Analysis of Financial Performance of Ji Hi Fi

Question: Discuss about theAnalysis of Financial Performance of Ji Hi Fi. Answer: Introduction Financial management is most important consideration for every organisation and shall be managed in most appropriate manner. Financial management includes preparation, presentation and analysis of financial statements of the organisation. In this report, discussion related to cash flow statement of JB HI FI has been undertaken. Cash flow statement presents flow of cash of the organisation during reporting period. In this report, analysis of cash flow from operating, investing and financing activities of JB HI FI has been conducted. Cash Flow Analysis Cash flow statement of the business is one of the most important financial statements since it reflects inflow and outflow of cash and cash equivalents of business organisation. Investors are always keen to analyse cash flow statement as they are interested in identifying cash management efficiency. Cash flow analysis can be done using cash flow statement prepared for the reporting period (Statements, 2012). Cash flow statement contains three main components in it and they are; cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Following are brief introduction of these activities: Operating activities- This section covers cash flow in primary business operations or activities undertaken during the reporting period. It includes business operation expenses, sales revenue, debtor and creditor management, etc. Investing Activities- Under this section, cash flow is measured in terms of cash and cash equivalents invested by JB HI FI Company in investment opportunities. It includes capital expenditure, capital recepts and interest received on investment. Financing Activities- This section covers information related to cash and cash equivalents used in financing the business operations. It includes debt and equity transactions undertaken by business organisation during the year (Treloar, 2003). Following statement reflects three years (June 2014 to June 2016) analysis of cash flow of JB HI FI: Activities 2014 2015 2016 % change in 2015 % change in 2016 Operating Activities 41,326 179,896 185,140 335.31 % 2.92 % Investing Activities (38,240) (44,370) (52,001) 16.03 % 17.20 % Financing Activities (27,609) (129,640) (130,565) 369.56 % (200.71 %) Net Increase / Decrease in cash (24,523) 5,886 2,574 (124.00 %) (56.27 %) Cash and cash equivalent in beginning 67,368 43,445 49,131 (35.51 %) 13.09 % Exchange rate difference 600 (200) 179 (133.33 %) (189.50 %) Cash and cash equivalent at the end 43,445 49,131 51,884 13.09 % 5.60 % Analysis From the above statement it can be analysed that JB HI FI has maintained adequate cash flows from its business operations during the reporting period. It can be analysed that receipt from customers of JB HI FI has been drastically changed. During 2015, their revenue has been increased by 335.31 % and in 2016 there is increase in 2.92 %. During 2015 and 2016 their payment to supplier has been maintained. On the other hand another reason for lower cash from operating activities is higher tax expenses during 2014. In 2015 and 2016, there is reduction in tax expenses as compared to 2014. On the other hand, cash flow from investing activities has shows negative results in all three years (2014 to 2016). Main reason for negative cash flow from investing activities is purchase of plant and equipments (capital expenditure). From the above statement, it can be analysed that JB HI FI has made more investment purchasing more capital assets for business. So this negative cash from investing activities can be seen as positive move in terms of expanding business operations. During all three years of analysis (2014 to 2016), JB HI FI has also sold some its capital assets but they have generated very less amount from the sale of capital assets (Saravanan, 2013). It can be analysed from cash from financing activities of JB HI FI, that during 2014 they had issues shares and some securities and generate cash from the same. On the other hand, in 2014 JB HI FI has also taken some debt from the market or financial institutions. From the analysis, it is analysed that JB HI FI has paid dividends at higher rates during all the three years. In 2016, maximum dividends have been paid to shareholders. It can be observed that JB HI FI, has maintained interest of stakeholders by spending more on dividends and attracted many investors to invest more. During all three years, JB HI FI has brought back some of its shares which has been core reason for negative cash flow from financing activities (Miao et al., 2016). Assessment of Other, Relevant Information Retained earnings: Relevant information includes level of retained earnings of JB HI FI that had maintained during all three years. Retained earnings are those accumulated which is reserved to be used in business expansion activities. Therefore it is important aspect in terms of financial strength of JB HI FI. It can observe that during all three reporting period they had maintained adequate level of retained earnings that has made them financially strong. During 2015, JB HI FI has used retained earnings for their business activity (Berrington and Bhandari, 2012). But at the end of 2016, they had maintained adequate level of same. Earnings per share: Information that has attracted investors in JB HI FI is its level of earnings per share. From the analysis of income statement of period under consideration, JB HI FI has maintained adequate level of earnings per share. In 2014, 2015 and 2016 their EPS is $ 128.39, 137.91 and 152.76 respectively. It can be analyse that there is increasing trend in EPS of JB HI FI and this can be deciding factors for investors and other stakeholders in terms of decision making (Pedler, 2007). Conclusion From the above analysis of JB HI FI from its financial statements it can be concluded that they are financially strong. This can be observed from better results in terms of cash from operating activities that shows operational efficiency of JB HI FI. There are some concern matters for JB HI FI during all three years also like decline cash from financing activities. Other information like EPS and level of retained earnings has shown financial strength of JB HI FI. Therefore it can be concluded that JB HI FI has shown great improvement during 2015 and 2016 as compared to 2014. References Berrington, M., Bhandari, V. (2012). Pinnacle financial statements. IFRS System. Miao, B., Teoh, S. H., Zhu, Z. (2016). Limited attention, statement of cash flow disclosure, and the valuation of accruals. Review of Accounting Studies , 473 - 515. Pedler, M., Burgoyne, J., Boydell, T. (2007). FM in Investment. Journal of Financial Management , 205-215. Saravanan, P. (2013, October 22). Positive cash flow crucial to survival of a company. Financial Express . Athena Information Solutions Pvt. Ltd. Statements, F. (2012, 12). Financial Statements. Review of Income and Wealth . Treloar, D. (2003). Financial Management and its Tools. Sydney: Gourmet Hall.