The purpose of financial accounting statements is to offer relevant information regarding the financial position, performance as well as variations in financial position of JB Hi-Fi Company. Moreover, analyzing financial statements of the selected company can be useful to all its users in order to make certain economic decisions. Due to such relevance, financial statements must be relevant, understandable, comparable and reliable. Major financial statements of the company include income statement, balance sheet and cash flow along with retained earnings that are used by the management in decision making regarding the business. Financial statements are used by JB Hi-Fi Company all through the year for facilitating its investors and creditors to get involved in better decision making. These statements are used by the company’s investors for determining the viability of making investments in the company.
Certain accounting policies are followed by JB Hi-Fi in preparation of its annual report. The company has prepared the annual report in accordance with the requirements of Corporations Act 2001. Moreover auditing of the annual report is conducted in compliance with ethical needs of “Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants”. New accosting standards are also followed by the company such as AASB 16 leases in classifying its cash flows affected by operating lease payments. Moreover, preparation of the financial statements is in accordance with “Australian Accounting Standards and Corporations Regulations 2001”. JB Hi-Fi considers employing full-disclosure principle that indicates that accountants maintain all important information within the financial statement. The company also considers extra information such as unusually high earnings of the company must be disclosed in the financial statements section following full disclosure principle.
Return on equity ratio of the company is observed to decrease over the years from 2012 to 2017. This is because of the reason that the company is not able to measure its capability to gather profits from its shareholders investment in the company. The company is not able to make enough profits for every dollar that is generated by common stockholders’ equity. Return on equity has decreased in 2017 in comparison to 2016 as the company has raised capital and the stock offering might negatively affect the common stock value of the company.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Return on equity |
75.91% |
54.33% |
47.58% |
42.95% |
40.64% |
27.32% |
Return on assets ratio of the company is observed to increase till 2016 and then decrease in 2017. This indicates that JB Hi-Fi was capable to manage its assets effectively in generating earnings that did not happen in the year 2017. This is because of the reason that it was not able to generate enough earnings from capital invested. The company needs to convert its money effectively for investing within the net income.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Return on assets |
13.18% |
14.03% |
15.03% |
15.61% |
16.11% |
9.99% |
Financial leverage of the company is observed to decrease till year 2016 and then it increased in 2017. Low ratio till 2016 indicates that JB Hi-Fi has efficiently repaid its debts that decreased its risks of bankruptcy and increased shareholders return in investment. However, an increased ratio in 2017 indicates it is facing issues in repaying its borrowed money or debts. Such increase is also because of the reason that the company decreased its equity as assets percentage through increasing its debt. Due to such decision made by the company financial leverage figure enhanced that increased return on equity.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Financial leverage |
1.09 |
1.06 |
1.05 |
1.03 |
1.02 |
1.04 |
Asset turnover ratio is observed to increase over the years from 2012 to 2017. This is because of the reason that the company is capable to generate increased sales from its assets through comparing net sales with average total assets. JB Hi-Fi is efficiently utilising its assets in generate sales. A high increase in asset turnover ratio for the company is observed in 2017 in comparison to 2016 for the reason that it is continuously employing its assets and decreasing inventory purchase through enhancing sales.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Earnings per share |
1.06 |
1.16 |
1.27 |
1.36 |
1.51 |
1.54 |
Earnings per share ratio are observed to increase over the years from 2012 to 2017. This indicates that the company is attaining increased dollars of net income for each share of common stock. This also signifies that overall profitability of the company is experiencing an increasing trend.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Earnings per share |
1.06 |
1.16 |
1.27 |
1.36 |
1.51 |
1.54 |
Times interest earned ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2017. This is for the reason that the company is gathering enough income in order to pay for its overall interest expenses. A high ratio can be observed for the reason that the company is able to pay all interests with before tax income in less amount of time. As lower ratio indicates credit risk, it can be said that JB Hi-Fi is free from such risks and its creditors are favouring the company.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Times interest earned |
11.64 |
17.80 |
21.22 |
33.50 |
55.25 |
24.36 |
This ratio measures dollar amounts present in company’s bank account that can be converted any cash immediately. Times interest earned ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2017. This is for the reason that it has enough cash available for paying interest expenses of its borrowers. A high ratio signifies the company’s strong liquidity position over the long run and its capability to address current debts. It can pay all its current liabilities by cash and cash equivalents easily and in lesser time.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Cash coverage ratio |
11.64 |
17.80 |
21.22 |
33.50 |
55.25 |
24.36 |
Times interest earned ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2017. This is for the reason that the financial policies of the company are sound. High ratio indicates the company increased protection of money and likely benefits that can be attained by shareholders from funds offered by creditors. This ratio has increased in 2017 in comparison to 2016 for the reason that the company is having more debt than equity and is getting financed by creditors rather than through internal positive cash flow.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Debt-to-equity |
1.02 |
0.65 |
0.72 |
0.50 |
0.35 |
0.83 |
Cash ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2016 and decreased in 2017. This is for the reason that the company has enough cash available to meet its short term liabilities and is able to address its liabilities with cash and cash equivalents. High ratio indicates that the company maintains enough cash balances to deal with its current debts.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Cash ratio |
0.09 |
0.15 |
0.12 |
0.13 |
0.12 |
0.08 |
Current ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2016 and decreased in 2017. This is for the reason that the company has adequate short time assets to address all its short-term liabilities. Such ratio ensures strong liquidity position of the company. Due to this reason, creditors agree to extend credit through observing that it has resources to address debt obligations within a year. However, current ratio of the company is observed to decrease in 2017 in comparison to 2016 for the reason that the company is facing issues regarding inventory management, inefficient standards for gathering receivables and high rate of cash expense.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Current ratio |
1.22 |
1.28 |
1.64 |
1.62 |
1.57 |
1.32 |
Quick ratio
Quick ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2016 and decreased in 2017. This is for the reason that the company is capable enough to make its cash and current asset easily convertible to cash in comparison to its short term obligations. High quick ratio is deemed to provide enough leverage against liquidity risk considering the volatility and predictability of the business.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Quick ratio |
0.24 |
0.30 |
0.33 |
0.35 |
0.35 |
0.32 |
Receivables turnover ratio of JB Hi-Fi Company is observed to increase over the years from 2012 to 2017. This is for the reason that the company is able to collect average accounts receivables numerous times over a year. A high ratio also indicates that the company is highly efficient in gathering credit sales from its consumers. From cash flow position such ratio situation is favourable as this is an indication of the company’s high quality credit sales and receivables. Receivables turnover of the company increased from the year 2016 to 2017 for the reason that it is increasing its capability of issuing credit efficiently to all its consumers along with gathering funds from them in a desired time.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Receivables turnover |
6.77 |
6.73 |
7.07 |
7.60 |
8.26 |
9.57 |
Inventory turnover ratio of JB Hi-Fi Company is observed to fluctuate over the years from 2012 to 2017. This is for the reason that inventory is managed efficiently by the company over a period through comparing cost of goods sold over a period. This indicates that the company is not overspending through purchasing excess inventory through storing non-salvable inventory. Inventory turnover serves as a measure that the ways in which the company will be able to control its merchandise.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Inventory turnover |
61.75 |
59.71 |
58.84 |
59.98 |
60.56 |
58.34 |
Price earnings ratio of the company is observed to fluctuate over the years from 2012 to 2017 and remained increased in 2017. This indicated that the company’s expected price for share based on the earnings is fluctuating from low to high over years. This brings uncertainty regarding positive future performance and investor’s willingness to pay increased amount in company’s shares. Price earnings ratio has increased in 2017 in comparison to 2016 for the reason that the company is performing well and its earnings are increased every year. This is also an indication that the company is growing that is enhancing the overall worth of JB Hi-Fi.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Dividend yield ratio |
8.13% |
4.00% |
4.20% |
4.74% |
3.85% |
4.54% |
Dividend yield ratio of the company is observed to increase over the years from 2012 to 2017. This indicated that the company’s investment in stock is generating cash flows affluently in form of dividends. High dividend yield ratio signifies JB Hi-Fi Company is getting increased dividends for every invested dollar. The company is capable to pay high dividend in comparison to its stock’s fair market value.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Price/earnings ratio |
7.55 |
15.52 |
15.75 |
13.97 |
17.22 |
16.88 |
From the financial statements and ratio analysis of JB Hi-Fi Company it has been observed that the company has increasing trend in its profitability ratios. Considering the same, it can be stated that the company is able to convert business activities into profits. Profit margins and return on assets position indicates that the company will successfully employ its assets in generating increased net income in upcoming years.
Moreover, from solvency ratio analysis it is gathered that it has a strong cash flow position that can facilitate it to pay off all its short and long term debt obligations. However, the price earnings ratio shows a decreasing trend that brings uncertainty regarding positive future performance and investor’s willingness to pay increased amount in company’s shares. From liquidity ratio analysis it is evident that JB Hi-Fi has a liquid position for it is addressing all its financial obligations in lesser time. Considering the results of the ratio analysis, the company is recommended to maintain enough total assets and total liabilities in order to maintain its solvency and liquidity position. Price earnings ratio of the company findings indicates that certain efforts needs to be made by the company in enhancing the economic status of the company within the industry.
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