Financial Analysis
The question asks us to compare and evaluate JB Hi-Fi’s calculated ratio report, with that of the retail industry ratio report (Potter, Libby, Libby, Short p. 1133). The retail ratio report is comprised of a basket of listed companies which operate under the retail banner, which makes it relevant to use as a comparison to JB Hi-Fi.

1. Liquidity ratios are a class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

Table 1: Current Ratio Current ratio: This ratio measures whether or not a firm has enough resources to …show more content…

The industry average for this ratio is 58.83 days, indicating it takes this long on average for the retail industry to pay for its supplies. In comparison, JB Hi-Fi took 46.73 (2011) and 48.09 (2010) days on average to pay its creditors, in the given years. This represents a different of almost two weeks, which, when considering companies want their money as quick as possible, leave JB Hi-Fi with a positive reputation amongst its suppliers. The benefits of having a lower ratio in this situation may be that JB Hi-Fi receives a discount on credit deals for having paid in a shorter period. However, companies must be careful to avoid letting cash flow out of the business too quickly, if there is no reasonable gains to be made. This can be viewed as an advantage and a disadvantage as the company can hold off paying the creditors’ this quickly and invest the funds in generation of more revenue.

3. Profitability ratios are important when assessing the profitability of a business. They give management useful insight into where and how they can improve the operations of a business.

Table 8: Net Profit Margin Ratio The net profit margin: This ratio show the proportion of every dollar of sales that is left after all expenses has been paid, and remains as net profit. | 2010: 4.34 | 2011: 3.71 | Industry: 2.45 |