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It is highly expected from you to purport the following perspective of the report: a. Introduction of the two selected companies 
Company’s name 
Establishment year 
Main activities 
Products or services  
Organizational structure 
Business achievement  b. Identification and evaluation of the companies’ financing sources
Identify  correctly  all  financing  sources  of  the  company:  leverage,  equity  issuing. 
Describe in details of the company’s financing sources were given.   i. Short term debt, intermediate term debt, long term debt  ii. Equity:  ordinary  share,  preference  share,  redeemable  share,  management 
share... 
Analyse the capital structure, and important financial ratios  
Relate the company’s financing structure and its financial reporting framework with 
the nature of its business and with nature of the overall financial market condition. c. Analysis and comparison of the companies’ financing sources 
Identify and explain clearly the similarities and differences between the two 
companies’ financing sources and financial reporting framework. 
Provide possible reasons for the differences and similarities in their financing sources and financial reporting framework.

Overview of JB Hi-Fi

JB Hi-Fi is an Australia based retailer company that specially offers the specialized video games, CD’s DVD’s, Blu-rays, home appliances and electronic hardware (JB Hi-Fi Ltd, 2016). The company’s headquarter is in Melbourne, Australia and it was founded by the Keilor East in 1973. JB Hi-Fi was commenced as private equity but converted into public sector company  after floating shares in Australian stock exchange in 2003 and located around 194 stores entailing 135 stores with the name of ‘JB Hi-Fi’ and more than 59 stores in the name of ‘JB Hi-Fi HOME’. In the present scenario Richard Murray is the chief executive officer and whereas Greg Richards is the chairman of the company. Right now, company has more than 7800 employees including New Zealand and Australian workforce.  The company is expanding its chain in New Zealand in its bigger cities and had already captured all the cities in Australia. It was entitled as the second largest CD retailer of Australia in 2007 also record of sale of the company in that year was second largest (JB Hi-Fi Ltd, 2016). Currently, JB Hi-Fi is divided in two big brands along with the subsidiary The Good Guy which has made JB Hi-Fi group as the largest electronic retailer in Australia.

At first company was specialized in the music industry only like sales of CD’s and DVD’s but now it has diversified its product line and added consumer goods like electronic items TV, game consoles, video/computer games, camera, gadget instrument and car entertainment (JB Hi-Fi Ltd, 2016).  Not only this, the company also inserted many musical instruments like guitar, DJ Equipments, electronic keyboard, microphones, DJ docking systems and many more. Furthermore, it has also started selling Dell computer hardware. The company is specialized in the service offerings like education sales and services, corporate governance services, insurance services and other technical services. Furthermore in audio and video system CD’s have the collection of almost all around the word (JB Hi-Fi Ltd, 2016). It has a subsidiary named as ‘The Good Guys’ which also focuses on electronic retailing services and deals with kitchen appliances, white goods, kitchens and consumer appliance.

On the other hand, Wesfarmers limited is a multi-industry company which deals in many industries such as retailing, fertilizers, chemicals, mining and safety products. It’s headquarter is in Perth, Australia and it was established in 1914 (Wesfarmers, 2016). Today, the company is located in four countries apart from Australia that it UK, New Zealand, Ireland and Bangladesh. The structure of the company is public limited company. Richard Goyder and Michael Chaney are the CEO and Chairman of the company. There are more than 220000 workers employed in the company. the 2016, the company has over taken the largest companies of Australia like Woolworth and BHP Billion in terms of revenue generation (Wesfarmers, 2016). Now, Wesfarmers is the largest companies in Australian market dealing in multi-industrial market and generating the largest revenue as well. The company was first embarked its stores associated with the farm and agricultural products and formed as corporative society.

Overview of Wesfarmers Limited

The company then listed in Australian security exchange in 1984 and structured itself as public company. After that, it acts as Dalgety farmers, rural business and Wesfarmers landmark. Then, they started opening Bunning farms and joined Australian Railroad Group. Then the company entirely changed its division by acquiring Coles Group that operated retailing sector offering supermarkets, fuels and liquor in Australian marke (Wesfarmers, 2016). Subsequently, home improvement projects and offices supplies are also been added in the operations along with this some departmental stores are been taken over by the company by restructuring the department like Kmart, Target, and industrials which is specialized stores in chemical, fertilizers and energy products (Wesfarmers, 2016). Along with this, company also has safety products such as Coregas, Total Fasteners, Packaging House, Hard Yakka, Backwoods Protector, Safety Sources and other work wear accessories and products.    

Identification and evaluation of companies’ financing sources

Financial sources of the company are being analysed in this section comprising the details of the leverage and equity issuing of the company are as follows:  

Leverage /Liabilities

Amount ($000) 2016

Current Liability

Trade and other payables

384,928

Provision

46,032

other current liabilities

4,953

other financial liabilities

10,920

Total Current Liabilities  

446,833

Non-Current Liability

Borrowings

109,736

Provision

6,381

Other Non-Current Liabilities

24,729

Total Non-Current Liabilities

140,846

Total Liability

587,679

(JB Hi-Fi Ltd, 2017)

Leverage – short term debt, long term debt and intermediary term debt

Trade and other payables including the creditors and accruals are showing unpaid mount which has been recorded in provided goods and services to the group (JB Hi-Fi Ltd, 2016). The cost has been recorded in the amortised values which are unsecured and will be recognised within 45 days.  

Trade and Other Payables

($000) 2016

Trade payables

302,141

Goods and service tax (GST ) payable

21,407

Other creditors and accruals

16,267

Deferred income

45,113

Total

384,928

In case of other liabilities it includes lease accrual and incentives forming a part of current and non-current liabilities as follows –

Other Liabilities

($000) 2016

Current

Lease accrual

2,029

Lease incentive

2,924

Total

4,953

Non Current

Lease accrual

11,451

Lease incentives

13,278

Total

24,729

(JB Hi-Fi Ltd, 2016).

Borrowings includes-

Unsecured non-current involving Bank loans of 109,736  

Note- Recognitions and measurement-

  • Borrowings are recognised at fair value and net of transaction cost. Borrowings are measured at amortised cost and classified as current liability till the settlement of the liability differs as unconditional right for at least 12 months after reporting date.  
  • The group controls report of banks in semi- annual basis. On the other side, it covenants of finance in monthly basis (JB Hi-Fi Ltd, 2016).  

Conversely, the equity composition of the company is as following-

Equity

Amount ($000) 2016

Contributed Equity

49,264

Reserves

27,140

Retained Earnings

328,298    

Total Equity

404,702

(JB Hi-Fi Ltd, 2017)

*Contributed Equity-

a) Share Capital includes fully paid ordinary shares of 98,947,309 shares in 2016. These are classified as fully paid and equity, carry one vote per share and no par value, rights to dividends. Along with this, the issue of new share are represented in equity as a deduction of net of tax from the proceeds which is attributed by the incremental costs (JB Hi-Fi Ltd, 2016).

The buy back shares or self own shares of the company are deducted from the equity and the buy back shares are cancelled. Any incremental cost and any gain and loss are directly recognised from the equity.    

  1. b) Share Options-

Executive and Non-Executive have option over 1,626,375 ordinary shares (JB Hi-Fi Ltd, 2016).

  1. c) Capital management – EBIT – 221,175

*Reserves-

Equity settled benefits

27,348

Common control reserve

(6,054)

Hedging reserves

850

Foreign currency transaction reserve

4,996

Total

27,140

 (JB Hi-Fi Ltd, 2016).

Capital Structure and Financial Ratio to provide the insight of leverage capital of the company is discussed as follows:-  

Total asset of the company- 992,381(JB Hi-Fi Ltd, 2017)

  • Debt/Equity ratio – total liability / shareholder’s equity = 48.51%
  • Long term debt to equity- 48.51%
  • Debt ratio – total debt /total capital =
  • Debt to total asset – total liabilities/ total asset =  

Wesfarmers limited-

Leverage capital analysis of the company

Leverage/ Liabilities

$M 2016

Current Liabilities

Trade and other payables

6,491

Interest-bearing loans and borrowings

1,632

Income tax payables

29

Provisions

1,861

Derivatives

160

Others

251

Total current liabilities

7,410

Non-Current liabilities

Interest-bearing loans and borrowings

5,671

Provisions

1554

Derivatives

81

Others

104

Total non-current liabilities

7,410

Total liabilities

17834

(Wesfarmers Ltd ADR, 2017)

 

$M 2016

Equity issues capital

21,937

Reserved shares

(28)

Retained earnings

874

Reserves

166

Total equity

22,949

(Wesfarmers Ltd ADR, 2017)

In equity there are certain reserves that gives consolidated version of equity capital such as restructure tax reserve, capital reserve, foreign currency translation reserve, Cash flow hedge reserve, financial asset reserve and share based payment reserve (Wesfarmers, 2016).

In order to discuss capital structure of the company, this study will determine the financial ratio that will analyse the capital structure of the company as follows:-

Total asset of the company = 40,783

  • Debt /Equity- 25.56%
  • Long term debt to equity- 23.69%
  • Debt Ratio-
  • Debt to total Assets-
  • Interest coverage

Financial Analysis and Comparison of the companies

  • It has been found in the financial analysis of the companies which are Wesfarmers Limited and JB Hi-Fi that in case of JB Hi-Fi the total liability of the company is greater than the total equity. However, in Wesfarmers Limited the company has less total liability and more equity capital. Thus the debt of JB Hi-Fi is higher than the Wesfarmers Limited. It shows that JB Hi-Fi has more debt dependency than Wesfarmers Limited (Drake and Fabozzi, 2012).
  • Total Assets of the Wesfarmers Limited is less than double of the total equity capital of the company. On the other hand, JB Hi-Fi has more than double of total asset to total equity capital in the financial reports (Robinson, et al., 2012). It indicates the Wesfarmers Limited is very much dependent on the shareholding money and other money lenders.
  • Furthermore, as a similarity in both the companies the total asset of the company is higher than the total liability of the company. Apart from this, it has also been found that in case of JB Hi-Fi the margin between the total asset and total liability is not good and less than double. Thus it shows that JB Hi-Fi is more dependent on the debts for assets takeover.  But in case of Wesfarmers Limited, the margin is very high and company has a good financial back up as total assets of the company (Drake and Fabozzi, 2012).   
  • In addition to this, it has also been examined from the above data that Wesfarmers Limited is generating less cash flow in the market and JB Hi-Fi is generating higher than the Wesfarmers Limited. On the other side, the revenue generation of Wesfarmers Limited is much better than the JB Hi-Fi Company (Robinson, et al., 2012).  
  • From the above discussion, it can be depicted that both the companies are carrying their business well in their respective industries and have strong financial positions.  However, the financial management and approaches of the company’s are very different. JB Hi-Fi and Wesfarmers should consider on the more effective plans that can improve their revenue generation but with less burden of interest from the debt (Drake and Fabozzi, 2012). The equity capital should be used more precisely and analysing market conditions of the respective industry. The assets of the company should also be optimum utilised.
  • In case of JB Hi-Fi the debt equity ratio is 48.51% in case of Wesfarmers limited the debt equity ratio is   25.56% that means the higher debt to equity ratio indicates the aggressive strategy towards the barrowing pattern to finance it growth. It expresses more burden or extra liability of interest expenses (Robinson, et al., 2012). This may reduce the revenue of the JB Hi-Fi and can hamper expansion of the company.  In case of Wesfarmers limited the leverage is very low that can indicate that company is not utilising its financial resources.  Thus, as a future recommendation the utilisation of financial resources in Wesfarmers is being advised to enhance and in case of JB HI-Fi, the less dependency on the leverage or borrowing is highly advised.
  • It can be observed that Wesfarmers has strong fundamentals and good short term investment strategies.  The short term dept will help the company in achieving all the projected targets in the short run with the current assets (Drake and Fabozzi, 2012). Thus, it is recommended that the company should not invest in the working capital supplementary.
  • The cash flow and cash generating activities in JB Hi-Fi is effective that enable good collection of revenue in the company, this revenue generation is due to higher investment of capital in the market (Robinson, et al., 2012).  Thus, it is recommended to the company that financial liability of the company should not be extended.

References

Drake, P. P., and Fabozzi, F. J.  2012. Analysis of Financial Statements. 3rd ed. John Wiley & Sons.

JB Hi-Fi Ltd. 2016. Annual report 2016. [Online] Available at: https://www.jbhifi.com.au/Documents/2016%20JB%20Hi-Fi%20Annual%20Report_ASX.pdf [Accessed on: 18 May 2017].

JB Hi-Fi Ltd. 2017. JB Hi-Fi Ltd. [Online] Available at: https://financials.morningstar.com/ratios/r.html?t=JBH  [Accessed on: 18 May 2017].

Robinson, T. R., et al. 2012. International Financial Statement Analysis. 2nd ed. John Wiley & Sons.

Wesfarmers Ltd ADR. 2017. [Online] Available at: https://financials.morningstar.com/balance-sheet/bs.html?t=WFAFY&region=usa&culture=en-US [Accessed on: 18 May 2017].

Wesfarmers. 2016. Annual Report 2016. [Online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4 [Accessed on: 18 May 2017].

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[Accessed 03 March 2024].

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