Ratio analysis and interpretation of the comparative profitability and financial position of Super Retail Group and JB HI-FI. Essay Example
Ratio Interpretation for Super Retail Group and JB Hi-Fi
The return on equity ratio, in 2013, stands at 14.5%and 54.5% for Super Retail Group and JB Hi-Fi respectively. This is an indication that the JB Hi-Fi, unlike its counterpart, has devised effective ways for utilizing its equity base in order to post huge after-tax profits for each amount of cash resource invested. Retrospectively, the return on assets ratio stands at 12.1% and 21.5% for the two companies respectively, which is an indication that JB Hi-Fi is far much positioned in regards to posting huge after-taxed profits for each amount spent on purchasing plant and equipment. It also means that the company is able to generate substantial number of business opportunities for the level of its current asset-base (Marshall, McManus & Viele 19-33). The profit margin ratio stands at 8.6% and 5.4% for both Super Retail and JB Hi-Fi companies respectively. This larger ratio value for Super Retail Group is an indication that the company has been able to maintain significantly higher profits and thus, be able to meet its expenses as and when they fall due. However, the insignificant difference of the two ratios suggests that while one is performing fairly-well, it does not necessary mean that the other is under-performing especially because they both operate above industry averages. The gross profit margin ratio, in 2013, stand at 44.5% and 21.5% for Super Retail Group and JB Hi-fi respectively. The higher percentage posits that Super Retail Group is fairly positioned to pay-off for its operational expenses as well as yield substantial level of profits in comparison to its counterpart. This might be attributed to effective marketing campaigns and offering trade discounts for products sold hence attracting a substantial level of sales revenue that is later translated to profits (Marshall, McManus & Viele 21-33). The operating expense ratio insignificantly shifts from 35.4% to 36.1% for Super Retail Group and 15.9% and 16.2% for JB Hi-Fi 2012 and 2013 respectively. This means that Super Retail Group is experiencing enormous levels of operational expenses due to the enormous level of sales posted for the two financial periods.
The total asset turnover ratio, in 2013, stands at 4.0 and 1.41 for both JB Hi-Fi and Super Retail Group respectively. This is an indication that JB Hi-Fi is fairly utilizing its asset base to generate sufficient level of business. The days in inventory ratio, in 2013, stand at 141 and 60 days for Super Retail Group and JB Hi-Fi respectively. This means that JB Hi-Fi utilizes a small number of days to translate inventories into sales as opposed to Super Retail Group. The company has been able to adopt effective sales policies to aid with the translation of inventory at a perfect rate (Marshall, McManus & Viele 33-35). The cash to cash cycle, in 2013, stand at 13 and 93 for JB Hi-Fi and Super Retail Group respectively. This is an indication that JB Hi-Fi is able to convert cash resource invested within the production processes to sales revenue derived from customer sales in a fair rate of time. This means that the company is able to meet its immediate commitments on time and thus, it is able to avoid penalties from late payments.
The current ratio for the two companies differs insignificantly. For instance, for Super Retail Group the ratio changes from 2.17 to 1.65 in 2012 and 2013 while for JB Hi-Fi, the ratio changes from 1.22 to 1.27 in 2012 and 2013 respectively. This means that Super Retail Group is able to meet to its short-term obligations due to a substantial number of current asset-base. The interest coverage ratio, in 2013, stands at 6.54 and 17.55 for both Super Retail Group and JB Hi-Fi respectively. This is an indication that JB Hi-Fi is positioned at a fair place for which to meet its interest costs for outstanding debt in easy fashion. It also means that the company is generating sufficient level of revenues in order to meet its outstanding interest expenses in a timely fashion (Marshall, McManus & Viele 34-36). However, it should be understood that Super Retail Group’s ratio is also favorable in comparison to the industry average of 1.
Debt-to equity ratio for Super Retail Group insignificantly increases from 101.2% to 102.3% in the period between 2012 and 2013. On the other hand, for JB Hi-Fi, the ratio decreases significantly from 339.6% to 245.9% in the same period. However, it should be noted that Super Retail Group is fairly positioned in striking a balance between the creditor’s and owner’s funds. The debt-to-assets ratio for JB Hi-Fi increases significantly from 71.1% to 77.3% in the period between 2012 and 2013 while there is an insignificant increase of the ratio from 50.3% to 50.6% for Super Retail Group within the same period. This is an indication that JB Hi-Fi has opted to use creditor’s fund as opposed to owner’s funds (Marshall, McManus & Viele 19-33).
Cash flow Ratios
The cash flow return on assets ratio, in 2013, stands at 0.15 and 0.19 for both Super Retail Group and JB Hi-Fi respectively. The lower ratio for the two companies indicate that they are not expecting higher rate of returns since the companies might be experiencing fewer level of cash needed for re-incorporation into such activities as upgrades or replacements of assets.
Marshall, DH, McManus, WW& Viele, DF, Accounting: what the numbers mean, 8thedn,(2008 McGraw-Hill/Irwin, New York.
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