University Accounting for Managers: JB Hi-Fi Financial Analysis Report

This report provides a detailed financial analysis of JB Hi-Fi, examining its performance through various accounting ratios. Part A answers questions about the company's product offerings, revenue recognition, asset valuation, auditing processes, and sustainability initiatives. Part B delves into a comprehensive ratio analysis, calculating and interpreting efficiency ratios such as the working capital ratio and inventory turnover ratio, profitability ratios including gross profit ratio and net profit ratio, and debt position ratios like the debt ratio and debt-to-equity ratio. The analysis covers financial data from 2015 and 2016, providing insights into JB Hi-Fi's financial health and trends. The report utilizes information from the company's annual reports and provides interpretations of the calculated ratios, highlighting the company's financial strengths and weaknesses.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING FOR MANAGERS
Table of Contents
Part A...............................................................................................................................................1
Answer to Q1...............................................................................................................................1
Answer to Q2...............................................................................................................................1
Answer to Q3...............................................................................................................................1
Answer to Q4...............................................................................................................................1
Answer to Q5...............................................................................................................................2
Part B...............................................................................................................................................2
Question 1....................................................................................................................................2
Requirement A.........................................................................................................................2
Requirement B.........................................................................................................................3
Requirement C.........................................................................................................................3
Requirement D.........................................................................................................................3
Requirement E.........................................................................................................................4
Requirement F.........................................................................................................................4
References........................................................................................................................................5

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Part A
Answer to Q1
Different stores of JB Hi-Fi offer various types of electronic products; like leading brands
of computers, TVs, Tablets, Speakers, Cameras, HI FI, Car Sound System, Home Theatre Sound
System, Portable Audio systems and others. In addition, the company also offers various ranges
of DVDs, games, Blu Rays, TV shows and others at cheap prices (jbhifi.com.au 2018).
Answer to Q2
JB Hi-Fi measures their revenue based on fair value of the received or receive bale
consideration. JB Hi-Fi recognizes their revenue in case they can be reliably measured and thers
is probability that the future economic benefit will flow in favor of the company. It can be found
in page 87, note no. 27 (a) of 2016 Annual Report (jbhifi.com.au 2018).
Answer to Q3
JB Hi-Fi values their property, plant and equipment at cost by deducting accumulated
depreciation and impairment. Cost includes the direct expenses of the acquisition of assets. In
addition, the company charges deprecation on property, plant and equipment on straight line
basis. It can be found in page 70, note no. 9 of 2016 Annual Report (jbhifi.com.au 2018).
Answer to Q4
Deloitte is responsible for performing the audit of the financial statement of JB Hi-Fi
(jbhifi.com.au 2018). It is required for the auditors to be independent so that any relation
between the auditor and the audit client will not influence the audit report. The external party
must audit the financial statements in order to find material misstatements in the unbiased way
(Schmidt 2012).

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Answer to Q5
The employees of JB Hi-Fi use to donate 9 charity partners with the company’s
sustainability program named ‘Helping Hands’. IN addition, the company promotes
environmental sustainability with the help of different sustainability initiatives. Businesses have
become more concerned about sustainability due to the negative effect of their business of the
environment and people of communities (jbhifi.com.au 2018).
Part B
Question 1
Requirement A
Two major efficiency ratios are Working Capital Ratio and Inventory Turnover ratio. The
formulas are shown below:
Working Capital Ratio = Current Assets
Current Liabilities
Inventory Turnover Ratio = Cost of Goods Sold
Average Inventory
Particular 2016 ($) 2015 ($) Source Page No.
Current Assets (A) 702,518,000 616,901,000 Balance
Sheet of
2016 Annual
Report
57
Current Liabilities (B) 446,883,000 380,336,000 Balance
Sheet of
2016 Annual
Report
57
Working Capital Ratio (A/B 1.57 1.62

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Particular 2016 ($) 2015 ($) 2014 ($) Source Page No.
Cost of Goods Sold (A) 3,089,059,000 2,853,883,000 Statemen
t of Profit
and Loss
of 2016
Annual
Report
55
Inventory (B) 546,437,000 478,871,000 458,625,000 Balance
Sheet of
2016
Annual
Report
57
Average Inventory (C) 512,654,000 468,748,000
Inventory Turnover
Ratio (A/C)
6.03 6.09
Requirement B
Working capital ratio more than one indicates that JH Hi-Fi has more amounts of cash,
cash equivalent and marketable securities in order to pay their current business obligations and
improvement in this ratio can be seen in 2016 as compared to 2015. Inventory turnover ratio
more than six indicates that JH Hi-Fi has been able to sell their inventories more than 6 times in
a year and improvement in this ratio can be seen in 2016 from 2015 (jbhifi.com.au 2018).
Requirement C
Two major profitability ratios are Gross Profit Ratio and Net profit Ratio. The formulas
of these two ratios are given below:
Gross Profit Ratio = Gross Profit
Net Sales
Net profit Ratio = Net profit
Net Sales

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Particular 2016 ($) 2015 ($) Source Page No.
Gross Profit (A) 865,408,000 798,253,000 Statement
of Profit or
Loss of
2016
Annual
Report
55
Net Profit (B) 152,181,000 136,511,000 Statement
of Profit or
Loss of
2016
Annual
Report
55
Net Sales (C) 3,954,647,000 3,652,136,000 Statement
of Profit or
Loss of
2016
Annual
Report
55
Gross Profit ratio (A/C) 21.88% 21.86%
Net Profit Ratio (B/C) 3.85% 3.74%
Requirement D
The gross profit ratio of JH Hi-Fi indicates that the company has 21.88% and 21.86% of
sales revenue to cover their operating expenses after paying for the inventory and slight decrease
in this ratio can be seen. The net profit ratio implies that JH Hi-Fi has been able to convert only
3.85% and 3.74% of sales into profits, that is not a very good sigh and decrease can also be seen
in this ratio in 2016 than 2015 (jbhifi.com.au 2018).
Requirement E
For ascertaining debt position, two major ratios are Debt ratio and Debt to Equity ratio.
The formulas of these two ratios are shown below:

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Debt ratio = Total Liabilities
Total Assets
Debt to Equity Ratio = Total Liabilities
Total Equity
Particular 2016 ($) 2015 ($) Source Page No.
Total Liabilities (A) 587,679,000 551,534,000 Balance
Sheet of
2016
Annual
Report
57
Total Assets (B) 992,381,000 895,013,000 Balance
Sheet of
2016
Annual
Report
57
Total Equity (C) 404,702,000 343,479,000 Balance
Sheet of
2016
Annual
Report
57
Debt Ratio (A/B) 0.59 0.62
Debt to Equity Ratio (A/C) 1.45 1.61
Requirement F
For JH Hi-Fi, debt ratio more than 0.50 states that the company has more amount of debts
in compared to assets and it shows not impressive financial performance of the company. The
increase in debt ratio indicates the deterioration in this ratio in 2016 as compared to 2015. The
debt to equity ratio of JH Hi-Fi implies that the company relies upon debts for capital funding
more than equity and an increase in this ratio can be seen in 2016 than 2015 (jbhifi.com.au
2018).

7ACCOUNTING FOR MANAGERS
References
Jbhifi.com.au. (2018). About Us | JB Hi-Fi. [online] Available at:
https://www.jbhifi.com.au/General/Corporate/Consumer-Matters/About-Us/ [Accessed 14 Jan.
2018].
Jbhifi.com.au. (2018). Annual Report 2016. [online] Available at:
https://www.jbhifi.com.au/Documents/2016%20JB%20Hi-Fi%20Annual%20Report_ASX.pdf
[Accessed 14 Jan. 2018].
Jbhifi.com.au. (2018). Corporate Social Responsibility | JB Hi-Fi. [online] Available at:
https://www.jbhifi.com.au/General/Corporate/Consumer-Matters/Corporate-Social-
Responsibility/ [Accessed 14 Jan. 2018].
Schmidt, J.J., 2012. Perceived auditor independence and audit litigation: The role of nonaudit
services fees. The Accounting Review, 87(3), pp.1033-1065.

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