Financial Analysis Report: Harvey Norman Liquidity and Insolvency

This financial analysis report evaluates the liquidity and insolvency risk of Harvey Norman Holdings, utilizing the IDEALS framework. It examines financial statements and ratios, including the current ratio, quick ratio, and Altman's Z-score, comparing Harvey Norman with its competitor, JB Hi-Fi, over three years (2017-2019). The report identifies three core financial performance issues: business combinations, EBIT and sales, and the value of equity shares in the market, linking these to the Operating and Financial Review section of Harvey Norman's annual reports. It analyzes these issues, compares Harvey Norman's performance to JB Hi-Fi, and concludes by highlighting the most critical financial performance issue, emphasizing the need for Harvey Norman to maintain a strong financial position. The report is based on a finance assignment, providing a detailed overview of the content.

Running head: FINANCIAL ANALYSIS REPORT
Financial Analysis report
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FINANCIAL ANALYSIS REPORT
Table of Contents
Introduction:...............................................................................................................................2
The Qualitative analysis:............................................................................................................2
Enumerate options:.....................................................................................................................4
Three financial performance issues:...........................................................................................6
Comparison with Harvey Norman:............................................................................................7
Most importance financial performances issue:.........................................................................8
Conclusion:................................................................................................................................8
References:.................................................................................................................................9

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FINANCIAL ANALYSIS REPORT
Introduction:
Harvey Norman is the largest Australian based Company and it is a Multinational
drop shipping organization of bedding, communications, furniture, computers and electrical
consumer products. It operates as a franchise whereas JB-Hi-Fi is the ASX listed Company in
Australian retailer, and it sells a Specializes in consumer goods.
Analysis of Financial report is a systematic procedure of analyzing the financial
information in the financial statement and to understand and take economic decisions.
Financial statement analysis is the essential tools. This system is also used for analyzing the
solvency and liquidity ratio position of a company. So the financial report can also be a vital
tool to compare the solvency and liquidity position of the organization and concerning other
competitors of the industry. The financial report is a significant way of comparing and
analysing ratio of the Company as an efficient and effective comparison (Robinson, Henry,
Pirie, & Broihahn, 2015). Contrast can be critical due to many factors, such as revenue-
generating capacity and size of the organization. Ratio analysis can be used to minimize the
impact of these factors. The main purpose of this financial statement analysis is to understand
the liquidity and solvent position of Harvey Norman, which is an organization that operates
in the retail trade of Australia. This analysis will also be useful in comparing the companies
JB Hi-fi and Harvey Norman Ltd, both of which work in the retail sector in Australia.
Additionally, the analysis will also help in studying financial and non-financial factors for
better comparison between these organizations (Robinson et al., 2015)
The Qualitative analysis:
The ratios which have been calculated above is built according to the Harvey Norman
and JB-Hi-Fi annual report in the past three years, 2019, 2018 and 2017. The benchmark

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FINANCIAL ANALYSIS REPORT
ratios can be resulted from the retail trading owner institute in consumer category
discretionary and this ratio Altman Z score model is also used.
Ratios:
There are so many essential liquidity ratios which are discussed in the financial
statement analysis that can help to analyze the company liquidity position. Both of this ratio
have been calculated for the Harvey Norman, and JB- Hi-Fi limited to analyse the liquidity
position of the Company.

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FINANCIAL ANALYSIS REPORT
Based on this calculation, it can be referred that the company’s liquidity position as
compared to Harvey Norman is healthier in the retail sector of Australia. These ratios are as
follows:
Enumerate options:
Current ratio: The Current ratio measures the power which help the company to clear of its
current liability. Current ratios are the change between current liabilities and current assets.
The organization as a global company used in current assets to pay off current liabilities
(Robinson et al., 2015). In the case of current ratio, it can be observed the current ratio of
Harvey Norman is reasonable as compared to other liquidity ratio of JB-Hi-Fi limited in both
the cases of financial years extracted into consideration. Current ratios of Harvey Norman has
reached the maximum current ratio in the year of 2019. However, in JB-Hi-Fi current ratios
are not the same; hence, in this evaluation, it can be said that the company liquidity position
of Harvey Norman is healthier. So the ability of a company to pay off its dues is shown by
this ratio for the next 12 months of operation (Kopun, 2018).
Quick ratio: In current assets, there is specific business available that business organized and
they are not able to willing to sell in the 12 months of coming next year. Quick ratios
indicates whether the firm is in a position to pay its current liabilities within a month or
immediately. Quick ratios are much more related to the current ratio. Still, in quick ratio, this
can be used in current assets and it evaluates the short term liquidity position of the
Company. In Harvey Norman, the quick ratio is higher as compared to another quick ratio in
both the liquidity position of the financial years under considerations. Also, JB-Hi-Fi limited
is not able to achieve the maximum quick ratio in both years. So the company’s liquidity
position as compared to Harvey Norman is lesser to JB-Hi-Fi (Robinson et al., 2015).

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FINANCIAL ANALYSIS REPORT
GMROI and Low Inventory turnover ratio: Harvey Norman’s low inventory turnover
ratio shows the company periods and it can sell it to upgrade its inventory in the year. Low
inventory turnover ratio is perfect for Harvey Norman as it can quickly sell its list seven to
nine times in a year. These show that the Company has an ideal inventory management
system in place. So the Harvey Norman has a better ability to generate cash from selling the
inventories (Mbona & Yusheng, 2019).
Altman’s Z score: The Altman’s Z score is based on five financial ratios to predict the
possibility when a business firm may go into bankruptcy (Altman, Iwanicz‐Drozdowska,
Laitinen, & Suvas, 2017). Z score is a linear equation having certain factors which are
clubbed help of specific ways to arrive at Z score. These factors are specific vital financial
ratios that help in the prediction for the Company, going into bankruptcy (Altman, Iwanicz-
Drozdowska, Laitinen, & Suvas, 2014). These factors are:
Z-score= (1.2*A) + (1.4* B) + (3.3*C) + (0.6*D) + (1.0*E)
Where,
T1= working capital/ total assets
T2= Retained earnings/ total assets
T3= Earnings before interest and taxes/ total assets
T4= Market value of equity/ total liabilities
T5= Net sales/ total assets
Harvey Norman:
JB-Hi-Fi:

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FINANCIAL ANALYSIS REPORT
Both organizations of the Company Harvey Norman and JB-Hi-Fi of an Altman’s Z score is
healthy. However, in the comparison of both the Company, one can say that the Harvey
Norman is more robust as compared to JB-Hi-Fi.
Three financial performance issues:
Business combination: Harvey Norman limited bought business of good guys in the year of
2017 for increasing revenue growth rate with a capacity regeneration for the Company.
Overall sales and profitability have been impacted by the management of the Company.
Hence, business organization can negatively affect onto a financial strengths of the
organization in the early years of its business. However, it can be managed well through a
new segment of the market which has been purchased (Acharya & Mora, 2015).
(EBIT) And sales: Net profit ratio is an essential ratio to identify the financial and future
liquidity position of any firm. It is calculated by the ratio between EBIT and sales. Compared
to other business organization in the retail sector of Australia, net profit of the organization is
found to be lowered (Boubakri, El Ghoul, Guedhami, & Megginson, 2018). Currently, the
Harvey Norman has generated a net profit of 4% of EBIT of 334 million on total revenue of
around 6854 million. It is recommended that the Company’s overall cost should be in control
by providing services and goods to customers, especially the indirect cost of operations
(Mappanyuki & Sari, 2017).
The value of equity share in the market: The equity in terms of the market price of goods
plays an essential role while estimating the liquidity position and financial status of a firm.
This value of the investment is low in case of JB Hi-Fi Limited in comparison with the
Harvey Norman who is working in the retail sector of Australia, namely the Harvey Norman

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FINANCIAL ANALYSIS REPORT
which has one of the most significant competition in the market (Craig, Fecht, & Tümer-
Alkan, 2015).
Comparison with Harvey Norman:
Business combination: Harvey Norman was not indulged in any merger, business
acquisition or combinations with any other business organization in the year of 2017, 2018,
and 2019. This happens to be an effective strategy to increase growth and development.
However, mismanagement in the merger and acquisition activities can ruin the financial
position of the Company (Christoffersen, Goyenko, Jacobs, & Karoui, 2017). According to
expand business and number of customers, it was found to be an effective strategy for
consumer retail product industry to acquire new business. Harvey Norman adopted a strategy
by the franchisee, which is an even more effective method (Acharya & Mora, 2015).
EBIT and sales: Ratio between EBIT and sales of Harvey Norman was more attractive than
JB-Hi-Fi limited in the financial year 2019. The net profit of Harvey Norman was 26.7% in
2018, where JB-Hi-Fi limited had 2.8%. This difference is very curtailed for these two
similar industries. 20-30% is the optimum net profit ratio of the Company operating in this
industry (Craig et al., 2015). The comparison between Harvey Norman and JB-Hi-Fi says that
it is essential to increase the net profit ratio or else it could have lost the competitive edge in
the industry (Gurrea Martinez, 2017).
The value of equity share in the market: the market price of investment reflects the
demand for a specific stock in the stock exchange of Australia. In case of the Harvey
Norman, the market share price of the organization is 3879 million according to the recent
stock market price or share price of the organization in the stock market. The amount of JB-
Hi-Fi limited is around 2821 million in which clearly shows that Harvey Norman is at the

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FINANCIAL ANALYSIS REPORT
more superior position in this factor and also as compared to JB –Hi-Fi limited (Craig et al.,
2015).
Most importance financial performances issue:
The main financial performance issue in the Company for the fiscal year 2018 and
2019 is total revenue to net profit. The ratio decreased to 4.6% and 4.8% for 2018 and 2019
respectively, concerning 5.5% in the year 2017 (Craig et al., 2015). There was a need for
change in a business organization as indicated by decreased in ratio. Earning of net profit
ratio around 20 to 30% in the same industry by the business organization is supporting
conclusions of JB-Hi-fi limited. Harvey Norman could generate profit in the proportion of
1.49%, 1.58% and 1.61 % for the financial year past three years. Ratios are high in
comparison to JB-Hi-Fi limited as well as the trend of net profit is also seen to be increased
(Mohammed, 2016).
Conclusion:
According to the above analysis, financial statement analysis helps to conclude that
the business, as well as the liquidity position of Harvey Norman limited. It is not as
productive as compared to the other consumer product retail companies’ situation in
Australia. The very conclusion of the financial statement analysis has been found after
balancing the financial statements of the Company. Harvey Norman, who is the primary
competitor in the industry, and the other ratios are of the other companies in the industry is
also compared in which JB-Hi –Fi limited is operating. This is prepared by the finance
assignment and helps experts from the leading universities, which helps us to provide reliable
assignment help online retail service.

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FINANCIAL ANALYSIS REPORT
References:
Acharya, V. V., & Mora, N. (2015). A crisis of banks as liquidity providers. The journal of
Finance, 70(1), 1-43.
Altman, E. I., Iwanicz-Drozdowska, M., Laitinen, E. K., & Suvas, A. (2014). Distressed firm
and bankruptcy prediction in an international context: A review and empirical
analysis of Altman's Z-score model. Available at SSRN 2536340.
Altman, E. I., Iwanicz‐Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial
distress prediction in an international context: A review and empirical analysis of
Altman's Z‐score model. Journal of International Financial Management &
Accounting, 28(2), 131-171.
Boubakri, N., El Ghoul, S., Guedhami, O., & Megginson, W. L. (2018). The market value of
government ownership. Journal of Corporate Finance, 50, 44-65.
Christoffersen, P., Goyenko, R., Jacobs, K., & Karoui, M. (2017). Illiquidity premia in the
equity options market. The Review of Financial Studies, 31(3), 811-851.
Craig, B. R., Fecht, F., & Tümer-Alkan, G. (2015). The role of interbank relationships and
liquidity needs. Journal of Banking & Finance, 53, 99-111.
Gurrea Martinez, J. (2017). Financial statement analysis. Eurona Wireless Telecom SA.
Kopun, D. (2018). A Review of the Research on Data Mining Techniques in the Detection of
Fraud in Financial Statements. Journal of Accounting and Management, 8(1), 1-18.
Mappanyuki, R., & Sari, M. (2017). The effect of sales growth ratio, inventory turnover ratio,
growth opportunity to company's profitability (survey in Indonesia's stock exchange).
Paper presented at the 64th ISERD International Conference, Seoul, South Korea.

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Mbona, R. M., & Yusheng, K. (2019). Financial statement analysis. Asian Journal of
Accounting Research.
Mohammed, S. (2016). Bankruptcy Prediction by Using the Altman Z-score Model in Oman:
A Case Study of Raysut Cement Company SAOG and its subsidiaries. Australasian
Accounting, Business and Finance Journal, 10(4), 70-80.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis: John Wiley & Sons.