JB Hi-Fi: Home Entertainment Retailer In Australia

Introduction to JB Hi-Fi

Question:

Discuss About The Company Indent Significance Environmental?

JB Hi-Fi is the largest retailer for home entertainment that established in Australia. They are the market leader due to the competitive price, big brands and wide range of products like headphones, iPads, wireless speakers, home theatre, mobile phones, laptops and televisions. The company identifies the significance of environmental, social and governance related matters towards the shareholders, customers and suppliers. psychology details related to the company are as follows

JB Hi-Fi Limited belongs to the retail industry in Australia and though the retail industry is becoming stronger as compared to the past years. Retailing sector in Australia increased by 3% during 2016 with regard to the current value terms that is the growth line recognized during the period. Though the growth is positive, it is slower as compared to the year 2015 as the country became cautious regarding its discretionary spending owing to the low growth in income (Post & Byron, 2015). Wesfarmers was the biggest retailer during 2016 along with it being the leader over all the multiple categories for retailing. Their value growth was mainly driven by strong performance in home related products. Therefore, JB Hi-Fi will continue to have a strong competition with Wesfarmers during the current year as well as in the future years.

Further, retail industry in Australia is expected to grow at the value CAGR for 3% at constant rate. This growth will mainly driven by the home entertainment, garden specialist and internet retailing that are expected to grow owing to the increase in demand for new home related products and new technologies adoption.

The solution from JB Hi-Fi is the key driver for their success. They will continue with the plan of aggressive recruitment along with the expansion of the services and products they offer. They are planning to set up the play in the integrating related products and the services towards the education sector, government and business sectors through the JB Hi-Fi solutions arm.  Further, it is expected to provide $ 500 million per year with regard to sales through the strategic acquisitions and organic growth (Hunjra & Bashir, 2014). Moreover, the company has a plan to expand their store with regard to home branded to 75 from 43 outlets. Each new outlet for JB Hi-Fi store contributes towards the growth of the customer awareness, supplier support and marketing share. As per the CEO, Mr Murray, in association with the ongoing investment towards the store wages, supply chain and staff training put the company in strong position so that they can continue with the expansion.

Importance of Environmental, Social, and Governance Matters

Determination of gross profit, net income and income from operation

Particulars	2013($m)	2014($m)	2015($m)	2016($m)	2017($m)
Gross profit	699	739	798	865	1231
Income from operation	178	191	201	221	268
Net income	116	128	137	152	172

Gross profit – It is identified from the above table that the gross profit of the company is in increasing trend and it reached to $ 1,231 million for the year ended 2017 from $ 699 million in the year 2013. Further, with the increase in revenue the company is able to increase its gross profit from sales. Therefore the profitability position of the company seems good.

Income from operation –  It is identified from the above table that the income from operation of the company is in increasing trend and it reached to $ 268 million for the year ended 2017 from $ 178 million in the year 2013. Further, with the increase in revenue the company is able to increase the income from operation from sales. Therefore, the profitability position of the company seems good.

Net income – It is identified from the above table that the net income of the company is in increasing trend and it reached to $ 172 million for the year ended 2017 from $ 116 million in the year 2013. Further, with the increase in income from operation the company is able to increase the net income from sales. Therefore, the profitability position of the company seems good.

HORIZONTAL ANALYSIS
Particulars	2013($m)	2014($m)	2015($m)	2016($m)	2017($m)	2013	2014	2015	2016	2017
Gross profit	699	739	798	865	1231	100%	106%	114%	124%	176%
Income from operation	178	191	201	221	268	100%	107%	113%	124%	151%
Net income	116	128	137	152	172	100%	110%	118%	131%	148%

The financial statement of the company has been prepared in compliance with the IFRS (International financial reporting standard) that is issued by IASB (International Accounting Standards board). Further, the general purpose financial statements are prepared as per the AAS (Australian accounting standards and the interpretations released by AASB (Australian accounting standard board) and Corporation act 2001.

Though the retail industry in Australia is growing rapidly, the increase in gross margin of the company seems to be unrealistic as the increase from 2016 to 2017 amounted from $ 865 million to $1231 million.

Particulars	2013($m)	2014($m)	2015($m)	2016($m)	2017($m)
Total Liabilities	600	565	552	588	1599
Shareholder’s equity	243	295	343	405	854
Total assets	843	860	895	993	2452

VERTICAL ANALYSIS
Particulars	2013($m)	2013($m)	2014($m)	2014($m)	2015($m)	2015($m)	2016($m)	2016($m)	2017($m)	2017($m)
Total Liabilities	600	71%	565	66%	552	62%	588	59%	1599	65%
Shareholder’s equity	243	29%	295	34%	343	38%	405	41%	854	35%
Total assets	843	100%	860	100%	895	100%	993	100%	2452	100%

HORIZONTAL ANALYSIS
Particulars	2013($m)	2014($m)	2015($m)	2016($m)	2017($m)	2013	2014	2015	2016	2017
Total Liabilities	600	565	552	588	1599	100%	94%	92%	98%	267%
Shareholder’s equity	243	295	343	405	854	100%	121%	141%	167%	351%
Total assets	843	860	895	993	2452	100%	102%	106%	118%	291%

Property and equipment – the impairment loss with regard to the assets is recognised where the varying amount is more than the recoverable amount. Further, the assets is derecognised when it is probable that the there will be no economic benefits that will arise from the asset or the asset is disposed off (Wagner, Block, Miller, Schwens & Xi, 2015). 

Inventories – inventories are shown in the balance sheet at the lower among the net realisable value and cost. Determination of net realisable value is depended upon the key assumptions those are required under the management judgement.

Retail Industry in Australia

Receivables – the receivables are reviewed on continuous basis. Allowance for the bad debt is is used when it is probable that the amount will not be collected. Further, the amount of the allowance for impairment is the difference between carrying amount of the asset and the amount that is expected to be collected.

Goodwill – goodwill is measured as the excess of cost of acquisition over its fair value for the company’s share of net recognizable asset at the acquisition date

Intangibles – Other intangible assets like location premiums, rights to share of profit and brand names are measured as they have indefinite asset life. These assets are carried in the balance sheet at the cost reduced by the accumulated losses for impairment (Bailey, Price, Pyman & Parker, 2015).

Items different from industry norm

Though the retail industry in Australia is growing rapidly, the increase in total assets of the company seems to be unrealistic as the increase from 2016 to 2017 amounted from $ 993 million to $2452 million.

Particulars	2013($m)	2014($m)	2015($m)	2016($m)	2017($m)
Operating cash flow	178	191	201	221	268
Net income	116	128	137	152	172
Net income %	65%	67%	68%	69%	64%

It can be identified that the net income percentage after deducting the expenses from operating cash flows are in increasing trend. Therefore, it can be said that the profitability position of the company is improving along with the increase in operating cash flow of the company (Graves & Shan, 2014).

It is recognized that the company is sufficiently expanding though the investing activities and it increased from $38 million in 2013 to $ 886 million in 2017. However, the increase from the year 2016 to 2017 was significant as the increase was from $ 52 million to $ 886 million seems unrealistic.

The most important source of financing for the company is through equity as more percentage of finance is raised through equity as compared to raising through debt. During the year ended 30^th June 2016, shareholder’s equity represents the amount of $854 million whereas, the amount of debt amounted to $ 559 million.

Item	2013($m)	2014($m)	2015($m)	2016($m)	2017 ($m)
Cash	67	43	49	52	73

It can be identified from the above table that there is no specific trend for the cash of the company over the past five years. During 2013, the amount of cash under balance sheet was amounted to $ 67 million and started decreasing and reached to $ 52 million in 2016. However, during 2017 it again increased and reached to $ 73 million.

The major points of interest regarding the above findings concerning the cash flow statement is that with regard to investing activities, the increase from the year 2016 to 2017 was significant as the increase was from $ 52 million to $ 886 million seems unrealistic. Further, the net cash provided from financing activities were in negative till the year 2015. However, it went up to $716 million at the closing of the period 30^th June 2017. The reason behind this must be found out.

TYPE	FORMULA	2013	2014	2015	2016	2017	Industry average
liquidity ratio
Current ratio	Current asset/current liabilities	1.27	1.64	1.62	1.57	1.32	1
long term solvency ratio
Debt-Equity ratio	Total debt/total equity	0.51	0.21	0.41	0.27	0.65	0.5
profitability ratio
Net profit margin	Net profit/net sales *100	3.52	3.69	3.74	3.85	3.06	7%
cash flow adequacy ratio
Cash flow to asset ratio	Cash flow from operation/total assets	0.19	0.05	0.20	0.19	0.08	0.20
Market strength ratio
Price earnings ratio	Price/earning	18.37	12.44	14.30	18.66	15.08	29

Financial Performance of JB Hi-Fi

From the above table of ratios, it is recognized that the current ratio of the company are moving around 1.27 to 1.64. However, during the year 2014, 2015 and 2016 it is more than 1.50 that indicates that the company may not using their working capital efficiently. Further, there is no specific trend for the solvency ratio. During the year 2013, 2015 and 2017, it was more or less as per the industry average (Bodie, 2013). However, for the year 2014 and 2016 it was significantly low as compared to the industry average. Further, the net profit margin of the company for the last 5 years were significantly lower as compared to the industry average and it was moving around 3% only. The cash flow from operation was as per the industry average only for the year ended 2013, 2015 and 2016. However, for the other years the ratio was significantly low. Moreover, the price earnings ratio of the company almost half for all the years as compared to the industry average.

Conclusion

It is found from the above analysis that the company is performing steadily. However, the net profit margin of the company of the company for the last 5 years was significantly lower as compared to the industry average of 7% and it was moving around 3% only. Further, the price earnings ratio of the company for all the years under consideration is considerably low as compared to the industry average of 29.

As the net profit margin of the company is significantly low as compared to the industry average, the company shall find out the areas of wastages and minimize the expenses as far as possible. Further, the company shall try to create shareholder’s value through generating income from sales and increasing the shareholders value.

As it is identified that the company’ performance with respect to all aspect are in increasing trend and company is regular in payment of dividend to the shareholders. Though the price earnings ratio is lower as compared to the industry average, it is found that the company is able to provide positive return to the shareholders throughout the period of 5 years that is under consideration. Therefore, it will be a good decision to invest in JB Hi-Fi Limited.

Reference

Bailey, J., Price, R., Pyman, A., & Parker, J. (2015). Union power in retail: contrasting cases in Australia and New Zealand. New Zealand Journal of management Relations (Online), 40(1), 1.

Bodie, Z. (2013). Investments. McGraw-Hill.

Graves, C., & Shan, Y. G. (2014). An empirical analysis of the effect of internationalization on the performance of unlisted family and nonfamily firms in Australia. Family Business Review, 27(2), 142-160.

Hunjra, A. I., & Bashir, A. (2014). Comparative Financial Performance Analysis of Conventional and Islamic Banks in Pakistan. Bulletin of Business and Economics (BBE), 3(4), 196-206.

JB Hi-Fi | JB Hi-Fi – Australia’s Largest Home Entertainment Retailer. (2017). Jbhifi.com.au. Retrieved 13 September 2017, from https://www.jbhifi.com.au/

Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal, 58(5), 1546-1571.

Wagner, D., Block, J. H., Miller, D., Schwens, C., & Xi, G. (2015). A meta-analysis of the financial performance of family firms: Another attempt. Journal of Family Business Strategy, 6(1), 3-13.