HI5002 Finance for Business – Company Performance Analysis JBHIFI

Abstract

Jb Hi Fi Company is founded by John Barbuto. It is a type of retail industry founded 45 years ago in 1974 at Keilor East, Victoria, Australia. This company mainly deals in the products related to customer electronics, major appliances such as domestic appliance for cooking and washing laundry, for food preservation etc and example of small appliances can be said as microwave oven, coffee makers etc. JB Hi Fi is the largest company of home appliances in Australia. It deals in Computers, tablets, mobile phones, TVs and gaming multimedia. The Good Guys is the subsidiary of this company. JB HI FI is located nearly at 303 places including Australia and New Zealand. The headquarters of JB Hi Fi Company is in Tower Two of Vicinity Centre’s Chadstone Shopping Centre, Melbourne, Australia. Gregory Richards being a Chairman of the company and Richard Murray as the CEO forms the two key people of Jb Hi Fi. This company is publically traded in the Australian stock exchange named ASX: JBH. The company ranks 50 out of top 2000 companies running in Australia. All the other relevant information about the company can be referred through the official website of Jb Hi Fi Company https://www.jbhifi.com.au/. 

I Introduction

Here we are going to know all about the success policies of JB HI FI. Its financial performance and income statements of the company. Jb Hi Fi is an Australian company, aw we know, one of the largest entertainment retailer of home products. The company deals with major appliances as well as small appliances in a variety of home appliances. Mobile phones, laptops, televisions, gaming microwave ovens, toaster JB Hi Fi are all examples of the company’s flagship and small appliances.

In this assignment, we will go over all the important and salient issues faced by the company in general, their adopted principles, the overall performance measures used, and the performance of the firm’s financial position of JB HI FI Company.  We will also analyse the structure of capital, their price to income ratio, non-assets of the company JB hi fi. These performances will set the standards for future targets for the company, will they be able to meet their goals and achieve success in the near future?

We will analyse the changing trends about the Jb Hi Fi Australian Company for the last three year financial ratios of the company. An in-depth study of the company’s performance analysis and success report will be seen. The company’s philosophy and system of work will predict the future. Jb Hi Fi as stated above in this assignment is the real and comparable figures according to the official website of the Australian company. We can get all the necessary information about the company from the company annual report. The referenced material has been updated in the year 2019.

Here we are also going to know the details about the liquidity position of Jb Hi Fi Australian Company. The prices of the shares are updated and regularly assured from the official website of JB HI FI COMPANY https://www.jbhifi.com.au.

II Financial Analysis of selected company

2.1 The key product for Jb Hi Fi Company is electronic household entertainment appliances –

JB Hi Fi Company in Australia deals in household or domestic products, major appliances as well as small appliances. Major appliances such as TVs, laptops are bigger in size and higher in value as compared to small appliances such as coffees machine and microwave oven (Tandon & Malhotra, 2013). The importance of the petroleum products in maintaining the comparative advantages of the company are listed below –

  • Safety – The Company properly maintained the safety measures in all the products. Provides healthy and safe working environment for all the employees working in the company. Fair behaviour and strict rules and regulations prevent accidents and ensure safety in the company.
  • Diversity – Jb Hi Fi Company has much line of products. They have diverse skills, background, and experience about policies. They are creative and innovative for products. They try to plan and make strategies for creating as well as promotion of the new product.
  • Social programs – Company contributes in Helping Hand weekly. Helping hand is the Registered Charitable Trust. This trust has been introduced so that employees donate a limited liability to charity.
  • Employee groups – Employee groups are formed for timely awareness and programs relating to the benefits of workplace leadership across Australian businesses.
    • Complete Disclosure – The director’s focus mainly on the forming up of different strategies and success paths. They want the customers to have the complete disclosure of all the relevant information about the company. Bank, investors, government or the interested parties.
  • Risk Identification and Management – The Company conducts the necessary operations for the company to identify the risk and manage between risk and reward.
  • E- Waste – All the E- Waste from different stores and operations for the support purposes are recycled. No wastage takes place by the store initiatives. They ensure the impact of wastage on the environment gets reduced with time.

Variable rewards incentives – the reward incentive under the VRP in the case of dishonesty and fraud, the board’s discretion will happen by the clawback. Misstatement of material, breach of material and in some circumstances the board shows negligence (Talari, et. al., 2017). Subject to this, a Group executive will not be eligible to receive VRPaward in respect of performance period.

Note – If, during that period, the executive cease to employed, or has given notice of his or her resignation from employment or has been given notice of termination from employment.

2.2 Identify and conduct a trend analysis with two groups of financial ratios, including liquidity and capital structure of the selected company.

BALANCE SHEET RATIOS
S. No, Particulars2016-17 2017-18 2018-19 
1Current       
  Current Assets $              1,170.70 1.321630165 $              1,210.50 1.319777584 $              1,276.50 1.376874124
  Current Liabilities $                  885.80  $                  917.20  $                  927.10 
2Quick       
  Cash + Accts. Rec. $                  269.40 0.304131858 $                  276.70 0.301679023 $                  355.20 0.383130191
  Current Liabilities $                  885.80  $                  917.20  $                  927.10 
3Debt-to-Worth       
  Total Liabilities $              1,598.80 0.651959385 $                  947.60 0.5 $              1,044.10 0.5
 0Net Worth $              2,452.30  $              1,895.20  $              2,088.20 
         
INCOME STATEMENT RATIOS: Profitability (Earning Power)        
4Gross Margin       
  Gross Profit $              1,230.50 0.218638948 $              1,470.10 0.214478503 $              1,527.10 0.215226981
  Sales $              5,628.00  $              6,854.30  $              7,095.30 
5Net Margin       
  Net Profit Before Tax $                  172.40 0.030632552 $                  233.20 0.034022438 $                  249.80 0.035206404
  Sales $              5,628.00  $              6,854.30  $              7,095.30 
         
ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios        
6Sales-to-Assets       
  Sales $              5,628.00 2.294988378 $              6,854.30 2.723743294 $              7,095.30 2.836871776
  Total Assets $              2,452.30  $              2,516.50  $              2,501.10 
7Return on Assets       
  Net Profit Before Tax $                  259.20 0.105696693 $                  334.50 0.13292271 $                  358.90 0.143496861
  Total Assets $              2,452.30  $              2,516.50  $              2,501.10 
8Return on Investment       
  Net Profit Before Tax $                  259.20 0.105696693 $                  334.50 0.176498523 $                  358.90 0.17187051
  Net Worth $              2,452.30  $              1,895.20  $              2,088.20 
         
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios        
9Inventory Turnover       
  Cost of Goods Sold $            (4,397.50)-5.11396674 $            (5,384.10)-6.042082819 $            (5,568.20)-6.27968873
  Inventory $                  859.90  $                  891.10  $                  886.70 
10Inventory Turn-Days       
  360                           360 0.418653332                           360 0.403995062                           360 0.405999774
  Inventory Turnover $                  859.90  $                  891.10  $                  886.70 
11Accounts Receivable Turnover       
  Sales $              5,628.00 28.6266531 $              6,854.30 33.48461163 $              7,095.30 30.06483051
  Accounts Receivable $                  196.60  $                  204.70  $                  236.00 

Trends: 

  • Current Ratio is the important ratio of the company. It will show that how company will pay the current liabilities. It is comparatively similar in every year. 
  • The ratio of liquidity will clear out that the company is viable to pay the liquid liabilities. It should be less than 1. The company is having good liquid ratios, and it is maintained in all the 3 years.
  • The ratio of net worth will clear out that at either company assets are justifying with the company equity or not. It should not be overvalued or undervalued. The company is also having similar net worth ratio in all the years.
  • The net margin will show the profitability of the company. It will shoe either company is profit making or not (JB HI Fi Group, 2019).
  • The return on assets will show that how much of the assets had been utilised. How much profit they are giving. 
  • All the contribution in equity is from the shareholders, and it also comprises of the retained earnings and reserves.

2.3 Perform a non-current asset analysis

Carrying Amount end of the year2016-172017-182018-19
Plant & Equipment148.2148.2132.3
Leasehold Improvements606059.2
Depreciation2016-172017-182018-19
Plant & Equipment138.5162.4196.3
Leasehold Improvements97.3113.9130.2
Carrying Amount beg. of the year2016-172017-182018-19
Plant & Equipment114.8148.2148.2
Leasehold Improvements61.46060

The fixed assets are consisting of the plant & equipment. 

The life of the estimates is as follows:

Leasehold Property: 1 to 15 years

Plant and Equipment: 1.5 to 15 years

The impairment will be done as per the change in circumstances.

2.4 Perform a scenario analysis with data provided

Average selling price $                  25.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year 1year 2 year3 year4 year
Sales11250000112500001125000011250000
Variable cost6750000675000067500006750000
Contribution4500000450000045000004500000
Fixed cost450000450000450000450000
Depreciation500000500000500000500000
Operating Profit3550000355000035500003550000
Tax1065000106500010650001065000
PAT2485000248500024850002485000
Depreciation500000500000500000500000
Working Capital   800000
Residual Value   500000
Free Cash Flows2985000298500029850004285000
Discounted Value0.8928571430.797190.711780.63552
Discounted Inflows2665178.571237962421246642723195
Outflow $    3,300,000.00 
Inflow9892661.302
NRV $    6,592,661.30 
Average selling price $                  20.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 9000000900000090000009000000
Variable cost 6750000675000067500006750000
Contribution 2250000225000022500002250000
Fixed cost 450000450000450000450000
Depreciation 500000500000500000500000
Operating Profit 1300000130000013000001300000
Tax 390000390000390000390000
PAT 910000910000910000910000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 1410000141000014100002710000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 1258928.5711124043.3671003610.1491722254
Outflow  $    3,300,000.00 
Inflow 5108836.081
NRV  $    1,808,836.08 
Average selling price $                  25.00 
Expected sale360000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 9000000900000090000009000000
Variable cost 5400000540000054000005400000
Contribution 3600000360000036000003600000
Fixed cost 360000360000360000360000
Depreciation 500000500000500000500000
Operating Profit 2740000274000027400002740000
Tax 822000822000822000822000
PAT 1918000191800019180001918000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 2418000241800024180003718000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 2158928.5711927614.7961721084.6392362856
Outflow  $    3,300,000.00 
Inflow 8170484.222
NRV  $    4,870,484.22 
Average selling price $                  25.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  29.80 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 11250000112500001125000011250000
Variable cost 13410000134100001341000013410000
Contribution -2160000-2160000-2160000-2160000
Fixed cost 450000450000450000450000
Depreciation 500000500000500000500000
Operating Profit -3110000-3110000-3110000-3110000
Tax -933000-933000-933000-933000
PAT -2177000-2177000-2177000-2177000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows -1677000-1677000-1677000-377000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows -1497321.429-1336894.133-1193655.476-239590
Outflow  $    3,300,000.00 
Inflow -4267461.352
NRV  $ (7,567,461.35)
Worst Case
Average selling price $                  25.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       550,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 11250000112500001125000011250000
Variable cost 6750000675000067500006750000
Contribution 4500000450000045000004500000
Fixed cost  $       550,000.00  $      550,000.00 550000550000
Depreciation 500000500000500000500000
Operating Profit 3450000345000034500003450000
Tax 1035000103500010350001035000
PAT 2415000241500024150002415000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 2915000291500029150004215000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 2602678.5712323820.1532074839.4222678709
Sensitivity Analysis
Outflow  $    3,300,000.00 
Inflow 9680046.847
NRV  $    6,380,046.85 
Unit Drivers  Expected NRVRevised NRVChange in %
Unit Sales (-20%)   $  6,592,661.30  $    1,808,836.08 73%
Per Unit (-20%)   $  6,592,661.30  $    4,870,484.22 26%
Variable Cost (+20%)   $  6,592,661.30  $ (7,567,461.35)215%
Cash Fixed Cost (+100000)   $  6,592,661.30  $    6,380,046.85 3%

Good Case

Average selling price $                  30.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 13500000135000001350000013500000
Variable cost 6750000675000067500006750000
Contribution 6750000675000067500006750000
Fixed cost 450000450000450000450000
Depreciation 500000500000500000500000
Operating Profit 5800000580000058000005800000
Tax 1740000174000017400001740000
PAT 4060000406000040600004060000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 4560000456000045600005860000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 4071428.5713635204.0823245717.933724136
Outflow  $    3,300,000.00 
Inflow 14676486.52
NRV  $ 11,376,486.52 
Average selling price $                  25.00 
Expected sale540000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 13500000135000001350000013500000
Variable cost 8100000810000081000008100000
Contribution 5400000540000054000005400000
Fixed cost 540000540000540000540000
Depreciation 500000500000500000500000
Operating Profit 4360000436000043600004360000
Tax 1308000130800013080001308000
PAT 3052000305200030520003052000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 3552000355200035520004852000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 3171428.5712831632.6532528243.443083534
Outflow  $    3,300,000.00 
Inflow 11614838.38
NRV  $    8,314,838.38 
Average selling price $                  25.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  12.00 
Fixed cost $       450,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 11250000112500001125000011250000
Variable cost 5400000540000054000005400000
Contribution 5850000585000058500005850000
Fixed cost 450000450000450000450000
Depreciation 500000500000500000500000
Operating Profit 4900000490000049000004900000
Tax 1470000147000014700001470000
PAT 3430000343000034300003430000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 3930000393000039300005230000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 3508928.5713132971.9392797296.3743323760
Outflow  $    3,300,000.00 
Inflow 12762956.43
NRV  $    9,462,956.43 
Average selling price $                  25.00 
Expected sale450000
equipment cost $    2,500,000.00 
Residual Value $       500,000.00 
Working Capital $       800,000.00 
DepreciationSLM
Variable cost $                  15.00 
Fixed cost $       550,000.00 
Discount rate12%
Tax Rate30%
Year  1year 2 year3 year4 year
Sales 11250000112500001125000011250000
Variable cost 6750000675000067500006750000
Contribution 4500000450000045000004500000
Fixed cost  $       550,000.00  $      550,000.00 550000550000
Depreciation 500000500000500000500000
Operating Profit 3450000345000034500003450000
Tax 1035000103500010350001035000
PAT 2415000241500024150002415000
Depreciation 500000500000500000500000
Working Capital    800000
Residual Value    500000
Free Cash Flows 2915000291500029150004215000
Discounted Value 0.8928571430.797190.711780.63552
Discounted Inflows 2602678.5712323820.1532074839.4222678709
Outflow  $    3,300,000.00 
Inflow 9680046.847
NRV  $    6,380,046.85 
Sensitivity Analysis
Unit Drivers  Expected NRVRevised NRVChange in %
Unit Sales (-20%)   $  6,592,661.30  $  11,376,486.52 -73%
Per Unit (-20%)   $  6,592,661.30  $    8,314,838.38 -26%
Variable Cost (+20%)   $  6,592,661.30  $    9,462,956.43 -44%
Cash Fixed Cost (+100000)   $  6,592,661.30  $    6,380,046.85 3%

2.5 Identify and discuss any latest share or bond issuance by the selected company

JB Hi Fi Company is officially listed on Australia Stock Exchange on 23/10/2003. The issuer code of the company is JBH. According to the rating companies risks are balanced. The shares applied in 2019 have been raised 50%. The stock price have been listed recently is ₹ 34.860 with the increase of Rs +0.520 and +1.51% has been raised according to the relevant sources referred by the JB HI FI company. The company’s trends changes and fluctuations takes place.

Jb Hi Fi Company has been operated as a listed holding company in Australia. The company consists of most popular and trusted retail brands of home appliances whether major appliances and small appliances, home entertainment appliances etc are operated mainly in Australia (Goldstein, et. al., 2017). These brands are JB HI-FI and The Good Guys. The Good Guys is the subsidiary company of JB HI-FI Company. The capital structure of the company can be analyzed by latest statistics referred from the Wall Street Journal. 

  • Total Debt to Total Equity has been checked as 42.06.
  • Total Debt to Total Capital is seen as 29.60.
  • Total Debt to Total Assets ratios has been got 17.23.
  • Interest Coverage received as 31.78
  • Long-Term Debt to Equity Ratio we got is as 42.06.
  • Long-Term Debt to Total Capitalism 29.60.
  • Long-Term Debt to Assets ratio by the company is 0.17.

2.6 Calculate and discuss the PE ratios and share price movement of the selected company through 3 years.

PE Ratio means the price earnings ratio. The company PE ratio will show the actual market position of the company (Becker & Ivashina, 2015).The Highest the PE ratio the highest the company valuation. The company use this as an important analytical tool for the investors. It will be calculates as 

P/E Ratio = Earnings per share / Market value per share

The PE ratio of the year 2019 is 16.0. This will show that the company is having good financial position and will have good image in the market.

The following graph will show you the movement of the PE ratio in the last years

(Figure: PE ratio)

(Figure: PE ratio)

(Source: Stockpedia, 2019)

III Recommendation letter

It is recommended that the Jb Hi Fi Australian Company to all the investors as it follows all the basic and ethical behaviour and code of conduct necessary to follow by everyone. The directors, staff and employees expect all the guidelines are followed. As we have look upon the comprehensive examination and analysed the firm’s financial performance from the updated financial statements of JB Hi Fi Australia. 

This time company is growing with the increasing trend. The only competitor in front of JBH is KGN that’s Kogan limited. This time the sales have been hiked 3.5% to 7.1% billion in 2019. In order to have safe and easy returns investors can invest in the company.

Being an investment analyst, it is recommended to all the investors to invest in the Jb Hi Fi.The Company is performing well in the year 2019 and can write many stories of success in the upcoming years. The share price fluctuations are normal of JB HI FI. Company is viable to pay the liquid liabilities.

After going through a quick replay of the above questions, PEratiooftheyear2019is16.0it is clear that company is having good financial position and have good image in the market.

IV Conclusions

JB Hi Fi Company is a progressive company. It has set a benchmark for all those who wish to invest in home appliances products such as electronic appliances whether major or small appliances belonging to the company under the name JB Hi Fi. According to the statistical analysis we can say that company shows the best work done in 2019. We came to know about all the details of the company, because we studied the entire financial situation thoroughly.

The data has been researched and finalized with an accurate analysis of its condition, leading to the conclusion that JB Hi Fi has a strong position in Australia. In 2018, the price to income ratio was 18 xs. The higher the price to income ratio, the more optimistic the buyer will be about the company’s future performance. A company can reduce the price to income ratio by purchasing debt and spending cash. If the price to income ratio increases then it is better to deal in other companies rather than Jb Hi Fi Australia company.

References
  • Becker, B., & Ivashina, V. (2015). Reaching for yield in the bond market. The Journal of Finance70(5), 1863-1902.
  • Goldstein, I., Jiang, H., & Ng, D. T. (2017). Investor flows and fragility in corporate bond funds. Journal of Financial Economics126(3), 592-613.
  • Huo, B. (2012). The impact of supply chain integration on company performance: an organizational capability perspective. Supply Chain Management: An International Journal17(6), 596-610.
  • JB HI FI GROUP. (2019). Reports. [Online]. JB HI FI GROUP. http://annualreports.com/HostedData/AnnualReportArchive/J/ASX_JBH_2017.pdf [Accessed on 20.09.2019].
  • Stockpedia. (2019).PE ratio. [Online] Stockpedai. Available at https://investors.jbhifi.com.au/wp-content/uploads/2019/08/4E_FY19.pdf. [Accessed on 20.09.2019].
  • Talari, S., Shafie-Khah, M., Siano, P., Loia, V., Tommasetti, A., & Catalão, J. (2017). A review of smart cities based on the internet of things concept. Energies10(4), 421.
  • Tandon, K., & Malhotra, N. (2013). Determinants of stock prices: Empirical evidence from NSE 100 companies. International Journal of Research in Management & Technology (IJRMT), ISSN, 22499563.