Accouting Case

QUESTION 1

1. Making use of your own calculations of ratios, and interpretation of the financial statements provided, write a general appraisal of the financial performance of JB HI FI Limited for the two years ending 30 June 2009. As part of your evaluation, consider trends and changes in key variables and ratios from 2008 through 2009.

Ratios to use for question 1

Gross profit margin

Net profit margin

ROA

ROE

Earnings per share (given on income statement)

Solution

1. Gross Profit Margin: The Gross Profit Margin measures the Gross Profit in relation to the Net Sales. The higher the Gross Profit Margin, the better the company is able to control costs, for JB HI FI 2008 and 2009,

Gross Profit Margin= (Gross profit ÷ sales) × 100

2008 (399,691 ÷1,828,564)×100%=21.86%

2009 (503,591 ÷2,327,266)×100%=21.64%

Year Gross-Profit

$' 000 Sales

$' 000 Gross Profit Margin (%) Difference in Margin (%)

2008 399,691 503,591 21.86 -

2009 1,828,564 2,327,266 21.64 -0.22

Gross profit is reducing by, -0.22 from year 2008 to 2009. It means JB HI FI in 2009 development capabilities and production management efficiency almost equal and reasonable between 2008 and 2009.

2. Net profit margin: The net profit margin refers to that which is left for the owners from a dollar of sales after all expenses and taxes have been paid. It is used to measure the overall profitability and hence it is very useful to proprietors.

Net profit margin = (Net profit ÷ sales) × 100

2008 (65,085÷1,828,564) ×100% =3.56 %

2009 (94,438÷2,327,266)×100%=4.06%

Year Earnings before interest and tax

$' 000 Sales

$' 000 Operating profit margin (%)

Difference in Operating profit margin (%)

$' 000

2008 65,085 1,828,564 3.56% -

2009 94,438 2,327,26 4.06% 0.5

Net profit is increased from 2008 to 2009 year; it shows operating efficiency of JB HI FI is stable and Company is