Jb Hi Fi

4.1Profitability

Profitability refers to the ability of a company to generate profits. For investors, it is one of the most important criteria in analyzing a company. An investor would expect a fairly high return on its investments in a company. The measurements used in this section would include trend analysis on net profit, net profit margin ratio and basic earnings per share. Factors that would affect net profit such as expenses are considered in this section as well.

4.1.1 Profitability based on annual financial reports

First of all, net profit trend shows that for the past 3 years, JB Hi-Fi has been able to increase its net profit without fail. This certainly speaks volume of the company’s ability to perform well even though with the financial crisis threatening consumer’s buying power. The net profit for year 2007 is taken as the base number for calculating the percentage of increase in net profit for each year. It can be seen that JB Hi-Fi has managed to increase its net profit by 133.82% to 233.82% in 2009 (appendix A). The main reason that JB Hi-Fi is able to record an increase in net profit is because it is able to reduce its operating expenses such as administration expenses, sales and marketing expenses, finance expenses and occupancy expenses over the past 3 years. This is shown in the common-size statement for JB Hi-Fi (appendix B). Its operating expenses have decreased from 16.53% in 2007 to 14.79% in 2009. The increase in net profit is also reflected in the company’s net profit margin ratio as well as the basic earnings per share of the company. The net profit margin ratio shows the profit generated by each dollar of sales made after deducting all operating costs. Basic earnings per share indicate the amount of return received per share. JB Hi-Fi has a net profit margin ratio of 4.06% in 2009, an increase when compared to 3.15% in 2007 (appendix D). Basic earnings per share have also experienced a sharp increase, from 38.78 cents per share in...