JB Hi Fi Company (Book Report Sample)
The task is to compare and contrast the historical (for the last 2 years) and expected future performance of a listed company and a competitor in a similar line of business, and present your findings in the form of a report which will cover both qualitative and quantitative performance elements in a logical cohesive format.source..
Lecturerâ€™s Name and Course Number
JB Hi Fi an Dick Smith Past Now and Future from a Finance Perspective
JB Hi Fi Company
JB Hi-Fi Limited (JBH) is an Australian specialty discount retailer stores that deals in of branded home entertainment products, founded in 1975 with headquarters located at Melbourne. The companyâ€™s primary focus is on consumer electronics, software including games, electrical goods games, and movies retailing at lower prices than competitors. The company basically operates from a stand-alone store, satellite shopping centers and online stores in New Zealand and Australia. For the financial year ended 2015, the company had total sales of $3.65 billion a growth of 4.8%. JB HI-Fi had a total of 187 stores spread across Australian and New Zealand. The company assumes that its aggressive policies on investment will see the company open additional six stores and convert other stores to JB Hi-Fi Homes. (Kieso 2013; Weygandt et al 2013, p. 15)
Currently, the main competitor of JB Hi Fi Company is the Muir Electrical Company and the Good Guys Discount Warehouse. The Good Guys act as a distributor and marketer of electrical appliances that the company offers which include, home appliances, entertainment products and office appliances.
Return on assets is a ratio that helps assess the ability of a company to generate net income from its total assets. The formula of return on assets can be calculated as net income divided by the total assets. JB HI-FI Company return on assets has been determined to be 15.25% in 2015 and 14.94% in 2014. This implies that JB HI-FI Company uses its assets effectively to generate net income for the company. (Kieso 2013; Weygandt et al 2013, p. 15) The average return on assets for industry participants was 15.23%, a sign that JB Hi-Fi outperformed its competitors.
Profit margin a profitability ratio that measures the net income generated from the sales of a product. The formula of profit margin can be calculated as net income divided by the revenues of the company. JB HI-FI Company had a profit margin of 3.74% in 2015 compared of 3.69% in 2014. (Wood & Sang 2005, p 8). The ratio can be considered low an indication that JB HI-FI Company generates low profit from its sales and this can be considered a weakness. The average profit margin for industry competitors was 4.63%, implying that, other competitors outperformed JB Hi-Fi in generating profits from its sales.
Return on equity â€“This ratio seeks to examine in an accounting perspective the ability of the firm to maximize the wealth of its shareholders. The formula of ROE can be given as net income available to ordinary shareholders divided by the book value of equity. This has been determined to be 39.74% in 2015 compared to 43.60% in 2014. This implies that JB HI-FI was able to maximize shareholders wealth in 2015 but there was a decrease attributable to increase in shareholdersâ€™ equity. Further comparison with industry competitors shows that the average return on equity was 41.72% a sign that JB Hi â€“Fi was outperformed by its competitors. (Kieso 2013; Weygandt et al 2013, p. 15)
Asset turnover is an activity ratio seeks to determine the ability of a company to use its assets to generate sales. The asset turnover can be determined as sales divided by the total assets and have been determined to be 4.08 in 2015 and 4.05 in 2014. This implies JB HI-FI Company is able to generate revenues by effectively using its assets, and such effectiveness increased in 2015 compared to 2014. Compared to competitor average asset turnover ratio of 3.8 JB Hi-Fi uses its assets more efficiently than competitors. (Wood & Sang 2005, p 8).
Debtors Turnover ratio seeks to determine the frequency with which an organization collects cash from its credit sales. The formula of debtors - turnover can be given as credit sales divided by the average trade debtors and this has been determined to be 47.98 times in 2015 and 49.24 times in 2014. This results obtained implies the company collects its accounts more regularly and this may be due to better terms of credit terms or low credit sales.
Days in debtorâ€™s ratio seeks to determine the number of days, it takes the company to collect its sales done on credit. This is the number of days that elapse between the day of credit sale and the day receiving payment. The formula of the ratio can be given as number of days a year divided by the debtorsâ€™ turnover. JB HI-FI Company had days in debtorsâ€™ ratio of 7.6 days and 7.41 days in 2015 and 2014 respectively. This shows that JB HI-FI Company takes not more than a week to collect its accounts, which can be attributed to the cash transaction used by JB HI-FI.
Current ratio is a liquidity that assesses an organizationâ€™s ability to meet its short â€“term liabilities from its current assets. The formula of current ratio can be given as current assets divided by current liabilities. Based on calculations, JB HI-FI Company had a ratio of 1.64 in 2014 compared to 1.27 in 2013, which was an increase of 0.37. The ratio of 1.64 in 2014 implies that the assets realizable within the year are able to cater for the entire short â€“term obligations of JB HI-FI Company, hence a positive liquidity position based on current ratio. Compared to other industry participant, with an average current ratio of 1.62, JB Hi-Fi can be considered to be performing better as the ratio was above 1.0.
Quick ratio seeks to evaluate the liquidity position of an organization by assessing the degree to which it can be able to convert its current assets into cash immediately to repay of short- term obligations. The current assets should be easily convertible within the shortest time and the formula of quick ratio can be given as cash plus accounts receivables plus short â€“term investments divided by the current liabilities. The quick ratio of JB HI-FI Company has been determined to be 0.34 in 2015 and 0.32 in 2013. This implies that JB HI â€“FI has no sufficient current assets that can be converted to cash quickly to meet the current liabilities of the company, despite an increase from the previous year and can thus be deemed as weakness to the company. Compared to the quick ratio of other industry participants with an average ratio of 0.39, JB Hi-Fi can be considered to be performing at par with other competitors. (Webb & Leeder 2007, p. 7)
Debt â€“to- Asset ratio seeks to show the ...