JB Hi-Fi Limited – Changes in Financial Performance Highlighted in the Chairman’s and CEO’s Report

The changes in financial performance of JB Hi-Fi in the 2010 financial report as highlighted in the report by the chairman and CEO provides a favourable rating for the entity. For instance, the statement indicates that during the 2010 financial period, the entity had achieved a 17.4 percent increase in its revenues, 23 percent increase in earnings before interest and tax (EBIT) and  26 percent increase in Net profit after tax  – NPAT (JB Hi-Fi, “Annual Report 2010” 1). These indications point to the ability of the entity to generate higher revenues at reduced costs. The EBIT increase for instance provides a good rating for managerial performance since EBIT represents the earnings that are within the control of managers, thus the operating effectiveness of the entity (Helfert 103).  The increase in Net operating profits after taxes (NOPAT or NPAT), bears a heightened significance for investors since it highlights operating efficiency with emphasis on shareholder value (Helfert 104). It highlights such efficiency in terms of income that is available for shareholders. Accordingly, NOPAT is a critical component of other measures of value of an entity such as Economic Value Added (EVA) (Brigham and Ehrhardt 68). EVA is the value obtained after charging the tax-adjusted value of capital used in funding operating activities (Brigham and Ehrhardt 68).  Therefore, to create shareholder value, as evaluated by EVA, the income an entity earns from the resources it employs must exceed the capital cost that provides such resources (Helfert 114). The statement by the chairman and CEO of JB Hi-Fi thus indicates favourable performance of the entity.

Expounding on such favourable performance, the statement by the Chairman and the CEO also highlights the entity’s improvements on various margins. The gross margin (a percent of gross profit to sales), for instance, is indicated to have increased from 21.6% to 21.8 % (JB Hi-Fi, “Annual Report 2010” 1). Such a margin highlights whether operating activities are optimal since it reflects the association existing among the pricing of the entity’s products, volumes sold and costs (Helfert 101). Accordingly, the strategy of the entity to offer everyday low price on its products (JB Hi-Fi, “Annual Report 2010” 1), has provided better results as indicated by the improvement of the gross margin. This enhanced performance on gross margin is reinforced by enhanced EBIT margin (from 6.4% to 5.6%; JB Hi-Fi, “Annual Report 2010” 1), indicating the entity’s ability to manage production and other operating costs. Through such improved performance, the entity has been able to expand its shareholder value as indicated by its ability to fund its expansion activities from internally generated cash flow and increased dividend payment to the shareholders (JB Hi-Fi, “Annual Report 2010” 2).

Proceed to part 4 here.

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