HI5002 Finance Project Report: JB HI FI & Telstra Performance Analysis

This project report, prepared for a Finance for Business course, conducts a comprehensive financial analysis of two ASX-listed companies: JB HI FI and Telstra. The report begins with company descriptions and then proceeds to a detailed performance ratio analysis, examining profitability, liquidity, and capital structure ratios for both companies over a three-year period. The analysis includes calculations of Return on Equity (ROE), Return on Assets (ROA), gross and net profit margins, current and quick ratios, debt-to-asset ratios, interest coverage, and gearing ratios. Following the ratio analysis, the report delves into the analysis of stock prices, comparing the performance of JBH and TLS stocks against the All Ordinaries index (AORD). The report also analyzes the correlation between the stock prices of the two companies and the index. Finally, the report provides a beta value and cost of equity calculations and includes a discussion of dividend policies for both companies. The report concludes with a recommendation letter providing investment advice based on the financial analysis and a list of references.

Running Head: Finance for business – Masters
1
Project Report: Finance for business – Masters

Finance for business – Masters 2
Contents
Introduction.......................................................................................................................3
1.Company descriptions...................................................................................................3
a.Telstra limited............................................................................................................3
b.JB HI FI.....................................................................................................................3
2.Performance ratio analysis.............................................................................................3
3.Analysis of stock price.................................................................................................11
4.Analysis on changes into stock price...........................................................................12
5.Beta value and cost of equity.......................................................................................13
6.Dividend policies.........................................................................................................14
7.Recommendation letter................................................................................................15
References.......................................................................................................................17
Appendix.........................................................................................................................18

Finance for business – Masters 3
Introduction:
Financial analysis is a process which explains the performance of a business on the
basis of analysis on the financial statements of the company. Financial analysis process takes
the concern of financial statements and other financial activities of the business to identify the
overall position of the business. It evaluates the position through technical analysis and the
fundamental analysis to create a better base for the investors to make decision about the
investment into the company (Higgins, 2012). Ratio analysis, cost of equity, weighted
average cost of capital, horizontal analysis, vertical analysis etc are few evaluation methods
to measure the financial performance of a company. In the report, financial performance of
JB HI FI and Telstra Corporation has been evaluated to identify the best company for the
purpose of the investment.
1. Company descriptions:
a. Telstra limited:
Telstra limited is a telecommunication company in the Australian market. It offers the
telecommunication solution and the services to the business people and the Australian
individuals. The main services of the business are network solution which also includes the
global IP private networks, global Ethernets, international private line, security solution,
managed store, customer control centre. It is the largest company in the telecommunication
sector of the business (Bloomberg, 2018). It has been founded 43 years before at 1st July
1975. Total number of employees of the company is 32000 and 150 subsidiaries are running
by the company to run the business.
b. JB HI FI:
JB HI FI is an Australian company which deals in the consumer goods. The company
specializes in electronic products, blu rays, video games, CDs, DVDs, mobile phones,
electronic home appliances etc. It has been founded in 1974. The company is operating its
services through 303 stores. The company is operating its operations and activities under the
retail industry. The company has expanded its business in New Zealand market as well. The
main competitive advantage of the business is its products and various outlets which make it
convenient for the customers to reach over the store and purchase the products from the
company.
2. Performance ratio analysis:

Finance for business – Masters 4
Performance ratio analysis is a financial evaluation method which is used by the
companies to measure the operating and financial performance of a business. It measures the
liquidity, profitability, solvency, efficiency and capital structure level of the business to
identify the position of the business. This evaluation process makes a base for the investors to
identify the investment level of the business and the risk position to make decision about the
investment into the company (Gibson, 2011). In the report, performance ratios of JB HI FI
and Telstra have been calculated to measure the overall performance of the business. The
performance ratios of the business are as follows:
Profitability ratios:
Profitability ratios depict the profit generation ability of a business. It measures the
total profit of the business through assets, equity, sales revenue etc to identify that how much
profit has been generated by the business through the available resources.
Figure 1: Profitability Ratios
Return on equity measures the net profit of the business against the available equity of
the business. It explains the profit generation capability of the business. ROE of JB HI FI
explain that the profitability level of the business has been lower from last 3 years in 2017.
The current ROE of the business is 20.2%. On the other hand, the Telstra Corp’s ROE
explain about the reduced level as well. The changes in both the companies have occurred
due to the external factors.
Rate of return on
ordinary equity JB HI FI
Net profit / 136,511 152,181 172,400

Finance for business – Masters 5
Total equity 343,479 404,702 853,500
Answer: 39.7% 37.6% 20.2%
Rate of return
on ordinary
equity
Telstra Corporation
Net profit / 4,231,000 5,780,000 3,891,000
Total equity 14,103,000 15,871,000 14,541,000
Answer: 30.0% 36.4% 26.8%
Return on assets measures the net profit of the business against the available resources
of the business. It explains the profit generation capability of the business. ROA of JB HI FI
has been reduced in 2017 because of lower profits from last 3 years. The higher expenses
have led to lower profitability (Morningstar, 2018). On the other hand, the Telstra Corp’s
ROA has also been reduced. The changes in both the companies are quite similar.
Return on Total assets JB HI FI
Net profit / 136,511 152,181 172,400
Total Assets 895,013 992,381 2,452,300
Answer: % 15.25% 15.33% 7.03%
Return on Total
assets
Telstra Corp
Net profit / 4,231,000 5,780,000 3,891,000
Total Assets 40,445,000 43,286,000 42,133,000
Answer: % 10.46% 13.35% 9.24%
Further, the gross profit margin and net profit margin of both the companies have
been calculated and it has been measured that the gross profit of the business is similar in last
3 years while the level of the net profit has been fluctuated. The current net profit level of
JBH is lowest in all the three years. On the other hand, the gross profit and net profit level of
TLS brief reduction in both the levels. It led to the conclusion, that both the organization has
faced the lower profitability position in current year. The main reasons behind it are changes
in the economical performance.

Finance for business – Masters 6
Gross profit margin
JB HI FI
Gross profit / 798253 865408 1230500
Sales Revenue 3652136 3954467 5628000
Answer: 21.9% 21.9% 21.9%
Net profit margin
Net profit / 136,511 152,181 172,400
Sales Revenue % 3,652,136 3,954,467 5,628,000
Answer: 3.74% 3.85% 3.06%
Gross profit
margin Telstra Corporation
Gross profit / 18975000 18587000 14954000
Sales Revenue 25845000 25834000 25912000
Answer: 73.4% 71.9% 57.7%
Net profit
margin
Net profit / 4,231,000 5,780,000 3,891,000
Sales Revenue % 25,845,000 25,834,000 25,912,000
Answer: 16.37% 22.37% 15.02%
(Morningstar, 2018)
Liquidity ratios:
Liquidity ratios depict the ability of a business to manage all the short term debt
through the available short term assets of the business. It measures the total debt payment
position of the business through measuring the level of current assets and current liabilities of
the business.

Finance for business – Masters 7
Figure 2: Liquidity ratios
Current ratio measures the current assets of the business against the current liabilities
of the business. It explains the short term debt capability of the business. Current assets of JB
HI FI explain that the current liquidity level of the business has been lower from last 3 years
in 2017. The current liquidity ratio of the business is 0.35 in 2017 (Morningstar, 2018). On
the other hand, the Telstra current liquidity ratio explains about the reduction level as well.
The changes in both the companies have occurred due to lower current assets than current
liabilities.
JB HI FI
Liquidity Ratios 2015 2016 2017
Current Ratio
Current Assets / 616,898 702,518 1,170,700
Current liabilities 380,336 446,833 885,800
Answer: 1.62 1.57 1.32
Current Ratio Telstra Corp
Current Assets / 6,970,000 9,340,000 7,862,000
Current liabilities 8,129,000 9,188,000 9,159,000
Answer: 0.86 1.02 0.86

Finance for business – Masters 8
Further, quick ratio measures the quick assets which could instantly convert into cash
to the current liabilities of the company. It explains the liquidity risk level of the business.
Quick ratio of JB HI FI has been similar in all the three years. On the other hand, the Telstra
Corp’s ROA has been reduced. The evaluation on both the companies express that the
liquidity position of JBH is better. The risk level is lower in JBH.
JB HI FI
Quick ratio
Current Assets -
Inventory / 138,027 156,081 310,800
Current Liabilities 380,336 446,833 885,800
Answer: 0.36 0.35 0.35
Telstra
Quick ratio
Current Assets -
Inventory / 6,479,000 8,783,000 6,969,000
Current Liabilities 8,129,000 9,188,000 9,159,000
Answer: 0.80 0.96 0.76
Capital structure ratios:
Capital structure ratios depict the capital management ability of a business. It
measures the total assets, equity, debt, liabilities etc to identify that how the capital level has
been managed by the business.
Figure 3: Capital structure ratios

Finance for business – Masters 9
The debt to assets ratios measures the total debt against the total assets to identify the
performance level of the business. The ratio of JBH express the company has improved the
level through reducing the debt level against the assets of the business. In case of TLS, the
level has also been improved because of lower assets level.
JB HI FI
Capital Structure ratio 2015 2016 2017
Debt to asset ratio
Total debt 171,198 140,846 713,000
Total assets 895,013 992,381 2,452,300
Answer: 0.191 0.142 0.291
Telstra
Capital Structure
ratio 2015 2016 2017
Debt to asset ratio
Total debt 18,213,000 18,227,000 18,433,000
Total assets 40,445,000 43,286,000 42,133,000
Answer: 0.450 0.421 0.437
The interest coverage ratio further explains about the ability of the business to repay
the interest amount. On the basis of the evaluation, the performance of JBH is negative
because of negative profits while the performance of TLS is better (Morningstar, 2018).
Further, the gearing ratio has been calculated and it has been identified that the gearing
position of TLS is better because of the management of optimal capital ratio.
JB HI FI
Capital Structure ratio 2015 2016 2017
Interest cover ratio
EBIT /
-
302,309
-
322,029 -485,600
Interest expenses 5,927 3,857 10,700
Answer:
-
51.005
-
83.492 -45.383

Finance for business – Masters 10
Gearing ratio
Long term liabilities / 171,198 140,846 713,000
Capital employed 514,677 545,548 1,566,500
Answer:
0.33
3
0.25
8 0.455
Telstra
Capital Structure
ratio 2015 2016 2017
Interest cover ratio
EBIT / 7,729,000 7,110,000 2,067,000
Interest expenses 846,000 796,000 729,000
Answer:
9.
136
8.
932
2.8
35
Gearing ratio
Long term liabilities / 18,213,000 18,227,000 18,433,000
Capital employed 32,316,000 34,098,000 32,974,000
Answer:
0.
564
0.
535
0.5
59
On the basis of liquidity, profitability and capital stricture ratios, it has been measured
that both the companies are operating the business in the same manner but the financial
strategies of TLs is better because the risk level of the business is lower.
3. Analysis of stock price:
The stock price level of both the companies has been calculated against the all ordinary
stock prices to identify the changes and the overall performance of the business. The graph of
JBH and TLS are as follows which have been presented against the return of AORD.

Finance for business – Masters 11
Figure 4: JB HI FI
Figure 5: TLS
Introduction:
The report has been presented to identify the performance of stock price of JBH and
TLS against the stock price of AORD. It focuses that how much changes have occurred in the
stock price against the index prices.
Analysis:
Through measuring the stock price of JBH, it has been measured that the stock price
is depicting the positive changes mostly. It brief that the company has managed to improve
the stock prices against the AORD prices. The correlation of JBH is -13% which explains that

Finance for business – Masters 12
the changes into one stock don’t lead to other stock. Both are operating individually (Yahoo
finance, 2018). The graph brief improved changes in JBH stock than AORD which lead to
the conclusion that the overall performance of the business is better and the company could
be a better choice for the investment.
Further, the stock price of TLS has been studied. Through the study, it has been
measured that the stock price of TLS is reducing than the stock price of AORD. It briefs the
stock price of the company is reducing against the AORD prices. The correlation of TLS is
38.49% which explains that the changes into one stock highly lead to other stock. The
changes into TLS would lead to AORD as well (Yahoo finance, 2018). The graph brief
reduced changes in TLS stock than AORD which lead to the conclusion that the overall
performance of the business has been lowered and the management is required to look over
the issues.
Conclusion:
To conclude, the average stock return of JBH, TLS and AORD are 0.73%, -1.94%
and 0.34% which explains that the stock price of JBH is way better in the industry and the
investment into the company would lead to better returns.
4. Analysis on changes into stock price:
The performance of stock price of JBH and TLS has been studied and it has been
found that huge changes have occurred into the stock price of both the companies. The stock
price of a business could be changed because of various internal and external aspects such as
changes into the internal policies or impact of economical issues on the business. In case of
JBH and TLS, the reasons behind the changes have been evaluated.
In case of JBH, on 31 Dec 2015, the stock price of the company has been improved
from $ 19.28 to $ 23.13. It was a huge change which has been occurred due to the new
project proposal of the business which has been leaked (AFR, 2018). In addition, in the year
of 2017, the stock price of the business has also been improved due to the acquisition of
“Good Guys” (CRN, 2018). The internal and external factors have helped the business to
improve the performance.
In case of TLS, on 31 July 2016, the stock price of the company has been lowered
from $ 4.97 to $ 4.53. It was a huge change which has been occurred due to the leaked news
from the company about the changes into board of directors (AFR, 2018). In addition, on 31
July 2017, the stock price of the business has also been lowered due to the impact of the