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Financial Reporting Case: JB Hi-Fi Ltd

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Financial Reporting Case: JB Hi-Fi Ltd

Introduction

JB Hi-Fi Ltd is the largest retail outlet in Australia specializing in the provision of home entertainment products at a relatively cheaper cost. In addition, it has several brands rated highly by potential clients. Some of the brands include Led LCD TVs, iPods, computers, home theatres, and laptops among other excellent entertainment gadgets (JB Hi-Fi Ltd, 2012, p. 1). Notably, the products are specifically designed to suit the various demands of consumers and are technologically compliant. This report carefully analyses the cost-volume ratio and the ‘total segment revenue’ for each of the segments is compared against the segment results to help make decisions on management reporting.

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Cost-Volume-Profit Analysis

In analyzing JB Hi-Fi Ltd based on its ability to make use of cost-volume-profit within each of its many business operations, the report compares the cost of the company process and the profit from the returns. The company’s profitability is given below.

Table 1: Profitability – jb hi-fi ltd (JBH).

Return on Assets
Industry Comparison
12.78%
Return on Equity
Industry Comparison
62.14%
Return on Capital
Industry Comparison
27.94%

Margin Analysis – jb hi-fi ltd (JBH)

Gross Margin
Industry Comparison
21.10%
Levered Free Cash Flow Margin
Industry Comparison
4.75%
EBITDA Margin
Industry Comparison
6.14%
SG&A Margin
Industry Comparison
14.88%

Asset Turnover – jb hi-fi ltd (JBH)

Total Assets Turnover
Industry Comparison
4.0x
Accounts Receivables Turnover
Industry Comparison
227.0x
Fixed Assets Turnover
Industry Comparison
17.8x
Inventory Turnover
Industry Comparison
5.9x

Credit Ratios – jb hi-fi ltd (JBH)

Current Ratio
Industry Comparison
1.2x
Quick Ratio
Industry Comparison
0.2x

Long-Term Solvency – jb hi-fi ltd (JBH)

Total Debt/Equity
Industry Comparison
82.3x
Total Liabilities/Total Assets
Industry Comparison
77.3x

Growth Over Prior Year – jb hi-fi ltd (JBH)

Total Revenue
Industry Comparison
5.70%
Tangible Book Value
Industry Comparison
43.48%
EBITDA
Industry Comparison
-13.88%
Gross Profit
Industry Comparison
1.20%
Receivables
Industry Comparison
35.32%
Inventory
Industry Comparison
5.25%
Diluted EPS Before Extra
Industry Comparison
4.72%
Capital Expenditures
Industry Comparison
2.25%
Cash From Ops.
Industry Comparison
95.56%
Levered Free Cash Flow
Industry Comparison
169.92%

Source: Bloomberge, 2012.

Discussion

An analysis of the company’s cost-volume-profit shows a relatively positive movement between the two years. The retail company’s operating income increased by 12.78% over the period (Bloomberge 2012, p. 1). This positive move in relation to the operating income coupled with the industrial comparison that stood at 62.14% increase in the retail company’s operating expenses, enabled the retail company to attain an overall increase in the profit for the year with a good turnover. This is an indication that the retail company is profitable and as such the shareholders will gain from such earnings. In terms of efficiency and liquidity ratios, the retail company is stable despite the slight decrease in the component of liquid assets (IBISWorld 2011, p. 1). The operating expense to operating income ratio increased from a low of 13.88% up to a high of 35.32%, while the operating expenses to average assets ratio also registered a slight positive change from 1.20% to 5.25%.

Segmentation Information

On ‘Segmentation information’, the ‘total segment revenue’ for each of the segments is compared against the ‘Segment results – management reporting’. Notably, this comparison is carried out through monitoring the trend over the last 3 years.

Table 2: Segmentation by region.

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FY2010 FY2011 FY2012 (June)
Australia
JB – Tier 1 200.271 123 12 135
JB – Tier 2 51.05 16 3 1 18
Clive Pathway 139 15 1 153
5 3 2
144 15 4 155
New Zealand
JB – Tier 1 1.884 9 9
JB – Tier 2 3.411 4 4
13 13
Total 198.387 157 15 4 168
JB Hi-Fi Store Type
Tier 1 54.461 132 12 144
Tier 2 20 3 1 22
152 15 1 166
Store Format
Shopping Center 78 5 83
Other 79 10 4 85
157 15 4 168

Source: JB Hi-Fi, 2010 and 2012 Reports.

Discussion

Considering the segmentation above, as in June 2012, JB Hi-Fi retail company recorded a 9.76% increase in the level of its total assets over the two years (JB Hi-Fi, 2012). Similarly, the category of other assets in the retail company registered a significant increase to the tune of 13%. The other assets increased from over 15 million to slightly less than 20 million over the two years (Allen & Myers 2012, p. 47). The other category of assets that registered significant change between the years 2011 and 2012 in the category of trading and assets held for sale, which registered a 14% increase (Allen & Myers 2012, p. 48). In general most components of the assets indicated an impressive positive movement over the period of comparison. However, JB Hi-Fi’s liquid assets registered a significant decrease to the tune of 15%.

Current expenditure in the company and other competing retail outlets and customer preference for the products also increased throughout the discussion, 2011-2012 (Allen & Myers 2012, p. 52). Long-term assets also showed relatively similar movement except for the category of products and liabilities for acceptance which showed a significant negative 16% movement. Overall, total liabilities registered a 12% movement over the years between 2011 and 2012 (Allen & Myers 2012, p. 56).

Conclusion

JB Hi-Fi Ltd is a stable and influential player in the retail industry across Australia and has a regional presence. The retail company has several available avenues to ensure that the consumers get the best quality and shareholders’ value significantly improves. Additionally, its possible collaboration with the products’ manufacturers in the Asia-Pacific region coupled with the recent operational launch in other countries is highly significant in propelling growth and capacity building within the retail company. Through applying simple risk assessment tools, the report has also established that the retail company is proud of its stable financial foundation and sufficient liquid assets, which make it easier for the firm to operate efficiently. In addition, the retail company has a substantially relevant dividend policy framework that ensures that the shareholders receive their fair share of the gains when profit is realized. The retail company’s financial ratios are stable and this corroborates the earlier view that the retail company is considered as the best.

References

Allen, F & Myers, S, 2010, Principles of Corporate Finance, McGraw-Hill, Irwin.

Bloomberg, 2012, jb hi-fi ltd (JBH:ASX), Web.

IBISWorld, 2011, JB Hi-Fi Limited – Premium Company Report Australia, Web.

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JB Hi-Fi Ltd, 2012, Full Year Result Presentation, Web.

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