Financial Statement Analysis - JB HI FI Ltd - Research Paper Example

Student Professor Course Date Executive Summary JB HI FI Ltd is a company in Australia that specialises in retailing home entertainment solutions, consumer electronics and technology. This company trades as JBH in the Australian stock exchange and will thus be referred to as so in this report. This report analyses the financial performance of JBH for a period of 5 years from 2011 to 2015 and compares these results with the industry performance and the performance of its close competitors. Analysis is conducted through scrutiny and interpretation of the company’s financial statements and annual statements for the years under review. These statements are first adjusted for non-recurring and non-operating items then calculation of relevant ratios and comparative figures is done. 1.0 Introduction 1.1 Purpose The purpose of this report is to analyse and present findings on the invest ability of the publicly trading JB HI FI LTD of Australia. Various analytical methods were employed to perform this analysis. These include a ratio analysis, common-size analysis, the 5 stage DuPont analysis among others with discussions and conclusions presented below. 1.2 Scope This report focuses on calculation and interpretation of ratios (activity, liquidity, solvency and profitability), DuPont analysis together with cash flow and prospective analysis on the adjusted financial statements of the company. In addition, the report focuses on analysis and interpretation of two years of Harvey Norman’s financial statements. Harvey Norman is a major competitor to JBH. 1.3 Methodology Before calculating the relevant ratios or conducting any analysis on the financial statements of JBH and its competitor Harvey Norman, adjustments were done to account for non-recurring items such as discontinued operations and extra-ordinary items. Also, ratios were calculated using the relevant formulas. Trend analysis, DuPont analysis and common size statements were also used to compliment ratio analysis in assessing the investability of the company. 1.4 Assumptions In compiling this report, it is assumed that information obtained from the company’s annual reports, management presentations to investors and other material providing relevant information about the company are deemed to be accurate and correct and were therefore relied upon. 1.5 Limitation The limitation encountered involved lack of basic information to enable adjustment of the financial statements of the competitor, Harvey Norman. Also, comparability between the two companies was limited due to the relative difference in the composition of their financial statements. Therefore, more reliance was placed on the common size statements. 2.0 Company overview JB Hi-Fi Ltd was founded in 1974 and is based in Chadstone, Australia. JB Hi-Fi Ltd is an Australian company that engages in the sale of home consumer products in two geographical segments, Australia and New Zealand. The company has 194 stores in both the countries. The company deals in electronics such as television sets, audio equipment, computers, cameras, CDs, DVDs, games, musical instruments, digital content (music, books and videos) and cooking equipment and appliances. The company also provides IT and consulting services. Such products are sold in branded retail stores all over Australia and New Zealand. It also uses online stores to sell its products. 3.0 Financial Analysis Over the last 5 years, JBH’s financial performance has improved in terms of growth in revenues and assets as shown in appendix 4. Explanations for the fluctuations in the growth rates for both revenue and total assets attempted by the ratios and other analysis tools discussed below: 3.1 Ratio Analysis Ratio analysis offers a way of expressing items of the financial statements against each other in order to bring out various relationships between them. Examples of ratios calculated in this report include activity ratios, profitability ratios, liquidity ratios and solvency ratios. Such ratios are compared from year to year and from once company to another. 3.1.1 Activity Analysis These ratios are a measure of how efficiently a company is managing its assets. They show operational efficiency or lack thereof in management of the company’s working capital and assets. The inventory turnover ratio, calculated as, increases for all years except from 2014 to 2015. This translates to the growth in sales revenue as witnessed in table 4.1 above. It shows that the speed at which inventory is being sold increased over time. In 2015, the inventory turnover ratio for its competitor, Harvey Norman was 3.78. This was less than JBH Ltd’s ratio by half. JBH Ltd turns over inventory in a speed twice as that of Harvey Norman, thus suggesting good sales strategies being employed by JBH Ltd. Receivables turnover ratio was calculated as. A relatively high receivables turnover ratio coupled with low DSO might indicate highly efficient credit and collection. Relevant to note is the fall in receivables turnover from 45.77 times in 2104 to 89.64 in 2015 with a corresponding fall in DSO from 7.865 days in 2014 to 4.016 in 2015. This could have been possibly due to stringent credit terms by the company. The average receivables collection period for 2015 is stated as 30 days. Payables turnover ratio (increases from 6.58 in 2013 to 9.14 in 2015. This means that the company took advantage of credit facilities extended to it in terms of discounts for early payment and other advantages. The number of days of payables also reduced from 54.67 days in 2013 to 39.37 in 2015. Early payment encourages suppliers and creditors and increases a company’s credit-worthiness. Fixed asset turnover ratio measures the level of sales generated by the investment in fixed assets. This has increased from 2011 to 2015, indicating efficiency in the use of fixed assets of the company in the generation of sales revenue. Harvey Norman’s activity ratios for 2015 suggest relatively inferior ratios as compared to JBH Ltd’s ratios for the same year. With a receivables turnover of 40.82 and corresponding days of sales outstanding (DSO) being 8.81, Harvey Norman collected from its receivables in almost a week. However, its number of days of payables suggests that the company took 248.09 days on average to settle its payables. 3.1.2 Profitability Analysis Profitability ratios calculate the company’s ability to generate profits from the capital and assets invested in the company by the owners. The gross profit margin indicates the percentage of revenue available to cover operating and other expenditures. JBH Ltd. maintains an average gross profit margin of 21%. This ratio is helpful in product pricing since it enables the company to set its prices in such a way that it is able to earn a desired gross profit margin to cover operating expenditure. Net profit margin calculated as is a measure of the company’s profits after expenses, expressed as a percentage of total sales revenue. It enables cost control by setting desired net profit margin. JBH Ltd’s net profit margin is an average of 3%. The Return on Assets (ROA) measures the return earned by the company on its assets. Measured as, the ROA for JBH Ltd. is an average of between 14% and 15%. This is a good return compared to other investments in the economy. Return on Equity (ROE) measures the return earned by equity shareholders of the company. His is on a reducing trend from 2011 to 2015. This is the case despite increases in revenue in the same periods. Therefore, the most probable cause is the increase in expenses. This reduces net income and ROE. Harvey Norman’s profitability ratios for 2015 show low Return to Assets (ROA) and Return to Equity (ROE) ratios as compared to JBH ltd. Harvey Norman has a ROA of about 6.27% and a ROE of 10.74%. This are too low compared to JBH Ltd’s 2015 ROA of 15.56% and ROE of 42.79% 3.1.3 Liquidity Analysis Liquidity ratios are a measure of a company’s ability to meet its short term obligations as and when they fall due. The current ratio is calculated as. Since a current ratio of greater than one is considered to signify greater liquidity, JBH Ltd. is fairly liquid in all the 5 years from 2011 to 2015. This means it is able to meet its short-term obligations when they fall due. The quick ratio provides a more accurate measure of liquidity since it considers only those current assets that are more liquid. It excludes inventory from its current assets to provide a more reliable measure of liquidity. The quick ratios of JBH Ltd. for the 5 years ending 2015 show that the company is over-reliant on inventories to keep a good liquidity picture. Elimination of inventory from the equation leads to quick ratios of less than 0.5 in all the 5 years. This is possibly because, being an online store, the company could prefer to have sufficient inventories to cater for demand. Another liquidity ratio calculated in this report is the cash ratio. It is the most reliable measure of liquidity especially during crisis time. It is measured as. The cash ratio calculated is 10 times less than the corresponding current ratios. This is because cash is a small percentage of the entire current assets. For Harvey Norman, its liquidity ratios for 2014 and 2015 are good indicators of the company’s liquidity status. With a current ratio of more than 1 for both years shows that the company is able to meet its short term obligations by using its short term assets. Both the quick ratio and the cash ratio are also good relative to JBH Ltd. 3.1.4 Solvency Analysis Solvency ratios are a measure of a company’s ability to meet long term financial obligations. The debt to asset ratio is a measure of the percentage of assets that are financed by debt. For all the 5 years under review, the debt to asset ratio is above 0.5, showing over-reliance on debt to finance assets. This is risky. However, it is reducing from 0.84 in 2011 to 0.62 in 2015. The debt to equity ratio measures the amount of debt used relative to equity. All years have a debt to equity ratio of more than1 indicating that the company has more debt than equity. This is also risky as it exposes the company to third party mercy. To measure the amount of total assets supported by equity, the financial leverage is calculated as follows:. A high ratio signifies the use of more debt to finance the assets of the company. The company has been reducing its financial leverage from 2011 to 2015. This is achieved by use of less debt and more equity in financing the company’s activities. To measure the company’s strength in meeting its financing costs, the interest coverage ratio is used. It measures the number of times a company’s EBIT could cover its interest payments. A high interest coverage ratio shows that the company has stronger solvency and at the same time offers assurance to the providers of finance that the company can service its debt from its operating earnings. The interest coverage ratios for 2011 to 2015 indicate mixed scenarios of both high and low ratios. This is due to differences in the amount of finance costs each year. The solvency ratios of JBH Ltd point at a potential risk in terms of debt and equity use than Harvey Norman. For the two years, 2014 and 2015, Harvey Norman has debt to asset ratios of 0.41 as compared to JBH Ltd’s 0.63. However, Harvey Norman has an interest coverage ratio of 1.71 in 2015 as compared to 2.75. A higher interest coverage ratio indicates stronger solvency, offering greater assurance that the company can service its debt. 3.1.5 Du Pont Analysis DuPont analysis is the technique used to decompose ROE to its component parts. This allows for the evaluation of how the different aspects of performance affect the company’s profitability as measured by the ROE. ROE = = X Thus, ROE = ROA X Leverage. This makes the ROE a function of financial leverage and the ROA. The company can increase its ROE by increasing ROA or making optimum use of leverage. 4.0 Common-Size Analysis Common - size analysis is the expression of financial data in relation to a single financial statement item, or base such as total revenue or total assets. It is a simple way of creating greater comparability across firms and for the same firm through time (Wahlen et al, 2010). 4.1 Common-Size Analysis of the Income Statement The common-size analysis for the income statement involved expressing all the income statement items as a percentage of total revenue is shown in appendix 3. From the common size statement, it is evident that sales and marketing costs are the largest expenses that the company incurs as they are over 9% of the total revenue in all the 5 years with an upward trend from 2011 to 2015. From 2013 to 2015, sales and marketing costs are above 10% of total revenue. This could be because of the stiff competition faced by the company, hence necessitating aggressive and, massive sales and marketing strategies. Also, the percentage of income tax in relation to revenue increases from 1.36 in 2011 to 1.62 in 2015. This could be due to the increase in revenue over the years yet income tax is charged as a percentage of operating profits. The common-size analysis of Harvey Norman’s income statement reveals that marketing expenses and administration expenses form the bulk of the expenses as they are the highest percentages of revenue. In 2015, marketing expenses form 22.89% of revenue while administrative expenses are 27.65% of revenue. 4.2 Common-Size Analysis of the Balance Sheet In the common-size analysis of the balance sheet, all balance sheet items were expressed as a percentage of the total assets for all the 5 years under review. Results are as shown in appendix 3. Total current assets are over 60% of the total assets in all the 5 years, with inventories carrying over 50% of the total assets across the years. This underscores the fact that JBH Ltd. is a retail business company and therefore needs to maintain adequate inventory to avoid stock outs. The high percentage of current assets and current liabilities shows good working capital management on the part of the management. As compared to JBH Ltd, Harvey Norman has investment properties as the highest proportion of total assets. Trade and other receivables form the bulk of current assets as opposed to JBH Ltd which has high inventory percentage. Harvey Norman is most financed by non-current assets while JBH Ltd. is financed by current assets. 4.3 Common-Size Analysis of the Statement of Cash flows Common-size analysis of the cash flow statement can be calculated based on total revenue or total cash inflows. In this analysis, the cash flow statement items were expressed as a percentage of revenue. The results indicate probably good receivables collection strategies as evidenced by the high percentage of receipts to customers expressed as a percentage of revenue. It is interpreted to mean that over 100% of the revenue is translated to cash receipts from customers. Also notable is the percentage of revenue paid out to members of the parent company in form of dividend. This is more than 2% of revenue for all years except 2013. A large percentage of revenue is retained for expansion purposes. 5.0 Segment Analysis The company trades in only two geographical locations and as such, segment information is reported using geographic segments. According to Robinson et al (2009), a geographical segment is a distinguishable component of a company that is engaged in providing products or services within a particular economic environment. The segment reports of JBH Ltd. over the 5 years shown in appendix 6. As shown in the broken down segment reports plus the accompanying analysis, it is evident that the Australian market is the backbone of JBH Ltd.’s activities since it reports over 90% of all aspects of segment reports. However, the company continues to grow its New Zealand business as evidenced by a growth in segment assets over the 5 years under review. This has led to an increase in the revenue generated from external customers in the same years. 6.0 Trend Analysis Trend analysis provides important information regarding historical performance and growth prospects of various aspects of a company’s finances and other parameters. This report focused on trend analysis for two major aspects; sales and total assets. 6.1 Sales Forecast From an analysis of five years of revenue data for JBH Ltd., sales forecast can be made for the two years 2016 and 2017 as shown below: With the current trend of growth in sales revenue, it is expected that the same will continue and that sales will hit the AUD 4,000,000,000 mark by the year 2017. This will necessitate adequate investment in relevant assets to ensure such growth is achieved. 6.2 Total Assets Forecast To match the sales forecast above, the expected total assets value in the next 2 years after 2015 is shown below: Total assets are forecasted to grow in tandem with the growth in sales in the two years after 2015 and are expected to nearly hit the AUD 1,000,000,000 mark in 2017. Conclusion and Recommendation From the analysis conducted above, it is evident that JB HI FI Ltd is a company with tremendous growth potential backed by strong financial performance as evidenced by the various ratios and analysis performed on its financial statements. JBH Ltd performed well in terms of liquidity, profitability, solvency and activity ratios and can therefore be advised as a buy. From the trend analysis above, the sales revenue for JBH Ltd is expected to hit the AUD 4,000,000,000 mark by the year 2017. This is coupled up with a corresponding growth in assets. This makes the company an attractive destination for interested investors. References Robinson, T., Hennie van Greuning, Henry, E. and Broihahn, M. (2009). International Financial Statement Analysis. John Wiley & Sons, Inc. New Jersey Wahlen, J., Baginski, S. and Bradshaw, M. (2010). Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective. South-Western Cengage Learning Inc. United States of America APPENDIX 1: LIST OF ADJUSTMENTS The financial statements for 2011 were adjusted for the Clive Anthony’s restructuring costs Adjustments were made to eliminate non-controlling interest in 2013. The same was done for the competitor’s financial statements for the two years (2014 and 2015) APPENDIX 2: ADJUSTED ACCOUNTS Adjusted Income Statement INCOME STATEMENTS               2011 2012 2013 2014 2015 Revenue 2,959,253.00 3,127,792.00 3,308,396.00 3,483,775.00 3,652,136.00 Cost of sales (2,307,224.00) (2,467,962.00) (2,596,194.00) (2,727,794.00) (2,853,883.00) Gross profit 652,029.00 659,830.00 712,202.00 755,981.00 798,253.00 Other income 2,351.00 613.00 574.00 520.00 631.00 Sales and marketing expense (286,823.00) (309,465.00) (336,831.00) (355,694.00) (374,084.00) Occupancy expenses (114,800.00) (129,343.00) (140,249.00) (148,969.00) (160,216.00) Administration expense (26,898.00) (26,715.00) (27,239.00) (27,600.00) (27,711.00) Other expense (27,658.00) (32,893.00) (30,249.00) (32,716.00) (35,414.00) Significant item - - - - - Finance costs (6,268.00) (13,654.00) (10,156.00) (8,845.00) (5,927.00) Profit before tax 191,933.00 148,373.00 168,052.00 182,677.00 195,532.00 Income tax expense (40,250.00) (43,732.00) (51,420.00) (54,230.00) (59,021.00) Profit for the year 151,683.00 104,641.00 116,632.00 128,447.00 136,511.00 Attributable to:           Equity holders of the parent 151,683.00 104,641.00 116,383.00 128,359.00 136,511.00 Adjusted Balance Sheet STATEMENT OF FINANCIAL POSITION   2011 2012 2013 2014 2015 ASSETS           Current Assets           Cash and Cash Equivalents 27,246.00 39,710.00 67,368.00 43,445.00 49,131.00 Trade and Other Receivables 58,253.00 58,378.00 64,246.00 70,745.00 81,480.00 Inventories 404,339.00 428,290.00 426,000.00 458,625.00 478,871.00 Other 4,896.00 7,682.00 6,038.00 5,332.00 7,416.00 Total current assets 494,734.00 534,060.00 563,652.00 578,147.00 616,898.00             Non-Current Assets           Other Financial Assets 3.00 3.00 3.00 3.00 3.00 Plant and Equipment 159,827.00 182,048.00 181,098.00 181,564.00 176,208.00 Deferred Tax Assets 17,802.00 16,196.00 14,839.00 14,909.00 17,363.00 Intangible Assets 74,108.00 78,842.00 83,712.00 85,218.00 84,541.00 Total non-current assets 251,740.00 277,089.00 279,652.00 281,694.00 278,115.00             Total Assets 746,474.00 811,149.00 843,304.00 859,841.00 895,013.00             LIABILITIES           Current Liabilities           Trade and other Payables 301,602.00 400,803.00 387,020.00 302,979.00 325,604.00 Current tax liabilities 645.00 4,374.00 14,932.00 8,184.00 9,474.00 Provisions 24,751.00 30,673.00 36,391.00 36,840.00 40,585.00 Other Current Liabilities 29,316.00 2,328.00 3,080.00 4,111.00 4,566.00 Other Financial liabilities 2,311.00 1,303.00 956.00 79.00 107.00 Total current liabilities 358,625.00 439,481.00 442,379.00 352,193.00 380,336.00             Non-Current Liabilities           Borrowings 232,582.00 149,775.00 124,331.00 179,653.00 139,461.00 Provisions 14,466.00 13,792.00 9,416.00 8,699.00 6,073.00 Other non-current Liabilities 21,548.00 22,797.00 23,350.00 24,638.00 25,664.00 Other Financial liabilities 292.00 803.00 - 25.00 - Total non-current liabilities 268,888.00 187,167.00 157,097.00 213,015.00 171,198.00             Total Liabilities 627,513.00 626,648.00 599,476.00 565,208.00 551,534.00             Net Assets 118,961.00 184,501.00 243,828.00 294,633.00 343,479.00             EQUITY           Contributed Equity 58,206.00 61,692.00 62,774.00 58,383.00 56,521.00 Reserves 4,028.00 5,120.00 11,762.00 16,265.00 17,636.00 Retained Earnings 56,727.00 117,689.00 168,809.00 219,985.00 269,322.00 Total Equity 118,961.00 184,501.00 243,345.00 294,633.00 343,479.00 Adjusted Cash flow Statement STATEMENT OF CASH FLOWS   2011 2012 2013 2014 2015 Cashflows from Operating Activities           Receipts from customers 3,267,490.00 3,448,130.00 3,646,509.00 3,832,979.00 4,012,130.00 Payment to suppliers and employees (3,101,569.00) (3,171,643.00) (3,442,104.00) (3,723,982.00) (3,767,211.00) Interest and bill discounts received 2,236.00 568.00 455.00 402.00 552.00 Interest and other costs of finance paid (6,047.00) (12,765.00) (8,896.00) (7,496.00) (5,689.00) Income taxes paid (52,165.00) (49,283.00) (39,554.00) (60,577.00) (59,886.00) Net cash inflow(outflow) from operating activities 109,945.00 215,007.00 156,410.00 41,326.00 179,896.00             Cashflows from Investing Activities           Payments for property, plant and equipment (45,063.00) (46,078.00) (35,307.00) (35,914.00) (42,466.00) Proceeds from sale of property, plant and equipment 1,144.00 1,257.00 1,203.00 674.00 (496.00) Payments for intangible assets - - - (3,000.00) (2,400.00) Payment for acquisition of subsidiary, net of cash acquired - - (4,197.00) - - Net cash inflow(outflow) from investing activities (43,919.00) (44,821.00) (38,301.00) (38,240.00) (45,362.00)             Cashflows from Financing Activities           Proceeds/(repayment) of borrowings 163,334.00 (84,174.00) (26,210.00) 54,063.00 (40,113.00) Payment of debt issue costs (955.00) (13.00) (632.00) (64.00) (484.00) Proceeds from issues of equity securities 9,305.00 3,514.00 1,082.00 21,523.00 3,125.00 Dividends paid to members of the parent entity (88,411.00) (77,031.00) (65,263.00) (77,183.00) (87,174.00) Payment for shares brought back (173,333.00) - - (25,830.00) (4,970.00) Payment for share issue and buy-back costs (801.00) (40.00) - (118.00) (24.00) Net cash inflow(outflow) from financing activities (90,861.00) (157,744.00) (91,023.00) (27,609.00) (129,640.00)             Net increase (decrease) in cash and cash equivalents (24,835.00) 12,442.00 27,086.00 (24,523.00) 4,894.00 Cash and cash equivalents at the beginning of the financial year 51,735.00 27,246.00 39,710.00 67,368.00 43,445.00 Effects of exchange rate changes on cash and cash equivalents 346.00 22.00 572.00 600.00 (200.00) Cash and cash equivalents at the end of the financial year 27,246.00 39,710.00 67,368.00 43,445.00 48,139.00 APPENDIX 3: COMMON-SIZE STATEMENTS Common-size Income Statement COMMON SIZE ANALYSIS OF INCOME STATEMENT (Expressed as a percentage of revenue)             2011 2012 2013 2014 2015 Revenue 100.00 100.00 100.00 100.00 100.00 Cost of sales (77.97) (78.90) (78.47) (78.30) (78.14) Gross profit 22.03 21.10 21.53 21.70 21.86 Other income 0.08 0.02 0.02 0.01 0.02 Sales and marketing expense (9.69) (9.89) (10.18) (10.21) (10.24) Occupancy expenses (3.88) (4.14) (4.24) (4.28) (4.39) Administration expense (0.91) (0.85) (0.82) (0.79) (0.76) Other expense (0.93) (1.05) (0.91) (0.94) (0.97) Significant item - - - - - Finance costs (0.21) (0.44) (0.31) (0.25) (0.16) Profit before tax 6.49 4.74 5.08 5.24 5.35 Income tax expense (1.36) (1.40) (1.55) (1.56) (1.62) Profit for the year 5.13 3.35 3.53 3.69 3.74 Attributable to: - - - - - Equity holders of the parent 5.13 3.35 3.52 3.68 3.74 Common-size Balance Sheet COMMON SIZE ANALYSIS OF BALANCE SHEET (Expressed as a percentage of total assets)             2011 2012 2013 2014 2015 ASSETS           Current Assets           Cash and Cash Equivalents 3.65 4.90 7.99 5.05 5.49 Trade and Other Receivables 7.80 7.20 7.62 8.23 9.10 Inventories 54.17 52.80 50.52 53.34 53.50 Other 0.66 0.95 0.72 0.62 0.83 Total current assets 66.28 65.84 66.84 67.24 68.93             Non-Current Assets           Other Financial Assets 0.00 0.00 0.00 0.00 0.00 Plant and Equipment 21.41 22.44 21.47 21.12 19.69 Deferred Tax Assets 2.38 2.00 1.76 1.73 1.94 Intangible Assets 9.93 9.72 9.93 9.91 9.45 Total non-current assets 33.72 34.16 33.16 32.76 31.07             Total Assets 100.00 100.00 100.00 100.00 100.00             LIABILITIES           Current Liabilities           Trade and other Payables 40.40 49.41 45.89 35.24 36.38 Current tax liabilities 0.09 0.54 1.77 0.95 1.06 Provisions 3.32 3.78 4.32 4.28 4.53 Other Current Liabilities 3.93 0.29 0.37 0.48 0.51 Other Financial liabilities 0.31 0.16 0.11 0.01 0.01 Total current liabilities 48.04 54.18 52.46 40.96 42.50             Non-Current Liabilities           Borrowings 31.16 18.46 14.74 20.89 15.58 Provisions 1.94 1.70 1.12 1.01 0.68 Other non-current Liabilities 2.89 2.81 2.77 2.87 2.87 Other Financial liabilities 0.04 0.10 - 0.00 - Total non-current liabilities 36.02 23.07 18.63 24.77 19.13             Total Liabilities 84.06 77.25 71.09 65.73 61.62             Net Assets 15.94 22.75 28.91 34.27 38.38             EQUITY           Contributed Equity 7.80 7.61 7.44 6.79 6.32 Reserves 0.54 0.63 1.39 1.89 1.97 Retained Earnings 7.60 14.51 20.02 25.58 30.09 Total Equity 15.94 22.75 28.86 34.27 38.38 Common-size Statement of Cash flows COMMON SIZE ANALYSIS OF THE CASHFLOW STATEMENT (Expressed as a percentage of revenue)             2011 2012 2013 2014 2015 Cashflows from Operating Activities           Receipts from customers 110.42 110.24 110.22 110.02 109.86 Payment to suppliers and employees (104.81) (101.40) (104.04) (106.90) (103.15) Interest and bill discounts received 0.08 0.02 0.01 0.01 0.02 Interest and other costs of finance paid (0.20) (0.41) (0.27) (0.22) (0.16) Income taxes paid (1.76) (1.58) (1.20) (1.74) (1.64) Net cash inflow(outflow) from operating activities 3.72 6.87 4.73 1.19 4.93             Cashflows from Investing Activities           Payments for property, plant and equipment (1.52) (1.47) (1.07) (1.03) (1.16) Proceeds from sale of property, plant and equipment 0.04 0.04 0.04 0.02 (0.01) Payments for intangible assets - - - (0.09) (0.07) Payment for acquisition of subsidiary, net of cash acquired - - (0.13) - - Net cash inflow(outflow) from investing activities (1.48) (1.43) (1.16) (1.10) (1.24)             Cash flows from Financing Activities           Proceeds/(repayment) of borrowings 5.52 (2.69) (0.79) 1.55 (1.10) Payment of debt issue costs (0.03) (0.00) (0.02) (0.00) (0.01) Proceeds from issues of equity securities 0.31 0.11 0.03 0.62 0.09 Dividends paid to members of the parent entity (2.99) (2.46) (1.97) (2.22) (2.39) Payment for shares brought back (5.86) - - (0.74) (0.14) Payment for share issue and buy-back costs (0.03) (0.00) - (0.00) (0.00) Net cash inflow(outflow) from financing activities (3.07) (5.04) (2.75) (0.79) (3.55)             Net increase (decrease) in cash and cash equivalents (0.84) 0.40 0.82 (0.70) 0.13 Cash and cash equivalents at the beginning of the financial year 1.75 0.87 1.20 1.93 1.19 Effects of exchange rate changes on cash and cash equivalents 0.01 0.00 0.02 0.02 (0.01) Cash and cash equivalents at the end of the financial year 0.92 1.27 2.04 1.25 1.32 APPENDIX 4: RATIO ANALYSIS Activity Ratios ACTIVITY RATIOS     2012 2013 2014 2015 1 Inventory Turnover 5.92812 6.07802 6.16712 6.08831 2 Receivables Turnover 51.01435 49.01654 45.77139 89.64497 3 Days of Sales Outstanding (DOS) 7.05684 7.34446 7.86517 4.01584 4 Payables Turnover 7.09537 6.58499 8.00123 9.14479 5 No of days of payables 50.73728 54.66977 44.9931 39.36669 6 Fixed Assets Turnover 11.82912 11.88487 12.41222 13.04779 Liquidity Ratios LIQUIDITY RATIOS     2011 2012 2013 2014 2015 1 Current Ratio 1.3795 1.2152 1.2741 1.6416 1.6220 2 Quick Ratio 0.2521 0.2407 0.3112 0.3394 0.3629 3 Cash Ratio 0.0896 0.1078 0.1659 0.1385 0.1487 Solvency Ratios SOLVENCY RATIOS     2011 2012 2013 2014 2015 1 Debt to Asset Ratio 0.8406 0.7725 0.7109 0.6573 0.6162 2 Debt to Equity Ratio 5.2749 3.3964 2.4635 1.9183 1.6057 3 Financial Leverage   5.1328 3.8669 3.1658 2.7501 4 Interest Coverage Ratio 31.6211 11.8666 17.5471 21.6531 33.9900 Profitability Ratios PROFITABILITY RATIOS     2011 2012 2013 2014 2015 1 Gross Profit Margin 0.220336 0.210957 0.215271 0.217001 0.218572 2 Net Profit Margin 0.051257 0.033455 0.035253 0.03687 0.037378 3 Return on Assets   0.13436 0.140992 0.150835 0.155581 4 Return on Equity   0.689648 0.545206 0.477518 0.427859 APPENDIX 5: PEER COMPANY DATA Harvey Norman Income Statements   2014 2015 Sales revenue 1,513,662.00 1,617,151.00 Cost of sales (1,064,892.00) (1,126,894.00) Gross profit 448,770.00 490,257.00 Revenues and other income items 1,033,624.00 1,101,286.00 Distribution expenses (15,114.00) (18,744.00) Marketing expenses (348,952.00) (370,124.00) Occupancy expenses (233,881.00) (229,081.00) Adminstration expense (427,604.00) (447,198.00) Other expenses from ordinary activities (136,846.00) (124,082.00) Finance costs (36,437.00) (32,872.00) Share of equity controlled entities     Share of net profit of joint venture entities 17,501.00 8,658.00       Profit before tax 301,061.00 378,100.00 Income tax expense (88,823.00) (109,186.00) Profit after tax 212,238.00 268,914.00 Attributable to:     Owners of the parent 211,695.00 268,095.00 Non-controlling Interests 543.00 819.00   212,238.00 268,914.00 Harvey Norman Statements of Financial Position   2014 2015 ASSETS     Current Assets     Cash and Cash Equivalents 144,957.00 185,840.00 Trade and Other Receivables 1,119,393.00 1,142,551.00 Other financial assets 21,596.00 26,148.00 Inventories 297,670.00 298,381.00 Other assets 23,010.00 23,072.00 Intangible Assets 541.00 476.00 Total current assets 1,607,167.00 1,676,468.00       Non-Current Assets     Trade and Other Receivables 7,417.00 71,815.00 Investments accounted for using equity method 24,912.00 21,425.00 Other Financial Assets 16,176.00 16,570.00 Plant and Equipment 569,057.00 552,603.00 Investments properties 1,903,504.00 1,935,936.00 Intangible Assets 77,898.00 83,727.00 Deferred Tax Assets 19,205.00 -       Total non-current assets 2,618,169.00 2,682,076.00       Total Assets 4,225,336.00 4,358,544.00       LIABILITIES     Current Liabilities     Trade and other Payables 740,681.00 813,474.00 Interest-bearing loans and borrowings 469,872.00 408,438.00 Income tax payable 24,142.00 34,807.00 Other liabilities 2,043.00 2,870.00 Provisions 25,494.00 23,490.00 Total current liabilities 1,262,232.00 1,283,079.00       Non-Current Liabilities     Interest-bearing loans and borrowings 238,094.00 290,000.00 Provisions 10,293.00 12,249.00 Deferred income tax liabilities 208,185.00 198,728.00 Other liabilities 15,426.00 17,628.00 Total non-current liabilities 471,998.00 518,605.00       Total Liabilities 1,734,230.00 1,801,684.00       Net Assets 2,491,106.00 2,556,860.00       EQUITY     Contributed Equity 259,610.00 380,328.00 Reserves 102,735.00 113,290.00 Retained Earnings 2,109,032.00 2,403,463.00 Parent entity interests 2,471,377.00 2,537,081.00 Non-Controlling Interest 19,729.00 19,779.00 Total Equity 2,491,106.00 2,556,860.00 Harvey Norman Statements of Cash Flows   2014 2015 Cashflows from Operating Activities     Net receipts from franchisees 871,251.00 830,844.00 Receipts from customers 1,590,489.00 1,707,259.00 Payment to suppliers and employees (1,994,315.00) (2,056,114.00) Distributions received from joint ventures 15,512.00 13,905.00 GST paid (39,087.00) (43,258.00) Interest received 8,874.00 8,657.00 Interest and other costs of finance paid (36,583.00) (33,059.00) Income taxes paid (78,626.00) (89,284.00) Dividends received 1,420.00 1,498.00 Net cash inflow(outflow) from operating activities 338,935.00 340,448.00       Cashflows from Investing Activities     Payments for property, plant and equipment and intangible assets (66,617.00) (55,012.00) Payments for purchase of investment properties (54,665.00) (15,828.00) Proceeds from sale of property, plant and equipment 10,459.00 7,152.00 Payments for purchase of units in unit trusts (106.00) (395.00) Payments for purchases of equity accounted investments (2,608.00) (4.00) Proceeds from sale of listed securities 134.00 1,477.00 Proceeds from insurance claims 1,647.00   Payments for purchase of listed securities - (4,048.00) Loans granted to other entities (1,361.00) (15,145.00) Net cash inflow(outflow) from investing activities (113,117.00) (81,803.00)       Cashflows from Financing Activities     Proceeds from renouncable rights offer - 120,718.00 Payments for purchase of shares in controlled entities (22,618.00) - Repayments/proceeds from syndicated facility and working capital facility (122,855.00) (52,000.00) Dividends paid (111,543.00) (333,664.00) Loans repaid from/granted to related parties 19,925.00 37,153.00 Proceeds from other borrowings 1,878.00 7,196.00 Net cash inflow(outflow) from financing activities (235,213.00) (220,597.00)       Net increase (decrease) in cash and cash equivalents (9,395.00) 38,048.00 Cash and cash equivalents at the beginning of the financial year 124,567.00 115,172.00 Cash and cash equivalents at the end of the financial year 115,172.00 153,220.00 APPENDIX 6: SEGMENT INFORMATION Operating EBITDA Year Australia New Zealand 2011 222,672.00 580.00 2012 187,539.00 4,674.00 2013 207,126.00 3,860.00 2014 221,611.00 5,039.00 2015 236,223.00 3,808.00 Total 1,075,171.00 17,961.00 Proportion 98.36% 1.64% Read More