Assignment Task:

Task:

Introduction:

While making the investment an investor considers several things regarding the investment option to pick the best investment option which can provide better returns. An investor who is willing to make investment in an organization has wider area of research for choosing the correct investment option. There are various financial statements and tools in the companies which are being analyzed by the investors for the decision making of investment. In this report several financial tools such as stakeholder’s value, share price history and traded volume, return on investment for long term as well as for short term has been discussed for evaluating the soundness of the company. Also the dividend policy and capital structure of company has been described in the further part of report. The report consist the financial analysis of JB hi fi, an ASX listed company which can be considered by an investor for the investment purpose. In this report, we will discuss about the different influencing financial drivers of the company which eventually have an impact on the investment decisions of an investor.

Maximizing Stakeholder’s value of company:

To evaluate the value of various stakeholders under the company, several financial drivers are required to be assessed. The return on invested capital, growth in revenues, increase in price, return on equity, earning per share and expected return are the major tools to measure the stakeholder’s value into a company. As per the financial statement of JB hi fi, the company has an increase in the return on equity within an analyzing period of 5 years which resulted into a rise in the earning per share for the shareholders. The rise in the earning per share has increased the value of shareholders of the company. Also the company issued bonus shares to its shareholders and dividend to the existing shareholders out of the profits. Hence the company had better profitability over the last few years. The JB hi-fi has a rise in the amount of sales which eventually increases the revenue of the company for the year. The high profits under the company enhance the stakeholder’s value which influences the new investors to invest in the company for getting better returns.

Share price history & traded volume of company:

The share price history and traded volume of the shares of the company can be used to identify that how the shares of the company are performing in the share market. However the share price history of JB hi fi reflects an effective rise in the price of shares within last 5 years. In the current year the share price of the company is AUD38.33 which was AUD19.28 in the year 2016. Also the company has managed to maintain a high traded volume and for many times it marked high standards for the trading of stock. The trendy market for the shares of the company and high price of shares lead to the maximization of wealth of shareholders of company. However the price of shares is based on the demand and supply of the shares of a company among the shareholders. If more people want to buy the stock of a particular company then the price of such shares eventually moves up and in contrary situation the share price will be decreased.

Short term and Long term return on Investment:

Every investor expects return on his invested fund in the company whether for short term or long term. In the JB hi fi the shareholders are getting 2.13% return on their invested money in the shares of company over a period of 5 years. However the same company is providing an average of 5% return on the investment for one year. Hence the returns on the investment suggest that the company is having better profitability for short term investments. There are several reasons due to which the return on investment in the company has increased such as the growth in revenue, sales and profits. JB hi fi provides better return on the investments due to the high revenues and lower production cost. Also an increasing brand preference is a significant factor which enhances the profitability of company due to which the company provides better returns to their investors.

Valuation of Equity:

 

 

 

Dividend Policy of Company:

The JB hi fi is following the profit based dividend policy under which the company declares dividend in case of availability of profits. In this policy, the company is required to pay a dividend to its shareholders if they have the adequate profits for that purpose. Dividend can be given in cash or in form of bonus shares. JB Hi-Fi has a continuous track record from last 5 years of dividend declaration. Also the amount of dividend has been increased with the increased profitability into the company. The major benefit of having a progressive dividend policy for the company is that it attracts more investors towards the company. In this policy the dividend ratio increases with the growth of company i.e. the profitability supports the proportion of dividend. However the dividend also affects the capital structure of the company as well as the share price. The payment of dividend increases the equity of company in comparison to the debt which changes the structure of capital of company.

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  • Uploaded By : Pearl
  • Posted on : July 13th, 2019

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