In-depth Analysis of JB Hi-Fi's Financial Performance: ACC101 Report

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ACC101
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Contents
Introduction................................................................................................................................3
PART-A.....................................................................................................................................5
PART-B....................................................................................................................................10
PART-C....................................................................................................................................14
References:...............................................................................................................................17
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Introduction
Financial analysis is the systematic process to evaluate the company’s performance by its
businesses, profit, EPS and projects etc. Typically, it analyzes the company’s stability,
solvency and profitability. There are two ways to analyze the company’s performance. The
first one is fundamental analysis which includes financial ratios, Company’s EPS etc whereas
the technical analysis includes moving averages of the company through the quantitative
charts etc.
Now coming to the financial performance of JB HI-FI:
FINANCIAL PERFORMANCE – HIGHLIGHTS:
1.Profit are attributed to the owners of JB HI-FI Limited.
2.In the financial year 2014 the dividend will be 29% per share also 84% share reflects the
pay out ratio over 65% for FY 2014 earnings.
Performance of Sale:
The sales were increased to 5.3% which is $3,483.78 million and expected growth was 2%.
Cost of the business:
Cost of the business has been increased to 15.19% to 15.10% which was last year. JB HI-FI
has the low cost of business as compare to major listed retailers in Australia despite of
increment in the cost of doing business. It mainly focus on the productivity.
Earnings of the company:
Earning before interest and tax was increased up to 7.5% from 5.49% which is $191.12 from
$177.75.
Position of the company (Financial Position):
The stability of the company is quite stable.
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-In June,2016 the debt facility has been expired and has overdraft facility renewable has been
added of $80 million. It also represented the additional overdraft facility of $ 50 million.
- $ 180 million interest bearing liabilities has been increased.
-The increment in the net debt was from $ 56.96 to $ 136.21 and it includes the payments
from creditors and buy back but expectations were the same as earlier.
- The financial contracts includes the facilities of financing, these are the leverages and it also
incudes the fixed charges ratios and the shareholders funds contracts.
-Around 1,438,091 ordinary shares had been issued to employees in company’s options
plans.
-The company also undertakes the on market buy-back for neutralising the issue of the
shares.
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PART-A
Ans. 1.
Cash and Cash equivalents:
For determining the company’s year end cash and cash equivalent balances we need to
determine the amounts which we have added and subtracted from the accounts in our
accounting record during that year. Our cash basically consists paper money like coins,
currencies, petty cash, Cheques etc. These are pretty safe investment which will be liquidated
within 90 days. Also the cash which are to be kept aside for some specific reasons are not
included in cash and cash equivalent and these are known restricted cash.(Accounting Tools,
2019)
In general these are highly liquid investments and have the maturity of three months or may
be less. For immediate use the item must be classified into unrestricted.
CCE= CCE + trade and receivables
=43,445
Inventory:
The reporting of inventory is to be done by the cost of merchandise purchased and not sold
yet. It is recorded as a current asset in company’s balance sheet. These are required to be
monitored closely.
Inventories=458,625-426,000
=32,625
Sales Revenues:
The amount which are realized by a business by its sale of goods and services. It basically
defines the size of the business.
Sale Revenues= 3,483,775-3,308,396
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=175,379
Other Incomes:
Other income does not come from the company’s core business like interest, rent, profit
from the sale of fixed assets etc. Companies present income in a separate section,
before income from operations.
Other Income=574-520
=54
Plant and Equipment:
Plant and Equipment are the assets which are used to produce goods and services which a
company sells to its customers. It is valued in original cost in balance sheet. It becomes net
plant and equipment when it is adjusted for accumulated depreciation.
P& E=181,564-181,098
=466
Interest Expense (finance cost):
It is considered one of the core expenses in the income statement. A company should finance
its assets through debt or equity. The company will also incur an expense related to the
borrowing cost. (Accounting Course, 2019)
Interest Expense=32,716-30,249
=2,467
Sales and marketing expense:
The cost which includes advertising, marketing, sales commissions etc. These cost are
related to the business profit and increasing the company’s revenue.
Sales and Marketing expenses =3,55,694-33,68,31
=18,863
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Occupancy Expense:
These are the cost related to the occupation of space like for example rent, real estate, taxes,
personal property taxes, building insurance, amortization and depreciation etc.(JB HI-FI ,
2017)Due to escalation in real estate these cost are higher in new entrants to the market.
Occupancy Expenses=148,969-140,249
=8720
Trade and other payable:
It consists money which a company owes the suppliers for goods which related to
inventories. For example, materials which are part of the inventory. It comes under short-term
debt or obligation.
Trade and other payables=302,979-387,020
=(84,041)
Borrowings:
For determining the current account in a balance sheet it is important to organize the assets
and liabilities in a balance sheet. (JB HI-FI, 2017). So the liquid kind of assets are classified
under current asset and short term borrowings are classified under current liability.
Borrowings(non-current)=179,653-124,331
=55,322
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Ans 2.
The normal balance would be-
a. CCE- Debit
b. Inventory- Debit
c. Sales Revenues-Credit
d. Other Incomes-Debit
e. Plant and E- Debit
f. Interest expense-Debit
g. Sales and marketing expenses-Debit
h. Occupancy expenses-Debit
i. Trade and other payable-Credit
j. Borrowing-Credit
By decreasing each item the affect in will be following:
a. Cash and cash equivalent- Because both are assets, both are recorded as debits
when increasing and recorded as credits when decreasing.
b. Inventories-In the income statement when debit increases an expense account,
credit decreases and also its liabilities, revenues and equity account will have credit
balances. The reduction in the liability shows that the debit has been paid and cash
is outflow.
c. Sales Revenues-Decreases in revenue or income of accounts are recorded as debits
on theright side of the ledger.
d. Other Income- It will be recorded as credit when decreased.
e. Plant and Equipment- In the right side of the accounting equation, expenses
decreases the stakeholders equity. Hence, expense account will be in the left side.
Debit will be needed to reduce the normal credit balances in shareholders equity.
f. Interest expenses-will be recorded to credit side if decreased.
g. Sales and marketing expense- would be recorded to credit side if decreased.
h. Occupancy Expense- It will be recorded to credit side if decreased.
i. Trade and other payables-It would be recorded to debit side if decreased.
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j. Borrowings-will be recorded to debit side if decreased.
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PART-B
Ans 1.
The various kinds of revenue generated by the consolidated groups are:
A. Revenues from goods sales or service fees: It is basically known as sales revenue or
service revenue. This is accounted as a core operating revenue for any business.
B. Interest revenue: These are non-operating revenue and accounted as an interest
earned on investment of the company.
C. Rent revenue: These are also non-operating revenue and accounted by the amount
earned by renting out buildings or equipment.
D. Dividend revenue: This also comes under non-operating revenue and recorded as
the amount of dividend earned from stocks and shares of the company.
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Ans. 2.
Asset classification in a group is a systematic procedure where we classify assets on the basis
of their characteristics. Some various accounting rules has to be applied on asset
classification.
Some common classification of assets are:
Cash- This includes cash and cash equivalent like petty cash, deposit account etc.
Receivables- This includes trade receivables and debtor balances etc.
Inventories- This includes WIP, raw material and finished goods etc.
Fixed asset-It includes plant and machinery, computer, furniture and fixture etc.
Some more classification of assets are:
Current asset- The assets which are converted into cash within a year.
Long-term asset- The assets which can be used more than a year.
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Ans. 3.
The main categories listed among the group’s equity are:
Contributed equities
Reserves& Surplus
Retained earnings
Equity attribute to the owners of the company
Non-controlling interests
According to the company’s provisions of option plans, the executives and non-executives
management have options around 27,98,881 in the FY-2014 and have 48,17,585 in the FY-
2013.
The holder who holds shares in the company has no rights to dividends and have no voting
rights also.
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