Accounting for Management Decision Making: Cash Flow Analysis Report

This report provides a comprehensive analysis of the cash flow statements of Harvey Norman and JB Hi-Fi, two prominent companies. The analysis incorporates ratio analysis to assess the financial performance of both organizations, including metrics such as working capital ratio, cash flow adequacy ratio, debt-to-total asset ratio, debt coverage ratio, and cash flow to sales ratio. The report compares the operating, investing, and financing activities of both companies, highlighting key differences in their financial strategies and performance. The conclusion summarizes the key findings, offering insights into the companies' ability to manage their cash flow and debt, providing a valuable resource for students studying accounting and financial management. References from various academic sources are also included.

Running head: ACCOUNTING FOR MANAGEMENT DECISION MAKING
Accounting for management decision making
Name of the University
Name of the student
Authors note

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ACCOUNTING FOR MANAGEMENT DECISION MAKING
Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Analyzing the cash flow statements of Harvey Norman by incorporating ratio analysis:..............2
Analyzing the cash flow statements of JB Hi-Fi by incorporating ratio analysis:..........................3
Conclusion:......................................................................................................................................4
References:......................................................................................................................................5

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Introduction:
The report discusses the analysis of the information that is retrieved from cash flow
statement of tow selected companies that is Harvey Norman and JB Hi-Fi. Harvey Norma is a
large multinational retailer of small appliances, bedding, flooring, furniture, information
technology provider based in Australia. On other hand, JB Hi-Fi is one of the fastest growing
businesses that specializes in wide variety of consumer goods services in Australia and New
Zealand (Anderson et al., 2015). In the current report, analysis of financial performances of both
the organizations has been demonstrated through the application of ratio analysis tool.
Discussion:
Analyzing the cash flow statements of Harvey Norman by incorporating ratio analysis:
While analyzing the cash flow statement, it is required it consider various components
such as cash flow for operating activities, cash flow from investing activities and cash flow from
financing activities (Butler & Ghosh, 2015). It can be ascertained that net cash flow from
operating activities for financial year 2016 was recorded at $ 437691 as compared to $ 340448 in
financial year 2015. This is indicating that there has been increase in cash generated from
operating activities. Net cash used in investment activities has also witnessed an increase as
depicted by figure. Value stood at $ 179853 in year 2016 compared to $ 81803 in year 2015.
Furthermore, net cash used in financing activities has also increased by considerable amount.
Amount of cash used in financing activities increased to $ 307427 in financial year 2016.
Working capital ratio of Harvey Norman is 1.26 and this indicates that organization is
capable of paying its liabilities using their assets. Cash flow adequacy ratio is recorded at 0.91
that is indicative of the fact that a sufficient cash flow is generated by firm and there is no
requirement of equity or debt funding in current scenario. Debt to total asset ratio stood at 0.39
and debt coverage ratio is 16.20. Debt to assets is lower than one which is indicative of the fact
that for funding the assets, organization is relying more on equity. Debt coverage ratio depicts
that there is sufficient operating profit generation. Cash flow to sales ratio for Harvey and
Norman stood at 24.37% depicts that Harvey’s ability to efficiently convert its sales into cash.

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Analyzing the cash flow statements of JB Hi-Fi by incorporating ratio analysis:
Now, the cash flow statement of JB Hi-Fi has been analyzed. Net cash flow from
operating activities for financial year 2016 was recorded at $ 185140. This figure suggests that
there has been increase in net cash generated from operating activities. Net cash flow used in
investing activities has also increased in current year and the figure stood at $ 520001. This has
been mainly due to payment made to plant and equipment. There has been net cash outflow from
financing activities in year 2016 and the figure stood at $ 130565. Organization has made
payment for shares bought back and has repaid the borrowing that has led to increase in net cash
outflow.
Harvey Norman JB Hi-Fi
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Net Cash Inflow/(Outflow) from
Financing Activities
Net Cash Inflow/(Outflow) from
Investing Activities
Net Cash Inflow/(Outflow) from
Operating Activities
Ratio analysis of JB-Hi-Fi involves analysis of various ratios discussed above. Working
capital ratio stood at 1.57 that organization is efficient in making payment using their current
assets. Cash Flow adequacy ratio is recorded at 0.91 that is indicative of the fact that 1.05 that is
indicative of the fact that organization is efficiently generating cash flow for meeting the ongoing
expenses. Debt to total asset ratio stood at 0.59 depicts that there is a lower financial risks of
company as they are not relying much on loan and borrowed amounts for asset financing. Debt
coverage ratio is calculated at 55.48 and it is preferable to have higher ratio in this regard. It also
depicts that serving debt can be done easily by income generated by organization. On other hand,
cash flow to sales ratio stood at 5% is illustrative of the fact that ability of organization to
generated cash from sales is not desirable. Reason might be due to ineffective management of
trade receivables on part of management or due to change in sales terms (Collier, 2015).

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Conclusion:
From the analysis of cash flow position of both organizations, it is seen that net cash flow
from operating activities of JB Hi-Fi is much lower as compared to Harvey Norman.
Furthermore, net cash outflow from investing and financing activities of Harvey Norman is
higher as compared to JB Hi-Fi. Moreover, the capability of JB Hi-Fi to finance its debt using
their revenue is considerably higher than Harvey Norman.

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References:
Anderson, D. R., Sweeney, D. J., Williams, T. A., Camm, J. D., & Cochran, J. J. (2015). An
introduction to management science: quantitative approaches to decision making.
Cengage learning.
Butler, S. A., & Ghosh, D. (2015). Individual differences in managerial accounting judgments
and decision making. The British Accounting Review, 47(1), 33-45.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
Datar, S. M., Rajan, M. V., & Horngren, C. T. (2013). Managerial Accounting: Decision Making
and Motivating Performance. Pearson Higher Ed.
Nielsen, L. B., Mitchell, F., & Nørreklit, H. (2015, March). Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1,
pp. 64-82). Elsevier.
Weygandt, J., Kimmel, P., & Kieso, D. (2014). Financial Accounting: tools for business decision
making, Hoboken.

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