Economic Fundamental: JB HI- FI Limited Essay

Question:

Discuss about the Economic Fundamental for JB HI- FI Limited.

Answer:

Part 1

A top down analysis involves the objectivity of analyzing an aspect in a wider view and then concluding with the smaller component of the aspect. It mainly looks at the overall aspect for example a company’s macroeconomic trend. In this task, the top down analysis is given with regards to the overall economic environment and consideration on how there is a change in view of economic fundamentals of JB HI-FI Limited and Harvey Norman Holdings Limited (Harvey Norman Holdings 2010). On the same note, the top down analysis on the economic fundamentals of the subject company’s also gives an overview how the performance of the companies’ in question have been impacted courtesy of the subject analysis.

Top down analysis of the economic environment of JB HI- FI Limited

The economic environment of the subject limited company is in line with the most recent economic data that was conducted by economic experts; the data showed that the economy of JB Hi- Fi Limited is at a favorable stand. The environment proved that the company’s stock is considered to have improved by about 30%, in line with a top down analysis of the past six months. This status has made the company to hit another new record, considering the fact that it is ranked at position 97 out of the top 2000 companies in Australia (Jacques & Kepos 2012). On the same note, it is debated that the company’s economic environment revolves around the income generated from the income earned from other Store Based Retailing Industries in Australia.

How forecast change in JB Hi- Fi Limited’s economic fundamental will impact its Performance

The forecast change in economic fundamental will impact its performance positively. This is with regards to the already discussed key concerns. On the other hand, Australian financial reports have also shown that the interest rates of JB Hi- Fi limited company have gone down and this is to the consumer or company customer’s advantage. It’s current Gross Domestic Product (GDP) and $ AUD value was also covered in the report. The GDP had improved courtesy of increased consumers support due to their increased consumption rate for the products. The value of $ AUD was also analyzed to have gone up thereby increasing the monetary income of the company. In view of the context question, there is a likelihood of the company’s performance moving to a better stand.

Economic Environment of Harvey Norman Holdings Limited

Harvey Norman Holdings Limited shares on the same economic environment just like its competitor JB Hi- Fi Limited Company. Its share on favorable economic conditions which has boosted the confidence of consumers in consuming its products and this has improved the company’s sale.

How forecast changes in economic conditions has impacted the performance of the subject company in the industry

The changes in the economic environment have positively impacted the performance of the company. In the previous years, the consumer’s confidence on products produced by Harvey Norman Holdings was low but this has changed over time. On the same view, the current interest rate of the limited company in context is also seen to be below 10% which in the perspective of key financial experts is to the benefit of consumers. Apart from the mentioned, the company’s Gross Domestic Product and value of $ AUD is seen to be at an improved stand thereby sharing in the same performance as JB Hi- Fi Limited Company.

Part 2

Bottom- Up analysis of the financial situation of both JB Hi- Fi Limited and Harvey Norman Holdings Limited

Bottom- up analysis simple means the approach that is made to certain aspect of analysis and giving less concern to both market cycle and economic cycle. The bottom-up analysis of the subject covers key areas with regards to the mentioned companies accounting ratios and also a selection of few key performance measures that the company’s bear. These measures are also analyzed by the subject analysis in order to ascertain the companies’ performance.

The analysis of the accounting ratio of JB Hi- Fi Limited and Harvey Norman Holdings Limited is in line with the financial analysis of the companies. The analysis of the latter company shows that its ratio is determined by the strong growth in terms of its revenue of 8.40% to $ 2. 96b in 2011 and a further 5.70% increase to about $3.13b in 2012. Since the year 2011 to date, the accounting ratio of JB Hi- Fi Limited Company is seen to be at favorable stand because it has experienced an upward trend in terms of its performance. This the main reason why it is seen to be better as compared to Harvey Norman Holdings Limited.

On the other hand, the accounting ratio of Harvey Norman Holdings especially within the past five months is noticed to have attributed to by the accounts inventory, other payable interests in terms of loans and borrowing and finally trade. For example, in the financial year 2011, the number of the company’s inventory 336,742 and in the financial year 2012, a notable decrease of about 22% was observed. The decrease was noted until 2014, and in 2015, there was a slight increase in terms of the subject. With the above discussed financial facts to the two Limited Companies’ in context, it is concurrent to conclude that the accounting ratio of JB Hi- Fi Limited is at a better position as opposed to its competitor Harvey Norman Holdings. The ratio estimate can be at 3:2 respectively.

Few Key Performance Measures

The bottom- up analysis of the subject limited companies’ covers various performance measures as previously mentioned. These measures include the following; profitability, risk, stability and finally growth.

Definition of the key Performance Measures

The first key performance measure is on profitability, the subject measure is mainly concerned by the extra income generated by the two limited companies in context. The second measure of performance is on growth, which is mainly concerned with the positive trends in both JB Hi- Fi limited and Harvey Norman Holdings Limited (Nelson Information 2002). If a company shows positive trends in its operations then it is concluded that it is growing. Other than the mentioned, the other key measure is on risk which associated with factors that can lead to the downfall of the two companies. The final measure is that of stability as provided earlier. The main point on stability is on the maintenance of the companies’ trend of operation.

Explanation of the measures and what they tell in the performance of a company

  • Profitability

Both JB Hi- Fi company are argued to have given keen consideration to this key measure since it is what determines the stability of the companies’ in the market. It is estimated that the profits that the two companies are enjoying is because of increase in their sales which has gone up to 5.8% which is equivalent to around $ 3.3billion on their sales earnings.

  • Growth

The two companies in context are not at their original stand. They have grown in terms of their business dealings over the years. Their growth can be estimated in terms of current number shares they each hold, number of employees, the existing remuneration, the number of their customers globally, their individual Gross Domestic Products and finally the evaluation of their financial reports. The bottom up analysis in context reveals that the individual companies have grown in almost all perspective and this has increased their sales and even GDP. Currently, the companies in context are serious competitors in the business domain are both ranked favorably.

  • Risk

This is a key measure that every company always wants to take care of. The irony is that business involves a lot of risking; you invest money into a particular business with no particular surety whether the business will bring back good returns. The companies in context have had issues with risk management and it is because of this that they are in their current positions. For example, JB Hi- Fi Company’s major risk has been on debt to equity ratio, where it borrows money from the bank to accelerate itself through leverage (O'neill 2002). This is usually risky since too much leverage can lead to disaster especially if a business has problems of servicing the loan. JB Hi- Fi has been able to control this among other risks and this has influenced its performance positively. The same discussed risk in the case of JB Hi- Fi is also the same to its competitor Harvey Norman Holdings Limited. Harvey Norman Holdings Limited has also been able to manage its risks very well and that is why its performance is at a better stand as well.

  • Stability

The two companies have showed steady trends in terms of their operations. They have been able to operate well and even maintaining higher levels of financial stands. Currently, the companies’ in context are within top 100 of the overall company ranking amongst the first top 2000 Australian companies. This kind of impressive performance is attributed to by their steadiness in their operations (Kirby 2003).

Summary on how economic fundamentals’ changes analyzed in top down analysis part affects the value of companies and its shared price analyzed in the bottom part analysis

Important economic changes analyzed in top down analysis as shown in the subsequent paragraph improves the company’s value. This has been captured for both JB Hi- Fi and Harvey Norman Holdings Limited in the paragraphs above. The changes in their economic environments have made the companies’ aestheticism to be realized. Most of the economic fundamentals with regards to down analysis have shown both JB Hi- Fi and Harvey Norman Holdings being able to operate at the top of their competitors. What is clear with the economic fundamental factors is that they influence the company’s performance to a better stand thereby increasing value.

Furthermore, the shared price of the mentioned companies’ with respect to top down analysis in the bottom up analysis is majorly on issues related to the companies’ performance (Vann & Aberjhani 2008). This is an area that has been extensively covered in the bottom up stage and has even lead to the bringing on board a number of measures of performances that the companies’ in question takes into keen consideration. These key measures have included; profitability, growth, risks and finally stability. Performance is a shared price analyzed in the bottom up analysis since all that which is entailed in the top down analysis were all directed to it as the end aspect.

Recommendations for companies in terms of financial management and investment for better results and performance to be achieved

The first recommendation is that companies to develop better decision making just like we have covered in our class notes to enable them come up with better ideas that can impact them positively.

The second recommendation is companies to look for better branding that will enable them restore confidence in their customers to develop taste and preference for products that they deal in. This will positively improve both their performance and accord them better results as well

Nevertheless, I would recommend for companies to develop clear objectives which they will have to meet, and should they not meet them, they are suppose to go back to the drawing board and come up with ways of achieving them. This will enable companies to have focus in their operations and the end result will be likable.

The final recommendation that I would give is for companies to incorporate into their constitution, series of meetings that will ensure that they do regular evaluation of their operation and come up with policies that can improve their performance and give them better results.

References

Harvey Norman Holdings. (2010). Annual report. Auburn, N.S.W., The Company.

Jacques, D., & Kepos, P. (2012). International directory of company histories. Volume 136 Volume 136. Detroit, Mich, St. James Press.

Nelson Information, INC. (2002). Nelson Information's directory of investment research. Port Chester, N.Y., Nelson Information.

Kirby, J. (2003). Gerry Harvey: business secrets of Harvey Norman's retailing mastermind. Milton, Qld, John Wiley & Sons.

O'neill, E. (2002). Long day's journey into night. New Haven, Yale Nota Bene.

Vann, L. E., & Aberjhani. (2008). Elemental: the power of illuminated love. Columbia, SC, Soar Pub.

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