Corporate Accounting: Financial Analysis of JB Hi-Fi & Harvey Norman

This report provides a comparative financial analysis of JB Hi-Fi and Harvey Norman Holdings Limited, two major players in the Australian retail industry. It examines key aspects of their financial statements, including owners' equity, debt-equity ratio, cash flow statements, and other comprehensive income. The report analyzes the companies' financial positions, investment activities, and tax implications, highlighting differences in their financial strategies and performance. The analysis covers key metrics such as effective tax rates and provides insights into the companies' debt management and profitability. This document is available on Desklib, a platform offering a wealth of study resources for students.

HI5020 Corporate Accounting
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EXECUTIVE SUMMARY
Globalisation has brought all the organisations of the world on a common parlance.
There is a need to make the corporate reporting open and transparent. The current report is
based to highlight the same requirement. The two big competing corporations in the retailing
industry in Australia, JB Hi-Fi and Harvey Norman Holdings Limited are taken as the
reference companies for this assignment.
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Table of Contents
EXECUTIVE SUMMARY........................................................................................................2
INTRODUCTION......................................................................................................................3
JB HI-FI LIMITED....................................................................................................................4
HARVEY NORMAN LIMITED...............................................................................................4
OWNERS’ EQUITY..................................................................................................................4
QUESTION (i)...........................................................................................................................4
QUESTION (ii)..........................................................................................................................5
CASH FLOW STATEMENT....................................................................................................5
QUESTION (iii).........................................................................................................................5
QUESTION (iv).........................................................................................................................7
QUESTION (v)..........................................................................................................................8
OTHER COMPREHENSIVE INCOME STATEMENT..........................................................8
QUESTION (vi).........................................................................................................................8
QUESTION (vii)........................................................................................................................9
QUESTION (viii).......................................................................................................................9
QUESTION (ix).......................................................................................................................10
ACCOUNTING FOR CORPORATE INCOME TAX............................................................10
QUESTION (x)........................................................................................................................10
QUESTION (xi).......................................................................................................................10
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QUESTION (xii)......................................................................................................................10
QUESTION (xiii).....................................................................................................................11
QUESTION (xiv).....................................................................................................................11
QUESTION (xv)......................................................................................................................11
QUESTION (xvi).....................................................................................................................11
CONCLUSION........................................................................................................................12
REFERENCES.........................................................................................................................12
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INTRODUCTION
With the ramified changes, every Organizaiton needs to use proper financial reporting in it
books of accounts. Before a discussion can be made regarding the things to be discussed in
the report, a brief understanding of the two companies is required. This report has been used
to make an assessment and gather an understanding of the major requirements that are
essential for the analysing the financial details of two company. Every detail has been carved
in a form of comparative analysis between both the companies.
JB HI-FI LIMITED
JB Hi-Fi is in the business of retailing and is listed on Australian Stock Exchange. The
company is a market leader when it comes to electronics and supersedes when it comes to the
sale of DVDs, CDs, mobile phones, video games, and etc. Melbourne marks the area where
the shopping centre of the company is located.
HARVEY NORMAN LIMITED
Working in the retailing industry at a multi-national level, Harvey Norman works in the
business of furniture, computers, bedding, communications, and certain electrical products
sold in the consumer market. The operation of the company is maintained in the franchisee
form. All the operators intended to the business are required to operate as a franchisee of the
company.
OWNERS’ EQUITY
QUESTION (i)
The table presented down gives a list of the individual items of each of the company’s equity:
SHAREHOLDERS’ EQUITY JB HI-FI LIMITED HARVEY
NORMAL
LIMITED
Common stock 441,700,000 388,381,000
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Other equity 39,100,000 199,000
Retained earnings 463,200,000 2,337,241,000
Accumulated other comprehensive income 3,600,000 185,185,000
Total stockholders' equity 947,600,000 2,911,006,000
The different components presented in the shareholders’ equity are explained as follows:
COMMON STOCK:
Common shares are on the preferable list of some of the investors due to their high risk and
high profit nature. The common stocks for both JB Hi-Fi and Harvey Norman Holdings have
shown a rise in the year 2018 due to issuance of new shares (Lashgari, 2015).
OTHER EQUITY:
The kind of owned instruments that do not fall in the common stock are included in the
equity instruments. These include securities having equity nature. E.g. share warrant
instruments, notes, share papers, and etc. A rise is also shown as compared to the previous
financial years in case of both the companies.
RETAINED EARNINGS:
The retained earnings represent the share of profits that the company has earned over a
couple or the current financial year and has used the same by investing it back in the
company. No dividends have been paid or reserves been made out of this share. An increment
in the retained earnings shows that the company is good at its profitability and is able to save
enough after paying of all the due obligations and dividends. This strength is seen in the case
of both the companies used in the current assignment (Baloch, et. al 2015).
ACCUMULATED OTHER COMPREHENSIVE INCOME:
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This shows the total of unrealised losses and gains that have been reported by the
organisation for the current and/or previous financial years. For the JB Hi-Fi limited, the total
of the accumulated other comprehensive income has shown a decline, but for the Harvey
Norman Holdings Limited, the same has risen (Black, 2016).
QUESTION (ii)
JB HI-FI
LIMITED
HARVEY
NORMAN
LIMITED
Total debt 1,544,100,000 1,666,636,000
Total equity 947,600,000 2,911,006,000
Debt-equity ratio 1.62 0.57
The above analysis shows that the company JB Hi-Fi Limited is more levered and is gaining
the advantage of tax deduction on interest paid on the certain borrowed funds. However, the
Harvey Norman Limited is working with the owned funds more in comparison with the
borrowed funds. The risk is less but the ability to reduce the tax expense is very low. In
comparison with the previous year the equity for both the companies has shown a rise, which
may have a negative impact on the return on capital employed but is necessary for the
expansion of business. Also, the risk of low return is reduced with increasing profits (Geske,
Subrahmanyam, and Zhou, 2016).
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CASH FLOW STATEMENT
QUESTION (iii)
The main activities of the cash flow shall be discussed here. The receipt from customers
depicts the revenue that the company has generated on the sale. Both companies have
reported high revenue as compared to the past year (Hui, Nelson, and Yeung, 2016). The
main investing activity includes the acquisition of plant and property which has risen in the
current year. This amounts a solid proof for the going concern and expansion (Gordon, et. al
2017). The changes are presented in form of a table.
CASH FLOW SAMPLE STATEMENT
JB HI-FI LIMITED
2018 ($ IN
000,000)
2017 ($ IN
000,000)
CASH FLOWS AS REPORTED BY THE INVESTING
ACTIVITIES
Payment made for business combination (net basis) - (836.6)
Acquisition of plant & equipment (54.4) (49.1)
cash received from sale of plant & equipment 0.4 0.2
CASH USED BY INVESTING ACTIVITIES (54.4) (885.5)
% CHANGE 93.85%
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CASH FLOWS AS REPORTED BY THE OPERATING
ACTIVITIES
Receipts from customers 7551.9 6205.5
Payments made to employees and suppliers (7130.5) (5908.8)
Receipt of interest 0.5 1.7
Payment of interest and other finance cost (15.0) (9.3)
Payment of income taxes (114.8) (98.5)
CASH GENERATED BY OPERATING
ACTIVITIES
292.1 190.6
% CHANGE 53.25%
CASH FLOWS REPORTED BY FINANCING
ACTIVITIES
Cash receipt on issue of shares 3.0 395.9
(Repayment) or proceeds of borrowings (89.7) 450.0
Payment for issue costs of debt (0.8) (1.7)
Cost of share issue - (9.2)
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Dividend payment made to the company’s owners (151.6) (119.1)
Cash (used) or generated by financing activities (239.1) 715.9
% CHANGE (133.40 %)
CASH FLOW SAMPLE STATEMENT
HARVEY NORMAN HOLDINGS LIMITED
2017 ($ IN
000,000)
2016 ($ IN
000,000)
CASH FLOWS AS REPORTED BY THE INVESTING
ACTIVITIES
Payment for purchasing unit trusts’ units and other
investments
(0.2) (0.7)
Acquisition of plant & equipment & intangible assets (89.4) (68.2)
Purchase of investment property (114.8) (64.3)
cash received from sale of plant & equipment 28.6 9.1
Payment for purchasing equity accounted investments (8.9) (25.3)
Receipt from sale of listed securities - 0.1
Purchase of listed securities (6.5) (0.1)
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Grant of loans to joint ventures, joint venture partners,
and unrelated entities
(7.6) (30.4)
CASH USED BY INVESTING ACTIVITIES (198.8) (179.9)
% CHANGE (10.51 %)
CASH FLOWS AS REPORTED BY THE OPERATING
ACTIVITIES
Receipts from franchisee 882.5 949.2
Receipts from customers 1992.9 1932.4
Payments made to employees and suppliers (2252.9) (2267.6)
Receipt of distribution from joint venture 11.5 10.6
Payment of GST (44.6) (52.2)
Receipt of interest 5.0 7.6
Payment of interest and other finance cost (19.4) (28.8)
Payment of income taxes (152.5) (115.5)
Receipt of dividend 2.7 2.1
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CASH GENERATED BY OPERATING
ACTIVITIES
425.1 437.7
% CHANGE (2.88 %)
CASH FLOWS REPORTED BY FINANCING
ACTIVITIES
Cash receipt on issue of shares 1.0 5.0
(Repayment) or proceeds of borrowings (15.3) 0.3
Proceeds from syndicated facilities 70.0 -
Loan receiver or (repaid) to related parties 2.1 (45.9)
Dividend payment made to the company’s owners (345) (266.9)
Cash used by financing activities (287.1) (307.4)
% CHANGE 6.60 %
QUESTION (iv)
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