Accounting Business Reporting for Decision Making

592 Accounting: Business Reporting for Decision Making

d. JB Hi-Fi Ltd reported in its 2015 preliminary final report (p. 31) an increase in share-

holder value as follows. Compare the EVA computed in part (c) with the shareholder

value computed by JB Hi-Fi Ltd. Comment on the difference. 3 marks

2015 2014

1.

2.

3.

4.

Consolidated sales ($m)

Consolidated profit attributable to members of the parent entity ($m)

Basic earnings per share (cents)

Shareholder value created:

Company share price at the end of the reporting period ($)

Market capitalisation ($m)

Enterprise value(i)

Movement in enterprise value during the financial year ($m)

Dividends paid to shareholders during the financial year ($m)

Off market buy-back

3 625.1

136.5

137.9

19.48

1 928.3

2 018.7

71.7

87.2

5.0

3 483.8

128.4

128.4

18.3

1 810.7

1 946.9

226.7

77.2

25.8

Shareholder value created(ii)

• per annum ($m) 163.9 329.7


• cumulative 2 561.2 2 397.4

(i) Enterprise value is measured as the sum of market capitalisation and net debt.

(ii) Shareholder value created is measured as the increase in the enterprise value, plus cash dividends paid during the

financial year.

Source: JB Hi-Fi Ltd 2015, preliminary final report.

e. Figure 14.7 in this chapter lists the company’s executive compensation for 2015. Does the

type of executive compensation align with the company’s focus on creating shareholder

value? Explain your answer. 2 marks

Self-evaluation activities

14.1 The Hackett family has been in the printing business for three generations. The Hackett family

prides itself on knowing the industry and being at the forefront of technological advances. This

technological edge has helped maintain its name as the business leader in printing services.

However, it has not always been profitable, and throughout the years the focus on the technology

has sometimes overridden the need to be cost effective and efficient. The business also places

high importance on customer satisfaction, as repeat business and word of mouth advertising help

maintain sales levels. It is also mindful of its environmental and community obligations.

To remain competitive, the Hackett family has sought your help in designing a performance

framework to capture the key factors that drive its success. You are required to draw up a balanced

scorecard that will help the Hackett family focus.

SOLUTION TO 14.1

Goals Measures Drivers

1. Financial perspective
   Improve overall financial
   
   value

Profitability •  Divisional profit

Cash    flow •   Debtors    turnaround

•    Inventory  (in  dollars)

Cost efficiency Labour costs •   Employee   hours

Raw material cost •  Value  of   raw     material

•    Number of   different  inventory   items