StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Financial Analysis of JB Hi-Fi - Essay Example

Cite this document
Summary
The paper "Financial Analysis of JB Hi-Fi" states that the 20% growth rate is obtained from the change in the rate of sales of goods from the year 2013 to the year 2015. This is considered basing on the trends and conditions of the market as well as regional, local and national economy…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.8% of users find it useful
Financial Analysis of JB Hi-Fi
Read Text Preview

Extract of sample "Financial Analysis of JB Hi-Fi"

Topic: Financial Analysis Report of JB Hi-Fi Table of Contents Executive Summary 3 Introduction 3 Sales Related Ratios 4 Operating Profit Margin 4 Net Profit Margin 5 Networking Capital Ratio 5 Debtors Turnover Ratio 5 Current Assets / Sales 6 Net Fixed Assets / Sales 6 Cost of Goods Sold / Sales 6 The Spread sheet Model: 6 References 7 Appendix 8 Table 1: Sales Related Ratios 8 Table 2: Formulas for the Forecasted Financial Statements 9 Table 3: Financial Model 10 Executive Summary Information in the financial statement is useful to various groups of stakeholders and therefore precise and accurate analysis of this information is important as the information influences the decision making process in an organization. The chairman reported that the company expects to open 16 stores in the year 2013 and thus an expected increase in sales and revenues in the future. So as to ensure that the balance sheet is balanced we use the plug. Plug is a balance sheet item that is used to balance the balance sheet items. Plug targets the flexible accounts which are easily adjustable like the cash and the short term debts. Pro forma financial statements are also called the projected financial statements. They are used for propose of measuring the performance of the firm and also to measure hoe stable is a firm financially. They are also used for future planning, determining whether a firm is able to borrow loans and service them, and also evaluating the performance of the firm under different models. Most models are based on sales volume This paper will seek to analyze the financial statement of JB Hi-Fi by use of historical data to predict the future.I will therefore forecast the years 2013, 2014 and 2015 using the year 2012 as my base year. Ratio analysis of relevant sales ratios will be used for the analysis. Introduction Financial statement analysis is the use balance sheet and income statement data to come up with values for financial interpretation and identification of the strengths and weaknesses of an organization (Stickney et al., 2006). Various techniques of financial statement analysis are: trend analysis, comparative statements, common size percentages, ratio and fund analysis as well as changes in working capital changes (Libby et al., 2004). For the purpose of analyzing JB Hi-Fi, relevant sales ratio analysis will be undertaken. For a successful financial analysis, comparison has to be made using consistent percentages through the years of analysis. The use of the sales ratios to analyze the years will reveal their similarities, trends, as well as differences in the company (Palepu & Healy, 2007). As Gregory (2008) notes, the stakeholders of the information contained in a financial statement include, potential investors, creditors, managers, shareholders, the government and creditors and they require the information for different reasons. Use of historical data is a major limitation of ratio analysis as it is therefore assumed that it reflects on the future trends whereas no one could be certain of the future (Palepu & Healy, 2007). Resvine et al (2004) explains that another limitation of using financial statements in analysis is that GAAP allows management to hide or omit important information in the financial statements and decision makers should be aware of this to incorporate other methods in aid of decision making. Sales Related Ratios Operating Profit Margin The prediction of the three years shows that the operation margin will improve over the three years forecast from 12.7% to 26.6% (table 1.1). This improvement is attributable to the expected increase in the number of stores by 16 in the year 2013 thus an expected increase in the revenues is expected. Net Profit Margin It is a measure of the net profit and it should be neither low nor high (Stickney et al., 2007). A projected decline is evidenced by the decline from 70.3 % to 50.4% and to 46.2% an indication on increased costs over the forecast period.As reported in its financial statements, JB faced increased costs of doing business such as an increase in the wages cost by a 10% in the in the fair work awards in the previous three years and thus the same is expected in the future. Networking Capital Ratio This is maintained at a positive figure from the past and the same is expected in the future as the projections indicate that the ratio will be0.04 in 2013 and 2014 and 0.05 in 2015.Though maintained positively, this shows a low level of networking capital compared to the sales generated. Debtors Turnover Ratio White et al. (2002) explains this ratio as one which shows how long it takes for debtors to be converted in to cash and that a high ratio indicates that shorter periods are taken. From table 1.1 the company has a prediction of 6days maintained in the three forecasted years and thus the company will perform poorly in debts collection and this is likely to lead to a financial strain for the company. Current Assets / Sales This shows how many current assets are held per unit sale. From the forecasts, the amounts of the assets are maintained throughout the period as it is in the past at lower levels an indicator that sales generation is not dependent on the current assets held as less assets are held which are for sales generation. The ratio is maintained at 0.15 throughout he three years. Net Fixed Assets / Sales This indicates the fixed assets per unit sale. JB projects an increase in fixed assets held per unit sale for 2013, 2014 and 2015 from 0.11, 0.16 to 0.23.This is explained by the expected stores increment which will in return increase the net fixed assets held by the company. Cost of Goods Sold / Sales This shows the expenses incurred in generating a unit sale. JB shows a prediction of a decrease in the forecasted years from 0.72 in 2013 to 0.66 and 0.61 in 2014 and 2015 respectively. This is because even as the sales are projected to increase, the company ha s a strong cost base to control price inflation and mitigate against competitor discounting thus maintaining their costs at a lower level The Spread sheet Model: To complete the model, we assume that: • Interest expense is 10% on outstanding debt • Interest income is 8% on the cash and marketable securities • Depreciation expense is 10% on fixed assets at cost • Dividend payout rate is 40 percent of after-tax earnings • Corporate tax rate is 40 percent Sales growth The 20% growth rate is obtained from the change in the rate of sales of good from the year 2013 to the year 2015. This is considered basing on the trends and conditions of the market as well as regional, local and national economy. This is also based on the growth sustainability context. The 20% is therefore attained as a result of increased asset level. References http://www.aspectfinancial.com.au.ezproxy.lib.uts.edu.au/af/company/mainview?ASXCo de=JBHS., Revsine, L., Collins, D.W., & Johnson,W.B. (2004). Financial reporting and analysis, 3rd edition. Upper Saddle River, NJ: Prentice Hall. Stickney, C.P., & Weil,R.L.(2006).Financial accounting: An introduction to concepts, methods, and uses. 11th edition.South-Western: Thomson. Libby, R., Libby,P.A & Short, D.G.(2004).Financial accounting. 4th edition. Irwin:McGraw- Hill. Palepu, K.G., & Healy, P.M.(2007).Business analysis & valuation using financial statements. 4th edition.South-Western:Thomson Appendix Table 1: Sales Related Ratios     2013 2014 2005 Operating Profit margin PBIT __ X 100% 5,067,440 * 100 6,137,137 *100 7,426,508 *100 Turnover 3,753,350 4,504,020 5,404,825   = 12.7% = 20.0% = 26.6% Net Profit margin Net Profit X 100% 2,641,665x100  2,271,088x100  2,498,166x100 Turnover 3,753,350 4,504,020 5,404,825   = 70.3% = 50.4% = 46.2% Net working capital C A- C L Turnover 796,337 -300,268 3,753,350 915,787 -360,322 4,504,020 1,053,155-432,386 5,404,825 to turnover Ratio = 0.04 = 0.04 = 0.05 Debtor Turnover End Year Trade Receivables X365 Turnover  88,647x365 3,753,350  101,944x365 4,504,020 117,236x365 5,404,825   = 6.5 days = 6 days = 6 days  Current Assets to Sales Ratio Current Assets 796,337 3,753,350  915,787 4,504,020  1,053,155 5,404,825 Turnover   = 0.16 =0.15 = 0.15 Net Fixed Assets to Sales Ratio Net Fixed Assets 1,972,767 3,753,350  2,367,320 4,504,020  2,840,784 5,404,825 Turnover   = 0.11 = 0.16 = 0.23 Cogs Sales Ratio Cost of Goods sold Turnover 1,876,675 3,753,350  2,252,010 4,504,020  2,702,412 5,404,825 = 0.72 = 0.66 = 0.61   Share price Total share value Total no. of share 25141665 4699377 = 5.35 2271087.50 289310 = 7.85 24987165 5838123 = 4.282 (Stickney et al., 2004) Table 2: Formulas for the Forecasted Financial Statements FORMULAS FOR PRO-FORMA FINANCIAL STATEMENTS Formula for Subsequent Periods Assumptions SALES = SALES(-1)*1.20 Constant Sales growth rate COGS = 0.50*SALES Sales Driven INT_DEBT = .10*(DEBT(-1) Given percentage INT_CASH = .08*(CASH(-1)) Given percentage DEPN = .10*(FA_COST) Given percentage PBT = SALES-COGS - INT_DEBT + INT_CASH - DEPN Identity TAXES = .40*PBT Given percentage PROFIT = PBT – TAXES Identity DIVIDENDS = .40*PROFIT Given percentage RET_EARNINGS = PROFIT – DIVIDENDS Identity CASH = CL+DEBT(-1)+EQUITY- OCA + NFA if positive = 0, otherwise The "Plug" OCA = .20*SALES Sales Driven FA_COST = NFA + ACC_DEPN Identity NFA = .80*SALES Sales Driven ASSETS = CASH + OCA + NFA Identity CL = .08*SALES Sales Driven; DEBT = DEBT(-1) if CASH ≥ 0 = OCA + NFA - CL – EQUITY otherwise Debt increases if needed to prevent CASH Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Financial Modelling and forecasting Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Financial Modelling and forecasting Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/marketing/1605018-financial-modelling-and-forecasting
(Financial Modelling and Forecasting Essay Example | Topics and Well Written Essays - 1000 Words)
Financial Modelling and Forecasting Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/marketing/1605018-financial-modelling-and-forecasting.
“Financial Modelling and Forecasting Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/marketing/1605018-financial-modelling-and-forecasting.
  • Cited: 0 times

CHECK THESE SAMPLES OF Financial Analysis of JB Hi-Fi

JB Hi-Fi New Ventures in Australia

jb hi-fi New ventures In Australia Name Institution Part 1 Introduction There are major uncontrollable and major factors that influence an organization's decision-making and alter its strategies and performances.... These changes have helped jb hi-fi to be up to standard in offering the best services to the customers.... The risks involved in any project are avoided and analyzed by the project schedule; the Critical Path Methodology (CPM) comes in because it is one of the elements of the schedule network analysis together with Critical Chain Project Management (CCPM) (Australian Bureau of Statistics 2011)....
4 Pages (1000 words) Essay

The Financial Risks in Taylor Wimpey plc, Comparison It with Bellway plc

financial analysis using a number of ratios, therefore, becomes important.... The paper "The Financial Risks in Taylor Wimpey plc, Comparison It with Bellway plc" describes that the analysis indicates that Taylor Wimpey's business is very risky and the construction industry has a higher rate of insolvency when compared to other industries.... A what-if analysis or sensitivity analysis could then be used to determine the level of debt and equity that is optimal....
36 Pages (9000 words) Research Paper

The Liquidity Ratio of JB-Hi Fi Limited

A brief analysis of the notes to the financial statement pertaining to the trade payable figure presents the fact that the trade payable figure also comprises of other figures such as GST payables, deferred income and other creditors and accruals.... During the financial year 2012, the current liabilities of the company jb-Hi Fi Limited has increased $93,543 thousand as compared to the prior year ending 2011.... During the financial year 2012, the current liabilities of the company jb-Hi Fi Limited has increased $93,543 thousand as compared to the prior year ending 2011....
8 Pages (2000 words) Essay

Balance Sheet of JB Hi-Fi Limited

The company under consideration is JB Hi Fi Limited and in this report analysis of the financial performance of the company for the financial year 2009 with the financial year 2010 has been conducted in order to draw attention to various financial trends and significant changes over the period.... Contents Abstract 2 financial analysis 3 Profitability Ratios 3 Liquidity and efficiency Ratios 4 Gearing Ratios 6 Conclusion 7 References 8 Abstract Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity....
8 Pages (2000 words) Essay

Decision making tools

On a graph, it can be represented by a cumulative 1b) Continue the analysis by the calculation of appropriate measures of location (mean, mode, median) and measures of dispersion (inter-quartile range, standard deviation) with an interpret of the values obtained ... 1.... Classify and present the data all of the formats of frequency table, histogram, cumulative frequency chart, pie chart, bar chart, or some of these with other formats, selected appropriately and explain how you interpret each. ...
4 Pages (1000 words) Essay

Business Integration topic

These concepts have been based on the study of jb Hi Fi Limited – a company that deals with media electronics like the ‘big box', TVs and radios.... In the case of jb.... When taken into consideration individually, each of these gives rise to the development of a broad and sophisticated analysis of competitive position.... In the year ending 30th of June, 2007, jb Hi Fi has managed to achieve a During this period, the company opened 13 stores....
12 Pages (3000 words) Essay

Strategy Development Format of JB Hi-Fi

This report 'Strategy Development Format of jb hi-fi' attempts to outline the strategies that JB Hi-Fi needs to develop in order to enhance its integrated marketing communication (IMC) so that it may augment its competitive position within the Australian retail sector.... The IMC strategies of jb hi-fi are centered on the fundamental objective that it has to draw the attention of its target audience through a lively atmosphere as well as consumer-friendly and helpful personnel that are dedicated to provide unparalleled customer delight....
27 Pages (6750 words) Essay

Customer Relationship Management

The paper gives detailed information about how the creation of an exceptional customer has become a significant practice in business today.... Many companies are adopting the concept, some of which will be mentioned below and focusing on ensuring customer satisfaction.... ... ... ... Customer relationship management relied on customer satisfaction until CEM was first introduced by pine and Gilmore in 1998....
4 Pages (1000 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us