The productivity of an organisation and its ability to produce profits is measured using profitability ratios (Žager, Sačer & Dečman 2012). Two ratios which measure profitability are net profit margin and gross profit margin. Another two ratios which assess how sufficiently assets are being used are the return on total assets and asset turnover.
JB Hi-Fi’s net profit margin remained stable over the 5 year period with its lowest recorded result in 2012 with 4.74%. In 2015, it had increased to 5.24% which is above the industry average of 4.30%. This demonstrates that JB Hi-Fi has been consistent in increasingly improving its profitability and maintaining a strong hold over the industry average. The gross profit margin of JB Hi-Fi has consistently maintained over 20% for the past 5 years. It identifies that JB Hi-Fi is consistent in achieving dependable profitability. To further support the profitability of JB Hi-Fi, the return on total assets and asset turnover ratios for 2015 are above industry averages. In 2015, JB Hi-Fi’s return on total assets was 15.25% which is more than three times higher than the industry average of 4.09%. The asset turnover ratio of 2015 of 4.08 times compared to the 1.45 times industry average. This supports that JB Hi-Fi are using their assets …show more content…
2012). These ratios are significant in understanding whether assets liquidated are able to meet short term financial obligations which are referred to as liabilities. The current and quick ratio analyse the relationship between current assets, inventories and current liabilities. It determines whether a company is able to liquidate its assets to cover liabilities. Inventory turnover measures how often a firm’s inventory is sold and replenished over a particular timeframe and further supports the current and quick