Introduction
Investment is an important activity for an organization, as it provides an opportunity to the companies to flourish their earnings (Higham, 2004). There are enormous amount of companies in the world which are physically doing their operations to enhance their residual claims. In fact, the real productivity of an organization lies in the fact that how effective and powerfully, an organization would become able to generate economic profit, and satisfying the needs of their investors (Hitchner, 2011).
Investors, usually the external investors always look forward in investment opportunities in the companies; however it requires extensive training and critical analysis to do it. Analyzing the company from an investor’s viewpoint is always a challenge, as it has numerous critical and sophisticated methods which would have been used for the same purpose. The choice of models and tools depend solely upon the nature of the investor, and how much they are expecting to get in return from the companies. There are some major ratios that could be used for the same analysis like profitability ratios and investment ratios; however other ratios are also used to assess the level of efficacy of an entity (Hitchner, 2011).
A similar sort of analysis is required to put in this particular assignment as well on a chosen company. The company which is chosen for it is JB HI FI. There are certain parts that needed to be completed in this analysis, with special emphasize on the analysis through which investors can get an idea as far as parking their money in the stocks of the company is concerned.
Company’s Profile
JB HI FI is an Australian retailer of consumer based electronics. It is also known as a supplier of video games, and also of Blu-Rays, CDs and DVDs. It has its location at Melbourne, and working as a Chain Store in all over the Australian region. It was formed by Keilor East in the year 1974; however the store has its place in the stock exchange in 2003 (Hitchner and Mard, 2003).
JB HI FI is known as the pioneer that specializes in the HI-FI Equipment. It was the only stores that dealt in CDs and DVDs some year before, but there are number of companies which now come over screen to compete with JB HI FI. Currently, there are more than 176 locations in which the company is doing their operations. The products in which JB HI FI deals are CDs, DVDs, Discs, Video Games, and Consumer Electronics. JB HI FI earned net revenue of AUD $ 3.31 billion in the year 2013.
Analysis of the Company
The analysis of the chosen company will be done on the basis of two aspects which are industry analysis and fundamental analysis.
Industry Analysis
The economy of Australia has now emerged as one of the largest economies of the world in the concession for Gross Domestic Product (GDP) and Purchasing Power parity (PPP) (Hitchner and Mard, 2003). It is known as the 6th largest economy of the world, and there are numerous companies of the world which are doing their operations in Australian region. The country is politically safe and sound, and has remarkable economical consequences as well. The technological aspect of Australia is high and strong as well that makes the country a dominating nation. There are number of industries which are actually flushing in the Australian region, and among those industries the name of electronic industry is one of them. Consumer Electronics envisaged and faced a high and strong retail growth in its volume during the review period. The market growth and effectiveness is also increasing the enthusiasm among the technological efficient people and electronic consumers in Australia. Tablets, Smartphone, LCD and LED are some of the major elements and products that found interesting and effective for the Australian consumers. It is a billion dollar industry of Australia, and JB HI FI is one of the strongest candidates of this industry. The company has a strong inclination towards the effectiveness, and having powerful share in the consumer electronics market. It is one of those industries of Australia that worked exceptionally well during the current economic crisis as well.
The current economic crisis which has been start in the year 2007 known as the worst after the crisis after World War II, because the intensity and severity of this crisis was extremely hard. Hundreds of companies in Australia have been bankrupted and thousands of employees have been laid from their jobs due to the severity of the economic crunch. However, the Australian government is known and famous due to its good governance and effectiveness, as the government of the country initiated numerous things to bring economic benefits, and bring the economy back on track. Among some of the major decisions which have been taken into account by Australian Government to back their economy on track, the decision to pledge the money of the people who save their money in the banks of Australia was an important decision (Pignataro, 2014). The current economic crisis spread due to the trust deficit of the consumers and industries, and what Australian Government had done was effective to gain the confidence of the consumers again. The government also announced several stimulus packages for their economy, and some of the major organizations of the country to make them effective and essential. There is a theory that could be applied on the same analysis which is Keynes theory. According to the theory of Keynes, the money should be in circulation to makes it effective for the economies in different places. The Australian government had initiated the same thing in their economy, as they provide a platform to the individuals to use and invest their money in the government backed securities and other safe investment vehicles to make them satisfied and effective. This particular strategy could be more than essential for them and bought positivity in their functions and operations. The Australian Government did the right thing at the right time, and it is known as effectiveness for them in their future.
Fundamental Analysis of JB HI FI
There are two important kinds of analysis are there, known as fundamental analysis and technical analysis. Both of these types of analysis are essential for the sake of an organization, as it has the tendency to figure out the actual financial and strategic health of an organization. It is required to apply the techniques of fundamental analysis on JB HI FI as well (Levy, Karst and Winkler, 2000). There are certain rations that needed to be used in this analysis, which have been categorized into different forms.
Profitability Analysis
Profitability ratio is an important ratio that uses for the analytical purpose. Net profit Margin (NPM), Return on Equity (ROE) and Return on Assets (ROA) are some of the major ratios that used for the same purpose (Levy, Karst and Winkler, 2000).
Net Profit Margin (NPM)
A ratio that uses to analyze the power of generation revenue or net income of a company is known as Net Profit Margin (NPM) (Levy, Karst and Winkler, 2000). It is an important ratio that used by the analysts to analyze the power of revenue generation of a company
Return on Assets (ROA)
A ratio of profitability that analyzes the strength and efficacy of the assets of a company in terms of generating net revenue is known as ROA (Lim, 2011).
Return on Equity (ROE)
A term used to analyze how much investors are gaining on their investment is known as Return on Equity (ROE) (Lim, 2011).
Leverage Ratios
The ratio that analyzes that how much risky a company is known as Leverage Ratio.
Debt to Equity
The computed debt to equity of JB HI FI is mentioned below (Palepu, Bernard and Healy, 1996)
The Debt to Equity Ratio of the company is high, and it is not in the favor of the company. The leverage of the company average is 40.76%, while the industry average is 30%, which means that the company is highly risky, and they have to decrease the level of their debt and increase the level of their equity.
Liquidity Ratio
Current ratio is the ratio which will be used to analyze how much liquid JB HI FI is.
Current Ratio
The combination of current assets and current liabilities is known as Current Ratio (Palepu, Bernard and Healy, 1996)
Earnings per Share (EPS)
The earnings per share of the company is as follows (Pignataro, 2014)
Though the EPS of the company is not very high, but still, the company manages to place it in the positive term, which is an effective sign for their investors.
Conclusion & Recommendation
Financial Ratio Analysis (FRA), which also known as Financial Statement Analysis (FSA) is an important tool to analyze the financial health of an organization in terms of take investment decision. From the core analysis of JB HI FI, it is evaluated that the financial position of the company is perfect, and almost all the ratios are in the favor of the company. Apart from that, it is found that the industry in which the company is operating is also increasing accordingly. Hence, it is recommended to the investors to buy the shares of the company because the company has a great potential to go further in their increment.
References
Financial Highlights of JB HI FI (2014), [Online], retrieved from < http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=JBH:AU> Accessed on 2014-October-12th
Higham, D. (2004). An introduction to financial option valuation. 1st ed. Cambridge, UK: Cambridge University Press.
Hitchner, J. (2011). Financial valuation. 1st ed. Hoboken, NJ: Wiley.
Hitchner, J. and Mard, M. (2003). Financial valuation workbook. 1st ed. Hoboken, N.J.: J. Wiley & Sons.
Levy, L., Karst, K. and Winkler, A. (2000). Encyclopedia of the American Constitution. 1st ed. New York: Macmillan Reference USA.
Lim, K. (2011). Financial valuation and econometrics. 1st ed. Singapore: World Scientific Pub.
Palepu, K., Bernard, V. and Healy, P. (1996). Business analysis & valuation. 1st ed. Cincinnati, Ohio: South-Western college Pub.
Pignataro, P. (2014). Mergers and acquisitions + website. 1st ed. [S.l.]: John Wiley & Sons Inc.
