Answer To: HI5020 Corporate Accounting Assessment item 2 — Assignment Due date: 11.59pm Friday Week 10...
Abr Writing answered on Sep 23 2020
FINANCIAL ANALSYIS
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FINANCIAL ANALSYIS
Jb Hi-fi Limited and Myer Holdings Limited
Student name:
Student
Number
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Executive Summary-
The assignment is related to evaluation of financial statements of two ASX listed companies belonging to the industry of retailing namely Jb Hi-Fi limited and Myer Holding Limited. Through this assignment, a financial analysis report is being prepared based on the recent three years annual reports of both the companies. A Comparative analysis is also being undertaken for the period.
The assignment is guided towards major four sub-parts of the financial statements such as equity, cash flow, OCIs and corporate tax expense. It helps in reading and understanding the financial statements and notes to them of the actual operating companies.
Table of Contents
Executive Summary 2
Introduction 2
Financial Analysis 3
A. Owner’s Equity- 3
B. Cash Flow Statement 5
C. Other Comprehensive Income Statement- 7
D. Accounting for Corporate Income Tax- 9
Conclusion 13
References 14
Introduction-
Jb Hi-Fi Limited is Australian based retail group which deals in home ware products and is headquartered at Chadstone, Australia. The group works under three segments, first Jb Hi-Fi through which it caters to consumers at Australia and New Zealand and provides electronic products such as computers, TVs, air-conditioners, instruments for music and games etc; second The Good Guys which is a retail chain of stores for consumer durables in Australia such as kitchenware, home appliances, small appliances etc; and third, Jb Hi-Fi Solutions which provides IT solutions and consulting services. The company operates through roughly around 300 retail stores of across Australia and New Zealand with takeover of Good guys in 2016. The annual revenue for the group was $ 5.62 billion with a profit margin of 3.06% for the year 2017. (Yahoo. Finance, 2018)
Myer holdings Limited, an Australian brand company is engaged in retailing consumer products through its chain of departmental stores across the country. It is headquartered at Docklands, Australia, and has around 60 stores under the brand name of Myer. The company provides products under 11 core categories such as apparels for men, women, children, fashion and beauty accessories, footwear, toys and electronic goods. The annual revenue for the company was $ 3.2 billion with net profit margin of just 0.46% in year 2017. (Yahoo. Finance, 2018)
Through this report, the financial statements of both the companies for the year ending 2015 to 2017 have been evaluated in specific four key areas such as equity, cash flow, income tax and other comprehensive income.
Financial Analysis
A. Owner’s Equity-
The owner’s equity refers to the total shareholders’ equity portion on the balance sheet. It includes the equity capital contributed by shareholders as contributed equity, reserves such as hedging reserves, foreign currency translation etc and the retained profits after payment of dividend under retained earnings head.
Jb Hi-Fi- Equity
(AUD in millions)
Equity
2017
2016
2015
Contributed equity
438.7
49.3
56.5
Reserves
33.2
27.1
17.6
Retained earnings
381.6
328.3
269.3
Total
853.5
404.7
343.4
The owner’s equity of Jb Hi-fi has increased over the last three years from $ 343.4 million in 2015 to $ 404.7 million in 2016 in spite of dip in contributed equity from $ 56.5 million to $ 49.3 million during the period with buyback of shares. This is due to the increase in retained profits. The equity capital just doubled during 2017 with issue of shares by the company under its entitlement offer of $ 394.2 million. The reserves have also shown increasing trend paving way for overall increase in equity
Myer Holdings- Equity
(AUD in millions)
Equity
2017
2016
2015
Contributed equity
739.3
739.3
524.8
Retained earnings
342.1
379.5
335.4
Reserves
(8.6)
(11.1)
2.9
Total
1,072.8
1,107.7
863.0
The owner’s equity for Myer holdings increased from $ 863 million in year 2015 to $ 1,107.7 million in year 2016, majorly due to issue of fresh equity by the company of $ 214.6 million during the year. It however declined to $ 1,072.8 million in year 2017 with reduction in profits and high dividend payout from retained earnings. The reserves stood at negative $ 8.8 million during 2018 which comprises of the other comprehensive income for the company.
Apart from this, the debt portions of both the companies are also noteworthy to present the overall capital structure of them. The debt-equity portions for both companies are as below:
(AUD in millions)
Jb Hi-Fi Limited
Myer Holdings Limited
2017
2016
2015
2017
2016
2015
Shareholder’s equity
854
405
343
1,072.80
1,107.70
863
Borrowings
559
110
140
143.4
147.3
441
Debt-equity ratio
0.65
0.27
0.41
0.13
0.13
0.51
Both the companies have changed their capital structure over the last three years. The above analysis provides that over the years Myer has reduced its debt capital and increased its equity portion, on the contrary, Jb Hi-Fi has increased both its equity and debt capital with more reliance towards borrowed capital is shown by it. Accordingly, the debt equity capital for both companies provides less risky venture for Myer holdings with 0.13 times of debt-equity as compared to Jb Hi-Fi with 0.65 times of such ratio. Thus, Myer can be termed as equity derived company.
B. Cash Flow Statement-
The cash flow statement of Jb Hi- Fi and Myer holdings lists the following items as part of inflows and outflows through three broad categories of operating, investing and financing:
1. Cash inflow items:
a. Receipts from customers – Realization of accounts receivables in cash, cash sales.
b. Interest receipt- Investment’s cash interest
c. Other income – Cash receipt of royalty, discounting
d. Sale of plant and equipment- Proceeds from sale of assets
e. Issue of shares- Fresh equity in cash
f. Borrowing proceeds-...