JB Hi Fi Limited’s (referred to as JBH or the company throughout this report) financial performance for the two years ending 30th June 2009 can be evaluated using the ratios presented in Table 1 below. Overall, considering the economic environment during this period with the Global Financial Crisis, JBH has continued to maintain exceptional profit margins and return to shareholders. The company achieved revenue growth of 27%, earnings before interest and taxes (EBIT) growth of 39% and net profit after taxes (NPAT) growth of 45% for the year ended 30 June 2009 (JBH Annual Report, 2009).
Table 1. Ratios calculated from JBH Annual Report 2009 using formulae from Evans & McDowell (2009). | |FY08 |FY09 | |Gross profit (GP) margin (%) |21.87 |21.64 | |Earnings before interest and taxes (EBIT) margin (%) |5.59 |6.1 | |Net profit after taxes (NPAT) margin (%) |3.56 |4.06 | |Return on assets (%) |19.27 |21.69 | |Return on equity (%) |39.7 |41.2 | |Basic earnings per share (EPS) (cents) |61.78 |88.26 |
The gross profit (GP) margin decreased slightly in 2009 to 21.64% when compared to the previous year remaining at the reasonable trading efficiency of 20-30% as recommended by Evans and McDowell (2009). Whilst the GP margin decreased only slightly, the GP increased by 27% from $399,891 million to $503,591 million during the same time period, showing that the business managed to increase sales despite the economic downturn that occurred. This was due to a combination of the opening of 19 new stores throughout the year and achieving an 11.5% growth in sales in stores open for longer than one year (JBH Annual Report, 2009). The company actually managed to decrease costs at a faster rate than the GP margin decline, leading to the increase in EBIT margin.
The net profit after tax (NPAT) margin is perhaps not as high as a potential investor would like. Atril et al, 2008 suggests that generally a good net profit margin is approximately 10-20%. JBH’s net profit margin did increase from 3.56% in 2008 to 4.06% in 2009 showing signs of positive growth. This growth, coupled with the 45% increase in NPAT eases the concern of the shareholder.
Return on assets (ROA) is calculated to assess the efficiency of the business in earning profits from its assets (Antrill et al, 2008). JBH’s ROA increased to 21.69% in 2009 from 19.27% the previous year. This percentage is reasonable when compared to the 10-20% recommended by Evans and McDowell (2009). The long-term trend in ROA (see Table 2) shows a steady increase indicating an improving efficiency of management since the year ended 30th June 2004.
Table 2. Return on assets calculated using the formula described by Evans & McDowell (2009), calculated using data from the JBH Annual Reports (2005, 2007, 2009) for the six years ending 30th June 2009. | |FY04 |FY05 |FY06 |FY07 |FY08 |FY09 | |Return on Assets (%) |8.1 |9.4 |13.8 |14.7 |19.3 |21.7 |
When the ROA is further analysed using the DuPont method (Antrill et al,2008) as shown in Table 3, it can be seen that the ROA is being driven by asset turnover rather than high profit margin and that the increase in ROA is due to an increase in asset turnover (up 0.1 times over previous year) rather than profit margin. This is consistent with the business model of JBH, that is, offering goods at competitive prices to encourage high inventory turnover, compensating for the lower profit margin...
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