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Jb Hi Fi Financial Analysis

2532 words - 11 pages

JB Hi-Fi Ltd -Analysis of Company Financial Information

Assignment topic
* Evaluate the performance of a company through a critical analysis of its published financial statements over the last 2 years as follows:
* Locate, extract and analyse data from the published financial statements to provide a comprehensive analysis of a company’s operations and performance;
* Structure an argument based on the analysis of five aspects of performance evaluation:

* Profitability
* Efficiency
* Short term solvency
* Long term solvency
* Market based ratios

* Present a clear, well-structured report using appropriate style and ...view middle of the document...

With the continuing rising costs associated with traditional retailing and low growth figures forecast in the future, profitability is under immense pressure and will continue to be a key focus area for improvement. Only the best run and most efficient retail organizations will survive and thrive through what will continue to be extremely challenging times ahead and the time to plan and take action is now.

Table of contents

1. Introduction
2. Evaluation and comparison of profitability
3. Efficiency: evaluation and comparison
4. Short term solvency analysis and comparison
5. Long term solvency analysis
6. Market based ratios
7. Recommendations
References
Appendix

1. Introduction
JB Hi has experienced strong revenue growth of 8.40% to $2.96b in 2011 and a further 5.70% increase to $3.13b in 2012. During a period of very low growth in the retail sector and a very challenging marketplace, the revenue growth achieved is a good result and quite commendable. Based on the revenue figure alone, you could be lead to believe that the company is in a good position and has done a great job in achieving growth during tough retail trading times and much economic uncertainty. As we look deeper into the underlying company financial results, the position is not as strong as expected, the revenue growth looks unsustainable and we are starting to see some concerning trends that need to be addressed to ensure the overall financial position of the company and share price remain positive.
Although revenue has increased over the last 2 years, EBIT has been in decline since its peak in 2010 when the company recorded an impressive result of $175.1m, then dropping by 7.7% to $162.6m in 2011 and a further decline of 0.70% to $161.5m in 2012. Net profit after tax has followed a similar trend after also peaking in 2010 at $118.7m, declining by 7.60% in 2011 to $109.7m and then dropping a further 5% to $104.6m in 2012. Considering the fact that the company opened 15 new stores and closed 4 underperforming stores in 2012, this decline in earnings and profit over the last 2 years means an analysis of key financial areas of the business is required to identify areas for improvement and make recommendations to the management team. This report aims to analyse the company operations and performance by using the calculation of commonly used financial ratios.

2. Evaluation and comparison of profitability
What we are analysing here is the company’s ability to turn revenue into profit and how efficient the business is in making a profit out of its sales. Profitability ratios are used to determine the overall success of a company and compare the profit with the primary activities of the business. These ratios can also be used to help focus on areas of the business where improvements are required to help improve overall profitability. The most commonly used ratios are Net Profit Margin, Return on Assets and Return on Equity.

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