Identify the most "material" capitals to include in an Integrated Report for JB HiFi. Arguably, financial reporting does not disclose all the required information required by investors and other stakeholders. In Australia, the need to supplement financial information from listed companies is recognised in the Financial and Operating Review and in disclosures to comply with the ASX Corporate Governance Principles and Recommendations. However, there are further calls for additional reporting based on the International Integrated Reporting Framework (IIRF) which seeks to become the corporate reporting norm. At the core of the IIRF is the business model based on the six capitals (financial, manufactured, intellectual, human, social and relational, and natural capital).
You must use the IDEALS framework to critically analyse which of the capitals is most "material" for JB HiFi. Essential elements of the essay are:
1. In defining the context you must identify key measures for all six capitals as both inputs and outputs of JB HiFi's business model based on the IIRC’s business model framework. All data must come primarily from the Operating and Financial Review and Corporate Governance Statement in the JB HiFi annual reports for the past three years.
2. From the six capitals identify and provide reasons for selecting three core capitals are the most "material" to JB HiFi's business model.
3. Discuss the impact the three selected capitals as it is transformed from an input to an output. You must show how the capital increases or decreases, whether the increase or decrease is beneficial or detrimental to value creation.
4. To conclude the essay, identify which of the three selected capitals is the most important for JB HiFi to create value. 5. In your closing reflection, outline whether or not integrated reporting has for improving financial reporting.
JB Hi-Fi is a company based in Australia that specializes in consumer goods that range of telecommunication, audio-visual and electronics such as the mobile phones, electrical home appliances, electronic hardware, CDs, DVDs Blu-rays Ultra Blu-rays and video games as well as a number of Telstra services. Moreover, the company offers professional services to wholesale markets, government and corporate including education and hospital sector.
JB Hi-Fi is a listed company on the ASX with its head offices at the Chad stone Shopping Centre in Melbourne. The company generated a total of $ 6,855,400,000 in sales and other revenues in the year 2018 and is ranked at position 53 out of the 2000 listed companies. The company has managed to employ well over 12200 employees who are also employed under the company subsidiaries.
The chief executive officer Mr. Richard Muray and the non-executive chairperson Mr. Gregory Richards head the company. The company has over 180 outlets across Australia and New Zeeland
The company operates in a highly competitive market both from existing and new entrants. Such competition may lead to decreased profits and therefore the company plans to strategize on competitive advantage to maintain its market position. Moreover, the company hopes to give customers quality online offers that are available in the general stores to ensure that they get ahead of their competitors.
On the other hand, the company hopes to focus on compliance of the management team in an effort to mitigate risk through adequate staff training. This will ensure that litigation and breach of regulatory requirements are avoided. Reach of legal requirements might have detrimental effects such as adverse monetary penalties as well as high legal cost.The company is also exposed to economic sustainability risk that has prompted the preservation of the shareholders’ value. In addition, the company aims to consider its operations and its impact on the environment.
The JB HiFi directors and management are committed to ensuring that ethics is observed during the normal operations of the business and in accordance with the corporate governance, standards. The company has put in place a board that continually reviews and keeps track of development in corporate governance.
The board is tasked with the responsibility of ensuring that company policies are in line with the 3rd edition of ASX Corporate Governance Council Principles and Recommendations. The organization has provided a law that directs the board to undertake relevant checks before appointing a director or presenting a candidate to the shareholders.
The company’s opportunities have been increased greatly as a result of acquiring the Good Guys. With the Good Guys on board, there has been an increase of 35.5% profit, which is expected to rise in the coming years. Moreover, a double-digit growth is expected soon as the company has booked a full year sale from the Good Guys thereby reducing cost and saving to $ 15 million thereby offering better buying terms and increasing the profits.
On the other hand, the company might fail to realize the expected growth in the future. This might be brought about due to plans by Amazon in expanding to Australia or the plans y Best Buy to set up a shop in Australia. Moreover, as the profits sore higher there is a possibility that the company might require incremental capital.
The company faces a number of risks factors ranging from natural to those specific to the organization. Such risks are a threat to the company’s financial performance as well as the future operations. Financial performance will vary depending on various economic conditions such as economic and business conditions, interest exchange, inflation, government regulations as well as access to debt and capital markets.
Other risks include competition, in that the market in which the company is operating on remains highly competitive in which may lead to decreased profits and sales in case another competitor enters the market.
Reputation is another risk that the company is likely to suffer, as the acquiring of the Good Guys has elevated the loyalty and trust of the customers. According to the corporate reputation index, JBHi-Fi ranked third which puts the company in a position where in case something of bad popularity is tied to the company the reputation will spiral down. However, the company has laid down measures in dealing with most of the risks.
The company seeks to ensure that its reputation stays intact by carefully monitoring the prices set by their competitors, market share data, customer engagement analytics, customer compliance as well as the latest innovations. Another risk that might lead to poor reputation is the security breach of the IT systems; this risk is to be handled through investing in IT security measures.
The risk related to health and safety incidents will be mitigated by having the necessary work health and safety procedures in position for all sites. Moreover, a breach of the regulatory requirements will be handled through staff training.
Opportunities and risks
The six-core capitals include natural capital, social and relational capital, human capital, intellectual, manufactured and financial.
The company has brought forward various measures to ensure that the core capitals are well utilized to foster growth in the company.
Measures that have been put in place to ensure financial capital is well utilised, involves remunerating group executives on the basis of performance by linking long and short-term incentives to associated financial measure such as achieving the STIs performance conditions
Among the six core, capital, JB HiFi does not deal with manufacturing of products since it is a retail business selling manufactured and created content. Due to this reason, there are no measures laid down to handle such capital.
However, the company owns some assets that facilitate the business, which will be classified under manufactured capital. Such assets include buildings and tools that help make operations easier. The buildings are located in an environmentally friendly location within customers reach and convenience.
The company has employed more than 1800 employees who work at various outlets across Australia and New eland. As a result, the company has put down measures that ensure that this type of capital is taken care of.
Such measures include employee benefits, which are measured at the end of the period and involve both monetary and non-monetary benefits. The expected amounts are paid once the liabilities are settled. Another measure is that equity-settled share based payment is paid at fair value of equity investment at grant date.
The company has also put in place a measure that requires the employee to observe the code of conduct as well as the ethical standards of corporate behaviour. This type of capital is expected to bring in more revenue as the company enforces its code of conduct to the Good Guys Company that did not have.
Mover when it comes to leadership, the company has strived to ensure that the number of female employees are well represented by ensuring that they participate is equal at that level of the organization. Finally, key employee retention has been looked after as the board has set competitive remuneration packages.
The company board has continuously monitored and reviewed matters of social relations with the clients, employees, suppliers as well as the shareholders. This has helped to conduct business in an ethical manner and in line with the standards of corporate governance. Moreover the board has enhanced strong ties with the management in order to encourage innovation and diversification with the new products.
This also brings out a constructive engagement. Moreover, the board has ensured equity participation in management through group-employee option plan, which works to maintain strong ties with the shareholders as well as attract and retain management through performance rewarding.
The company has gone a step further to improve its relationship through the establishment of "Helping Hands" a program that enables employees, directors, and management to donate to registered charitable organizations. This fosters the relations with the client as well as those of the surrounding community and prospective clients.
On the other hand, accompany acquired by JB Hi-Fi, Good Guys have their own charitable program whereby they match a dollar for a dollar for every contribution made by the team members. The company founds its operations on the belief that it has to conduct its business in a socially responsible way as well as give back to the community.
The natural capital, in which JB Hi-Fi operates in, varies from outlet to another. However, the company has put measures that ensure that such capital is taken care of to ensure business sustainability. Natural capital consists of air, soil, geological position, water, among others.
The company refrains from any activities that pollute the environment. Moreover, apart from business sustainability, the business ensures that it observes all the environmental regulations as wet out in the law.
JB Hi-Fi has a total net worth of $ 22.4 million and $ 15.8 million in intellectual property. The company has stipulated that the intellectual property be represented as an excess of the cost of acquiring above the fair value of the Company’s share of the net recognized assets acquired during the date of acquisition.
Rights to profit share, location premiums and brand names are considered having an indefinite useful life. However, each period of the useful life of the asset is reviewed to determine whether the expected circumstances support the indefinite useful life.
The intellectual capital is allocated to each of the group cash generating units expected to benefit from the synergies of the business operations.
Intellectual property arising from the company’s acquisition activities in the foreign country is treated as assets and liabilities of the operation and translated at the closing date.
The core material capital for JB Hi-Fi business model includes social and relational capital, financial capital and human capital.
Given the business model used by the company, there is a greater need of considering the material capital highlighted above.
Financial capital tops the list of the three most material capitals, as the aim of every business is to make a profit. Financial capital works as a lubricant in the business operations as it helps the business stay afloat. Financial capital ensures that current assets are supplied, employees are remunerated and obligations are serviced.
Moreover, financial capital is the main element that investors focus on when making decisions on investing. Hence, good financial performance will see more investors joining hence increase in the share price, which is beneficial for business. On the other hand, poor financial performance leads to lack of the capacity to service obligation, which is bad for investment
The second most material capital is the human capital. Human capital entails the stakeholders who enable the company to run its day-to-day operations. This includes the employees, management board members as well as other stakeholders. The company ensures that it supports its employees in terms of delivering quality services to the customer through training and proper remuneration.
Moreover, there are programs that take care of the benefits that are entitled to the company’s staff. Taking care of the human capital ensures that the staff is motivated hence, acting in the interest of the business.
Last though not the least is the social and relation capital. This type of capital covers a wide range of issues and is the main determinant of whether the business will be embraced by the clients. The social and relation capital helps to build business connections as well as increase client base, which leads to increased profits. Such a capital also ensures that the shareholders are well taken care of as well as the suppliers and the creditors. Moreover, the company has established a helping hand program that enables the management and the employees to give back to the community. This helps to win more clients and participate in social activities.
An integrated report is very crucial in highlighting various underlying issues that affect businesses. However, most companies do not provide such a report. According to the integrated report on this paper, the JB Hi-Fi Company has proved to have adequate measures on all of the six material capital. Such measures ensure that the company is able to keep track of its progress and determine areas that need improvements.
Out of the six, the company has three of them, which are most crucial in its business operation. These are financial, social and relation capital and human capital. These three capitals have the main potential in realizing the best growth in a business.
Integrated reporting is good for the financial users as it provides a summarized report of a given number of years. However, the report is still not the best as the integrated information is derived from the same financial reports presented to the shareholder. There is no new information, and a dedicated investor would easily integrate the information from the financial reports.
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