10
Recommendation.........................................................................................................16
Finding and conclusion.................................................................................................17
References....................................................................................................................... 19
Appendix.......................................................................................................................... 22

Financial analysis of Company 4
Introduction
With the ramified economic changes and complex business structure, each and every
organization is making effective efforts to increase their overall earning. It is considered that
investors are more inclined towards investing their capital in company which provides short term
and long terms benefit to them at large. In the first part of the report, costing methods and
decision making to continue or discontinue particular project has been taken into consideration.
It is evaluated that management is in the mist to decide whether continued losses shown by the
round trampolines and wants a recommendation as to whether or not the line should be
discontinued. Therefore, costing technique has been used to make effective decision making. It
is evaluated that if company could gauge the possibility of short term and long term debts then it
will increase the overall productivity and earning of company. In addition to this, continue and
discontinue of the business is totally depends upon the contribution margin of company. If
company is having positive contribution margin in its value chain activities then it should surely
continue its business operation even if it is showing negative output in its business. The second
part of the report is based on the financial analysis of the business functioning of company. This
report has reflected the key understanding on the financial analysis of the company. In this
report, financial analysis tools such as Ratio analysis, top down analysis and bottom up analysis
have been used to gauge the performance of company. This part of the report is based on the
company name JB HI FI Company. It is the listed company running its business on international
level. It is considered that if investors want to make create value on his investment capital then
they needs to invest their money in value created company.

Financial analysis of Company 5
Question-1
Answer to question no-a
In this part of the question, there are following points are undertaken which are given as below
 All the production fixed cost has been allocated in different department on the basis of
sales.
 If production of round trampolines is stopped then equipment engaged in this will be of
no use.
 If production of round trampolines is stopped then there will be saving of line
supervisor’s salary.
 Company has no other use of these assets and working capacity to produce other
things. Therefore, it will be loss for the business if they discontinue production of round
trampolines.
These are the above factor which needs to be taken into consideration while undertaking
the production. After evaluating the various factors and key contribution factors in this part, it
is considered that round trampolines production is not profitable and not creating value for the
capital engaged in business. Therefore, it could be determined that management department
should stop the production of round trampolines at large. If management department of
company consider the other factors such as production capacity, opportunity cost then there
will be following recommendations.

Financial analysis of Company 6
It is considered that if management department will stop the production of round
trampolines then it will result to saving of only line supervisor’s salary. In addition to this,
management department has to bear other losses like general factory overhead, depreciation
and advertisement expenses. Even if, company stops its production of round trampolines, it will
result to loss of 5, 11,000. This is the actual loss and company could save only 19,000 after
discontinue business.
Income/Expenses Total, RM Round, RM Traingular,
RM Square, RM
Sales 1,000,00
0 140,000 500,000 360,000
Less: Variable
expenses -410,000 -60,000 -200,000 -150,000
Contribution margin 590,000 80,000 300,000 210,000
After evaluating the details and data of these round trampolines, it is considered that
contribution margin of company is positive and showing 5, 90,000 amount of profit margin. It
shows that company has high amount of profit from its total sales of round trampolines.
In addition to this, if management department discontinue its business then it will have to
bear the following losses.
Advertising 216,000 41,000 110,000 65000
Depreciation 95,000 20,000 40,000 35,000
Line supervisor’s salary 19,000 6,000 7,000 6,000
Gen. factory overhead* 200,000 28,000 100,000 72,000
Total fixed expenses -
530,000 -95,000 -257,000 -1780000
Less Line supervisor's
salary 19,000 6,000 7,000 6,000
Total loss still face by
company
-
511,000 -101,000 -264,000 -172000

Financial analysis of Company 7
It is evaluated that management department should understand that even if this operation is
discontinue then it will have to face total loss of 5, 11,000 in its business. This business
operation has shown that if company wants to create value on its investment then it should not
discontinue its business operation. The main reason of the same is related to the contribution
margin from its business operation of RM. Company is having positive contribution margin in
tis total RM production that reflects the positive output. This has shown that if investors want
to increase its overall profit and business output then it should run its Total Rm production for
long run otherwise company will have to face destruction in its invested capital.
Now in the end, it could be inferred that manager needs to analyze the others factors of the
business before taking decision of discontinue of business. In this case, management
department should understand that earning contribution margin from the investment is the
valuable for the organization and organization if reduces its business operation then it will
eventually increase the overall cost of the production
Answer to question- b
Recast the above data in a format that would be more usable to management in assessing the
long-term profitability of the various models (Ondraczek, Komendantova, and Patt, 2015).
Income/Expenses 2016 20017 2018 2019
Sales 1,000,00
0 1500000 2000000 2500000
Less: Variable
expenses 410,000 615000 615000 461250
Contribution margin 590,000 885,000 1,385,000 2,038,750
Less: Fixed Expenses 1,060,000 1,060,000 1,060,000
Advertising 216,000 216,000 216,000 216,000
Depreciation 95,000 95,000 95,000 95,000
Line supervisor’s 19,000 19,000 19,000 19,000

Financial analysis of Company 8
salary
Gen. factory
overhead* 200,000 200,000 200,000 200,000
Total fixed expenses 530,000 530,000 530,000 530,000
Net profit 60,000 355,000 855,000 1,508,750
With the help of excel tool, there is following information has been extracted which reflects
that company will increase the sales and will also increase the variable cost at the same. In
addition to this, company should not discontinue its operation. It is considered that with the
increase in its sales company will also increase its profit and loss arise from the round material
will be compensated by the profit earned from other units of organization. This level of
measurement reflects that company or management department should run its RM production
business in long run. However, company might be facing loss in short term but in long run it will
result to saving good amount of profit at large (Yahoo finance, 2017).
This excel tool has been used to measure the profitabiltity of the total RM production of
organization and assumption has been taken that company will increase the sales of its total
RM by 5,00, 000 each year which will surely increase its profitability throughout the time. In
2016 company had profit of $ 60,000 which will increase to 3, 55,000 in 2017 if company
increases its sales by 5, 00,000. Moreover, this profit will increase each year if company will
increase its sales by 500000 each year on consistent basis (Bodie, 2013).

Financial analysis of Company 9
Question no-2
Introduction
Financial analysis is the important step which investors should adopt while making
investment decision in particular company. In this report, JB HI-FI Company has been
undertaken to identify its growth, business performance and financial capacity of company. It is
evaluated that investors need to analyze the financial performance and capital structure of JB Hi-
Fi Company (Vogel, 2014).
Present description of company
It is an Australian and New Zealand Retailers Company selling consumer goods,
specializing in video games, DVD and electronic home appliance, Company is fastest growing
most successful business of its kind. This company has been running its business on international
level. This company has shown high amount of increment of profit in its business functioning
and effective sustainable future (Damodaran, 2016).
Vision of company
The main vision of company is to increase its overall market share to 40% including
domestic and international market with the help of its product differenciation strategies.
Mission of company

Financial analysis of Company 10
The main mission of company is to implement new process system in its business and
customize its products and services for the better satisfaction of clients (JB Hi FI Company
2016).
Value of the company
The main value of company is to increase its production by following ethical means and
create employees oriented value chain activities (Kou, Peng, and Wang, 2014).
Objective of study
This report is prepared to evaluate the financial performance of company and how proper
financial tools could be used to assess the growth and business functioning of company. There
are financial analysis tools such as Ratio analysis, top down analysis and bottom up analysis
have been used that will help reader to identify all the ups and down and trend of company. The
main objective of this study is to learn the key performance measures of company (Gitman,
Juchau and Flanagan, 2015).
Financial analysis of the JB HI-FI company
The Financial analysis of the JB HI-FI company is implemented with a view to analyzing
the business performance and growth trend of company. Ratio analysis has been used to evaluate
the business performance and capital structure of company. However, annual report of company
has shown that company has high profitability and sustainable business practice. In addition to
this, investors should keep his money in JB Hi-Fi Company in long run (Baños-Caballero,
García-Teruel and Martínez-Solano, 2014).
Ratio analysis

Financial analysis of Company 11
This ratio analysis helps in determining the relation between two associated factors of the
financial statement of company and establish interlink between these factors. There are five types
of ratio such as liquidity, efficiency, profitability, investment and debt structure of company.
This ratio analysis will showcase the trend and financial performance of company throughout the
time (Brigham and Ehrhardt, 2013).
Liquidity ratio of company
This ratio reflects company’s ability to pay off its current liabilities with the help of its
current assets. This ratio has shown how well company has maintained its liquidity cash to run
its operating activities in determined approach.
Current ratio
This ratio depicts company’s ability to pay off its current liabilities with the help of its
current assets. Company has maintained effective stable current ratio since last five years with
less fluctuation. In 2013, JB Hi-Fi Company had 1.38 current ratio which increased to 1.32 in
2017. This shows that company has maintained strong current ratio and increased its current
assets (Vernimmen, et al 2014).
Description Formula JB Hi-Fi Limited
2017 2016 2015 2014 2013
Current ratio
Current
assets/current
liabilities
1.3
2
1.5
7
1.6
2
1.6
4
1.2
8
Quick Ratio
Current assets-
Inventory/current
liabilities
0.3
5
0.3
5
0.3
6
0.3
4
0.3
1

Financial analysis of Company 12
Quick ratio- This ratio divulges company’s ability to pay off its current liabilities with the
help of its quick assets. JB Hi-Fi had .31 quick ratios which increased to .35 and shown that
company has increased its investment in keeping more inventory in its value chain activities.
This quick ratio is high as compared to market industry player therefore, investors should
evaluate whether company has establish optimum cash blockage to run its business effectively
(Ehrhardt and Brigham, 2016).
Profitability ratio
This ratio reflects the relation between total turnover and earning of company. It has been
observed that there are following sub ratio which divulges the profitability of company. After
evaluating the net profit shown in the annual report of company, it is evaluated that company has
stable profitable earning capacity and has increased its overall turnover throughout the time. The
main considered point of profitability ratio is that company has maintained stable profitability in
it business (Duchin and Sosyura, 2014)
Return on equity- In this ratio, return available to equity shareholders and total revenue of
company has been considered (Bloomberg, 2017). Company has decreased its return on equity to
.030 returns on equity in 2017 as compared to .035 data shown in 2013. It reflects that company
has decreased its efficiency to earn profit. It is further observed that company is not paying much
interest on its debts which resulted to availability of dividend to shareholders (Zhu, 2014).
Return on assets- It establishes the relation between return earned by company and assets
investment. It has shown that company has decreased its return on assets from .47 to .201 in
2017 since last five years. This level of decrease in its net profit has shown that company
reduced its earning throughout the time and resulted to non-effective business. In addition to this,