Financial Analysis Of JB Hi-Fi Ltd: Annual Report 2014

Part A: Financial performance and financial position parameters

Financial statement analysis is a tool to analyse the financial and operational performance of an organisation based on the figures available in the annual report. JB Hi-Fi Limited’s financial performance and financial position can be analysed classifying the information in various groups. To achieve that purpose, their financial parameters have been pointed and interpreted meaningfully to understand their financial strengths and weaknesses.

Financial Performance and Financial position parameters	Figures from Annual report 2014	Brief Interpretation
Cash and cash equivalents Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	$43,445,000	Cash and cash equivalent includes liquid cash and any other short-term securities or financial instruments which can easily be converted into cash. It helps in maintaining daily business activities and paying off short term financial obligations.
Inventories	$458,625,000	The total consolidated value of inventories includes all the finished goods inventories and semi finish goods inventories. They value their closing inventory based on lower of cost or market value whichever is lower.
Sales Revenue	$3,483,755,000	Total sales revenue includes all the sales of their subsidiaries. It is the main source of earning of JB Hi-Fi.
Other Income	$520,000	Other income of JB Hi-Fi includes interest income and many other hedging gains. They have presented it separately in their income statement and a respective foot not explaining the details also included in the notes.
Plant and Equipment	$181,564,000	They have reported their total plant and equipment in their annual report 2014 with a detailed breakup of the block of assets including accumulated depreciation. They have shown their plant and equipment netted with accumulated depreciation.
Interest Expenses (Finance Costs)	$8,845,000	They have reported their total finance costs or the Interest expense in their annual report with a note explaining the components of their net finance costs.
Sales and Marketing Expense	$365,694,000	They have reported a significant amount of sales and marketing expenses in their 2014 annual report, which implies they have spent a huge amount in the sales promotional activities.
Occupancy Expenses	$148,969,000	It includes expenses relating to occupying a office or building. Expenses such as Rent, Rates and taxes are included in It.
Trade and other payables	$302,979,000	They have stated their trade and other payables at amortised costs. Their trade and other payables include, trade payables, GST payables, other credits and accruals and deferred incomes.
Borrowings (Non-current)	$179,653,000	Their noncurrent borrowing mainly includes unsecured bank loans. They are having a significant amount of long-term borrowings to finance their long-term financial needs.

2. Normal balance of above accounts and effects for decrease in balance:

Name of Accounts	Normal Balance	Effect of decrease in normal balance
Cash and cash equivalents	Debit	Normally the cash and cash equivalent have a debit balance. It needs to be Credited for decrease in the balance.  Therefore, the credit side is affected.
Inventories	Debit	Inventory is a current assets. It also has debit balance normally, and the credit side needs to be increased for decreasing the balance of inventories. Therefore, the credit side gets affected.
Sales Revenue	Credit	As per AASB, all the income accounts are credited. Hence, normally it has credit balance. To decrease the balance of sales revenue, it is to be debited.
Other Income	Credit	As like Sales revenue, this one also has a credit balance normally, and the debit side is affected for decrease in the balance.
Plant and Equipment	Debit	Plant and Equipment is a Fixed asset and have debit balance normally. To decrease the balance of such account, its credit side gets affected.
Interest Expenses (Finance Costs)	Debit	As it is an expense, normally it has a debit balance, and to decrease its balance, it needs to be credited.
Sales and Marketing Expense	Debit	It also have a debit balance normally ant to decrease the balance credit side of the account gets affected.
Occupancy Expenses	Debit	Occupancy expenses also have a debit balance favourably and the credit side of the account gets affected for decrease.
Trade and other payables	Credit	It is a current liability and has a credit balance normally. It needs to be debited for decrease in the balance of the account.
Borrowings (Non-current)	Credit	This is a long-term liability. It has a credit balance favourably, and it needs to be debited for decreasing the balance.

JB Hi-Fi is having various subsidiaries operating in different business segments. Their retail segment earns revenue from retail sale of goods through retail outlets and online stores. Some of their subsidiary acts as a subsidiary to other companies and they earn commission as the revenue from those services. They are also rendering various services to their clients and customers and they earn service revenue from there. Some of their subsidiaries provide various such services where from they earn subscription revenue. Their total revenue also includes some interest income and dividend income from some deposits and investments.

Therefore, it can be concluded that they have generated their total revenue from retail selling of various consumer goods and rendering of various services and it also includes some interest and investment incomes.

JB Hi-Fi reported 9,841,000 of total assets in their balance sheet. They have presented their total assets classifying in two broad heads, Current assets and Noncurrent assts. Again they have classified their assets in various groups and sub groups for better and clear presentation of their financial position. Their total current assets include, cash and cash equivalent, trade and other receivables, inventories and other current assets. Their total noncurrent assets include, financial assets, plant and equipment, deferred tax assets and intangible assets, which includes goodwill. They have reported sufficient amount of information in the notes of the financial statement to explain the components of their assets.

Equity section of the balance sheet shows the owners interest in the business. JB Hi-Fi reported 4,262,000 of total equity in their balance sheet. Their total equity includes, Contributed equity, reserves and retained earnings. Contributed equity includes the issued and paid up value of their common shares and share options. Reserves include some general and special purpose reserves. The retained earnings include accumulated balance of income unattributed to the shareholders. It can be observed from their balance sheet that, most of the part of their total equity consists the retained earnings.

They have reported 98,947,309 numbers of ordinary shares issued and paid up as at 30^th June 2014. Each fully paid ordinary share carries one voting right.

They had declared and paid an interim dividend in the year 2014 and they have duly recognised in their books of account. Later on they have declared 29 cents per share as final dividend totally $28,695 which is payable. Hence, it includes in their current liability for dividend.

They have declared a total dividend of 84 cents per ordinary shares in the year 2014 including the final dividend. If 100 ordinary shares are held, then total dividend receivable can be computed as under.

Computation of total dividend receivable for 100 ordinary shares:
Interim Dividend declared, paid and recognized	$            0.55
Final Dividend	$            0.29
Total dividend per share for 2014	$            0.84
Number of shares held	100
Total Dividend for 100 shares	$          84.00

Normal balance of accounts and effects for decrease in balance

The company declared an interim dividend of 55 cents per share in 2014 and in August 2014, they have declared a finance dividend of 29 cents per share in addition. Therefore, they have declared a total 84 cents dividend per share in the year 2014.

Computation of total dividend per share for 2014
	Cents
Interim dividend	55
Final dividend	29
Total dividend per share	84

From the 2014 annual report of JB Hi-Fi, note number 31 in page 93, dividend section, it can be noticed that they have paid 29 cents per share of final dividend per share in the year 2014 relating to the year 2013. In amount, it becomes $21,973,000.

In the above analysis, it can be seen that, they have paid a total of 84 cents of dividend per share while they were having an EPS of 128.4 cents per share. Comparing these two figures, it can be said that they have paid 65% of their earnings per share as dividend.

Computation of Dividend payout ratio for 2014
Earnings per share (EPS) in cents	128.40
Dividend per share (DPS) in cents	84.00
Dividend payout ratio (DPS/EPS)	65%

 They have reported an after tax net operating profit of $128.36 million. On the other hand they have paid a total of $28,695,000 amount of dividend. Therefore, their total paying out ratio can be computed as follows.

Computation of Payout ratio compared to profit for 2014
Net operating profit after tax (NOPAT)	128360000
Total dividend for the year 2014	28695000
Payout ratio (Dividend/NOPAT)	22%

 Part C:Requirement 1:

Cash flow statement shows inflows and outflows of cash from various activities, which are classified in three broad heads, operating activities, financing activities and investing activities. Based on that, following transactions’ effect on journals can be summarised as follows.

Transaction	Journal in which it will appear
a. Receipts from customers	It will appear in the journal recording collection from debtors. For recording such transaction, cash account will be debited and the accounts receivable account will be credited
b. Payment to suppliers and employees	Payment to suppliers will appear in the payment journal recording the payments made to the suppliers. To record this transaction, Accounts payable accounts will be debited and cash account will be credited. Payment to employees will be recorded in the payroll journal recording payment of remuneration to the employees. To record such transaction, Salaries and wages payable account will be debited and cash account will be credited.
c. Dividend paid to members of the parent company.	It will be included in the journal recording the payment of dividend. To record the payment of dividend, Dividend payable account is to be debited and cash account id to be credited
d. Payment for Property, Plant and equipment	It will be appearing in the purchase of assets journal recording the event of purchase of property, plant and equipment. To record this event, property, plant and equipment account will be debited and cash account will be credited

Requirement 2:

From the income statement, various revenues and expenses accounts balances can be taken. Based on those balances and nature of those accounts their effects can be summarised as below.

Transaction	Journal in which it will appear
a. Cost of sales expense	It will appear in the journal recording cost of goods sold. To record the transaction, the cost of sales account is debited and the inventory account is credited.
b. Sales and marketing expenses	Sales and marketing expenses account is also recorded in the payment of expense journal. If the expenses is recognised at the time of payment then, the expense account is debited and the cash account is credited
c. Other income	It is an income, hence to record this transaction, the cash account is to be debited and the other income account is to be credited
d. Occupancy expenses	This is a period expenses, it is recorded on due basis, when the payment for rent, rates and taxes are made, the prepaid expenses account is debited and the cash account is credited. At the time of recognising the expense, the expense account is to be debited and the prepaid expense account is to be credited.

Conclusion:

From the above financial statement analysis of JB Hi-Fi Limited, it can be concluded that, they have been performing well in 2014, and by analysing there financial statement in the view of above perspectives, various accounting techniques and relationships can be well understood.

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