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JB HI-FI Company Analysis Report

Profitability is synonymous with profit, but is used as the metric for the scale of the company's advantage over the size of the company. It is the true indicator of an organization's success or failure. A company's profitability is measured by several ratios including gross profit margin, operating profit margin, pre-tax profit and profit margin.
Gross profit margin = Gross profit / Net sales
2016 = 865,408/ 3,954,467
= 21.89%
2015 = 798,253/ 3,652,136
= 21.86%
2014 = 755,981/ 3,483,775
= 21.7%
A gross profit margin of 21.86% suggests that 1$ of sales cost the organization 0.7814$ and brings a profit of 0.2186$. The gross profit margin for the group should be above 40% for the organization to be doing well.
Operating profit margin = Operating profit/ Net sales
2016 = 221,696/ 3,954,467
= 5.6%
2015 = 201,459/ 3,652,136
= 5.5%
Pretax profit margin = Pretax profit/ Net sales
2016 = 217,839/ 3,954,467
= 5.5%
2015 = 195,532/ 3,652,136
= 5.4%
2014 = 182,677/ 3,483,775
= 5.2%
Net profit margin = Net profit/ Net sales
2016 = 152,181/ 3,954,467
= 3.8%
2015 = 136,511/ 3,652,136
= 3.7%
2014 = 128,447/ 3,483,775
= 3.6%
Efficiency of operations
JB Hi-Fi operational efficiency will be determined through the total asset turnover, equity turnover, and fixed asset turnover. The efficiency of operation is the ability of the firm to provide goods and services to the clients at a cost-effective way through maintaining high quality of the services products and support. To analyze the efficiency of operations of JB Hi-Fi we will have to calculate the total asset turnover, equity turnover, and fixed asset turnover.
Operating ratio = Operating expense/ Net sales
2016 = 648,115/ 3,954,467
= 0.16
2015 = 603,334/ 3,652,136
= 0.17
2014 = 573,824/ 3,483,775
= 0.16
Total asset turnover = Net Sales/ average total assets
2016 = 3,954,467/ 496,431.5
= 7.97
2015 = 3,652,136/ 447,506.5
= 8.16
2014 = 3,483,775/ 429,920.5
= 8.1
Fixed asset turnover = Net sales/ Average net fixed assets
2016 = 3,954,467/ 144,931.5
= 27.28
2015 = 3,652,136/ 139,056
=26.26
2014 = 3,483,775/ 140,847
= 24.73
Equity turnover = Net sale/ Average total equity
2016 = 3,954,467/ 202,351
= 19.54
2015 = 3,652,136/ 171,739.5
= 21.27
2014 = 3,483,775/ 147,316.5
= 23.65
The efficiency ratio 0.16 is below the prescribed ratio. This indicates that the rate at which the firm conducting its business is not good and theta the efficiency of service is not adequate.
Liquidity
Liquidity is described as the measure through which an organization or an individual has cash to meet short-term and immediate obligations or how the assets available can be quickly turned to money. The liquidity ratio that can be used in the case of JB Hi-Fi case analysis includes the quick ratio, operating cash flow ratio, and the current ratio.

Current ratio = Current Assets/ Current liabilities
2016 = 702,518/ 446, 833
= 1.57
2015 = 616,901/ 380,336
= 1.62
2014 = 578,147/ 352,193
= 1.64
Quick ratio = (current assets – inventories) / current liabilities
2016 = (702,518 – 546,437)/ 446, 833
= 0.35
2015 = (616,901 – 478,871)/ 380,336
= 0.36
2014 = (578,147 – 458,625)/ 352,193
= 0.34
A decreasing quick ratio indicates that the organization’s balance sheet is over-leveraged. Consequently, it shows that the organization has a hard time collecting its receivables or it is paying its debts too quickly. The quick ratio for the business increases from 0.34 in 2014 to 0.36 in 2015. This indicates that JB Hi-Fi was able to collect its receivables much quicker and it paid it debts. When it had received the return on investment. Furthermore, the flowing year the company quick ration reduced to .035. This shows that at the closing on the business calendar year more account receivables were not yet collected.
Gearing
The gearing ratio compares the organization’s equity or capital with the funds the firm has borrowed. It measures the financial leverage that demonstrates the level of which the creditor's funds support the organization's activities verse the owner's funds. High level of gearing ratio indicates that the firm has a high degree of leverage and it can fall it the economy worsens. This is because the company has a significant amount of debt. Mainly, organizations with lower gearing ratio indicate that they have more equity and they mostly rely on equity financing compared to debt financing.
Gearing ratio = company debt/ shareholder equity
2016 = 587,679/ 404,702
= 1.45
2015 = 554,534/ 343,479
= 1.61
2014 = 565,208/ 294,633
= 1.91
Debt ratio = Total liabilities/ Total assets
2016 = 587,679/ 992,381
= 0.59
2015 = 554,534/ 892,013
= 0.62
2014 = 565,208/ 859,841
= 0.65
A desirable debt ratio is that below 0.5. However, over the last three years the debt ratio for the JB Hi-Fi has been decreasing indicating that the firm is moving towards the right direction.

July 24, 2021

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