Company overview
Financial analysis is a procedure which evaluates the business, budgets, projects and various other operations and financial transaction of the business to measure the overall performance and the strategies of the business. Financial analysis is an approach which is followed by all the stakeholders and top level management of the business to measure the overall position of the business. It measures that how much changes have occurred into the financial performance of the business against the last year performance or the competitor’s position (Higgins, 2012).
It is basically used by the top level management to evaluate the financial policy, set the new strategies, economic trends, building the long term action plans for new business activities and operations and evaluate the new projects and investment opportunities for the business. In this report, the financial analysis has been done on JB HI FI to measures the overall position and performance of the business. This report focuses on the financial statement of the business and horizontal analysis and ratio analysis study has been conducted on the company to reach over a better conclusion about the performance of the company. In this report, the investor’s perspective has been discussed and it has been found that whether the investors should invest into the company or not.
JB HI FI is a retailing company which has listed itself in the Australian stock exchange. It retails the hone consumer products in the Australian and various other countries. The main focus of the company is on Australian and New Zealand market. Mainly, the company operates its operation through 3 segments i.e. the good guys, JB HI FI Australia and JB HI FI New Zealand. The company offers the various electronic and home products to its customers (Home, 2018). The company also offers the IT and other consultancy services to its customers. The company has been established 44 years back and currently, it is one of the largest companies in the Australian market. The market share of the company is continually growing and the same increment has also been seen in the final financial report of the business.
In this report, the final financial statement of JB HI FI of last 6 years has been evaluated to measure the overall changes and the reasons behind the changes. On the basis of the income statement of JB HI FI, it has been found that total revenue of the business has been improved by a continuous growth rate. The changes have occurred due to higher demand and the diversification of the business into new counties. Further, it has been found that with the increment into the turnover, the gross profit of the company is also improving however, the net profit increment rates is quite slower than the revenues and the operating profit of the business (Gapenski & Reiter, 2008). The higher operating expenses and other expenses have affected the net profit of the business.
The balance sheet of JB HI FI, explains the increment in the total assets of the business. The financial position of the company is becoming stronger day by day. The changes into the financial performance have occurred due to changes into the activities and the operations of the business. Further, it has been found that with the increment into the total assets, the total equity of the business has also been improved. The overall evaluation express that the financial position of the business is becoming stronger day by day.
Financial analysis
The cash flow statement of JB HI FI, explains the various changes into the operations and the cash level of the business. The cash flow statement explains that the various activities and transaction have affected the cash flow from operating activities, investing activities and the financial activities at whole (Morningstar, 2018). The changes into the cash flow statement are quite impressive and explain that the liquidity level of the business is strong. The overall evaluation express that the cash position of the business is becoming stronger day by day
In this report, the final financial statement of JB HI FI of last 5 years has been evaluated to measure the overall changes into the years. The current year has been compared with the previous year to identify the overall changes into the income statement items, balance sheet items and cash flow statement items.
On the basis of the income statement of JB HI FI, it has been found that total revenue of the business has been improved by a continuous growth rate. In the year of 2017, the growth rate of the total revenue is 42.32%. The changes have occurred due to higher demand and the diversification of the business into new counties. Further, it has been found that the gross profit of the company has been improved by 42.19% in the year of 2017. The growth rate is continuously improving (Lee, 2012). However, the operating expenses of the business are also increasing with a great level due to which the net profit increment rates are quite slower than the revenues and the operating profit of the business. It explains that the overall performance of the business is improving but the few changes into the operating expenses could improve the overall net profitability level of the business (Higgins, 2012).
Further the balance sheet of JB HI FI has been measured on the basis of the trend analysis. It has been found that total current assets have been improved by a continuous growth rate of 66.64%. In the year of 2017, the growth rate of the total assets is 147.11%. The changes have occurred due to higher resources demand to manage the operations and new projects of the business. Further, it has been found that the total liabilities of the company have been improved by 172.05% in the year of 2017. The growth rate is continuously improving (Morningstar, 2018). And, the total equity of the business has seen a downfall of 1.92% in current year. It explains that the overall performance of the business is improving but the funds are managed by the business through debts only.
Further the ash flow statement of JB HI FI explains that the changes into the cash position are also impressive and it would improve the overall level of the business. The net changes in cash has been improved by -6.96% due to debt repayment. It explains that the overall position of the business is quite attractive.
Ratio analysis is an approach of financial statement analysis which explains the liquidity level, profitability, solvency, efficiency, investment and market level over a time period. This is one of the most used evaluation technique to measure that how much changes have occurred into the financial position and performance of the business (Haney, 2009). For evaluating the financial statement of the business, various financial figures of the business has been measured.
Horizontal analysis
Profitability analysis:
Profitability analysis measures the capability of JB HI FI to measures and generates the overall profits on the basis of the turnover, expenses, equity and assets of the business. In the evaluation part, various profitability level of the business has been measured such as return on total assets, return on equity, operating profit margin and gross profit margin (Goss, 2015).
Return on total assets explains that total income against the available resources of the company. The ratios express the positive changes into the performance. However, in the year of 2017, it has been reduced and company is required to manage the profitability level. In addition, the Return on equity explains that total income against the available equity capital of the company (Liu, 2009). The ratios express the positive changes into the performance. However, in the year of 2017, it has been reduced and company is required to manage the profitability level.
The gross profit level and operating profit margin % of the business express that the gross profit level has been managed by the business in a constant way. But due to the changes into the operations and the activities, the operating margin of the company has been reduced and expresses negative level. On the basis of profitability analysis, it has been found that the overall position of the company is quite strong. Few changes into the operating level would improve the profitability performance way better.
Liquidity analysis:
Liquidity analysis measures the capability of JB HI FI to pay all the short term debt capability and current liabilities of the business on the basis of the available current assets of the business (Madhura, 2015). In the evaluation part, various liquidity level of the business has been measured such as current liquidity ratio and quick liquidity ratio.
Current liquidity ratio explains total capability of the business to pay the current liabilities on the basis of the current assets of the business. The ratios express the better management of the company. The company is managing a better liquidity level in last year. The current liquidity level of the business is 1.32 which is quite better. It explains that the liquidity risk of the company is quite lower.
Further, the quick liquidity ratio explains total capability of the business to pay the current liabilities on the basis of the available quick assets in a particular time period of the business. The ratios express that the 0.35 is the quick assets against the current liabilities of the business (Morningstar, 2018). The quick liquidity level of the business is 0.35 which is bit lower and few changes into the quick assets would improve the overall position of the company. It explains that the liquidity risk of the company is quite lower.
Efficiency analysis:
Efficiency analysis measures the capability of JB HI FI to manage the overall operations and the working capital management through the daily operations of the business. It mainly measures the inventory turnover, debtor’s turnover and the payable turnover days of the business to analyze the total cash conversion cycle of the business. In the evaluation part, various efficiency level of the business has been measured such as inventory turnover and receivable turnover days (Chandra, 2011).
Ratio analysis
Inventory turnover day’s ratio explains total days in which the inventory of the business would be ordered back by the business. The ratios express that the inventory turnover level of the business is 58.36 days that express the inventory of the business would be turned in 58.36 days. The company is managing a better efficiency level in previous years. It explains that the operations are managing by the company in better way.
Further, receivable turnover day’s ratio explains total days in which the receivable amount of the business would be get back by the business. The ratios express that the receivable turnover level of the business is 9.56 days that express the debtors of the business would pay the amount back in 9.56 days (Gapenski & Reiter, 2008). The company is managing a better efficiency level in previous years. It explains that the less working capital is required to manage the performance.
Financial gearing analysis measures the capability of JB HI FI to manage the capital, debt, assets and equity in better way. It mainly measures the debt to asset ratio, interest coverage ratio and asset turnover of the business (Fridson & Alvarez, 2011).
Debt to asset ratio explains total debt of the business against the total assets. The ratios express that the debt to asset ratio of the business is 0.29 that express the debt level is very lower than the assets. The interest coverage ratio further adds that the EBIT level of the business was earlier higher but due to high expenses, it has been reduced and expresses negative level (Annual report, 2018).
Further, asset turnover ratio explains that the overall sales of the business is quite higher than the fixed assets of the business which express about better performance and gearing position of the business. In total, the gearing position of the company is quite strong.
Lastly, the investment analysis measures the capability of JB HI FI to manage the investment of shareholders of the business. It expresses that whether the investment into the company would be beneficial or not. It mainly measures the Earnings per share, dividend yield and price earnings ratio to measure the overall investment level.
Earnings per share ratio explain net income of the business is quite higher and thus the EPS per shareholder would be $ 1.543 which is quite higher. The ratios express that the overall EPS level of the business has been improved (Yahoo finance, 2018). The price earnings ratio further adds that the share price of the company is 19.41 times higher than the earnings of the company. The proportion is in the favour of the company and expresses better investment opportunities.
Further, dividend yield ratio explains that the dividend paid amount of the company is also higher which would attract more investors to invest into the company. It express that the JB HI FI is a better investment opportunities for the investors to invest and get higher returns.
Conclusion:
On the basis of the analysis on the financial statement and ratio analysis and horizontal analysis explains that the overall financial performance and position of JB HI FI has been better in last 5 years. The report has mainly focused on the financial statement of the business and the study explains that the financial policies and strategies of the business are quite strong. Only few changes into the reduction policies of expenses would help the business to improve the overall profitability level.
In this report, the investor’s perspective has been discussed and it has been found that the JB HI FI is a better investment opportunities for the investors to invest and get higher returns. Company is following the relevant divined policies and the net profitability of the business is also higher. It express that the investors should definitely invest into the JB HI FI.
References:
Annual Report. (2018). JB HI FI. [online]. Retrieved from: https://www.annualreports.com/HostedData/AnnualReportArchive/J/ASX_JBH_2013.pdf
Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). John Wiley & Sons.
Gapenski, L. C., & Reiter, K. L. (2008). Healthcare finance: an introduction to accounting and financial management. Chicago, IL: Health Administration Press.
Goss, D. (2015). Small Business and Society (Routledge Revivals). Routledge.
Haney, L. H. (2009). Business Organization and Combination. BiblioBazaar, LLC.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Home. (2018). JB HI FI. [online]. Retrieved from : https://www.jbhifi.com.au/
Lee, W. (2012). Time Value of Money. Cambridge University Press.
Liu, B. (2009). Some research problems in uncertainty theory. Journal of Uncertain systems, 3(1), 3-10.
Madhura, L. (2015). Financial management. Tata McGraw-Hill Education.
Morningstar. (2018). JB HI FI. [online]. Retrieved from: https://financials.morningstar.com/cash-flow/cf.html?t=JBH®ion=aus&culture=en-US
Yahoo Finance. (2018). JB HI FI. [online]. Retrieved from: https://au.finance.yahoo.com/quote/JBH.AX/
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