Corporate Finance For Productions Of Accessories – Billabong International Limited Overview And Financial Analysis

Company overview

Describe about the Corporate Finance for Productions of Accessories.

Billabong international limited is a surf company, which functions as clothing retailer. The company is also engaged in the productions of accessories like watches, backpacks, skateboard and snowboard under the same brand name. Gordon and Rena Merchant founded the company in the year 1973. As the company started developing further it acquired new brands and number of retail outlets to expand its business beyond the boundaries of wholesale. The company first traded on the stock exchange of Australia on 11 August 2000. It is worth mentioning that from the late 2012 the company experienced a declining period. The company has been the subject of protracted bidding process in which the former chief of Billabong has been a key participant. However, it should be noted that from last couple of years the company has undertaken the strategy of corporate turnaround to return to the profitability. 

A detailed analysis of Billabong International is performed with the help of financial ratios in order to understand the business and operating functions of the company. The ratios provides an insight into the guidelines of the company and a special focus is paid to identify the special issues concerning the business. To begin with the analysis several parameters are undertaken to evaluate the performance such as profitability, efficiency, liquidity, gearing and investment ratio. 

Profitability ratio are those class of ratios which defines the fiscal metrics of an organisation by evaluating the business ability to generate earnings in comparison to the business expenditure and other important cost incurred during a specified period of time (Cantoni, 2012). In the current evaluation of Billabong financial situation the profitability ratio is undertaken consisting of the gross profit ratio, net profit ratio, return on capital, assets and equity. The gross profit ratio of Billabong for the financial year of 2014 consists of 50.4 while in the year 2015 the ratio stood 52.9. The gross profit reflects a growth of 2.5% prior to the previous year cash and cash equivalent and other short-term are readily convertible to the amount of cash (Sridharan, 2015). While on the other hand, the net profit ratio does not reflects a positive scenario as net profit reflects a negative amount of -20.84 since the company was under the loss and reported a net loss of $202,949 million from its continuing operations.

Profitability Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2014-03	2015-03
Net Margin Ratio	-20.84	0.39

The net profit ratio for the financial year 2015 reflecting a positive view as it grew to 0.39% as the company reported a profit of $2,552 million. The return on capital and return on assets for the financial year of 2014 stood -32.73 and -26.49 respectively due to the significant and prolonged decline in the fair value of the cost of assets (Kim, et al., 2013).

Profitability	2014-03	2015-03
Return on Assets	-26.49	0.53

Analysis

This is due to the cumulative loss on acquisition cost and current value of market. However, the company reported a growth in 2015 with return on assets and capital employed stood 0.53 and 5.17 respectively since the company introduced the strategy of corporate turnaround to return to profitability.  

Profitability	2014-03	2015-03
ROEC	-32.73	5.17

 

The liquidity ratio is concerned with the liquid assets and the liabilities of a bank. The framework measures the ability of the company to pay off its long-term debts and liabilities as and when they become due. The liquidity ratio of Billabong consists of current ratio quick ratio along with inventory turnover ratio. The current ratio of the company seems to be stable as in the financial year of 2014 and 2015 represents 2.2 and 2.19 respectively. There is no such significant change in the ratio as the company is capable enough to pay off its long-term debt and short term liabilities (Kim, et al., 2013). While the quick ratio on the other hand represents 1.32 and 1.35 since the cash and cash, equivalents in the balance sheet stood 153, 334 and 145,070 respectively. The cash and cash equivalents consist of the deposits, which are held, in the financial institutions.   

Liquidity Ratio	2014-03	2015-03
Current Ratio	2.2	2.19

The Liquidity ratio is largely used to analyse the effective use of the company’s assets and liabilities internally. The ratio usually takes into the considerations the time it takes to collect cash from its customers and the time undertaken to convert its inventory in to cash (DoÄŸan, 2013). Thus, it is worth mentioning that whatever be the environment of the company it must make an optimum utilisation of its assets to understand the operational functionality.

Liquidity Ratio	2014-03	2015-03
Quick Ratio	1.32	1.35

The fixed assets turnover ratio of Billabong represents 1.27 and 1.35 for the financial year of 2014 and 2015 respectively. The financial assets were valued at fair amount and the profit and loss are subsequently carried at fair value. The translation differences between the two financial year is largely related to the change in the amount of amortised cost and other changes in the carrying amount were identified by Billabong.

Efficiency Ratio	2014	2015
Fixed Assets Turnover	10.53	11.44

The liquidity ratio of Billabong also consists of Receivables turnover, which represents the 6.26 and 6.61 for the financial year of 2014 and 2015 respectively. These changes represents that the receivables are identified at initially fair value on the date at which it is invoiced on a thirty-day policy (Bandt et al., 2014). They are represented as the current assets unless the collection is anticipated for more than 12 months after the balance sheet date. The inventory turnover ratio for the financial year 2014 and 2015 represents 2.49 and 2.7 respectively.

Liquidity Ratio	2014-03	2015-03
Inventory Turnover	2.49	2.7

Profitability

 This shows that those raw materials are determined by the organisation through using the FIFO method, which estimates the actual cost, involved including the direct materials and direct labour. The company allocates the inventory under the normal operating capacity after determining the rebates and discounts (Clor-Proell et al., 2015).

 On the other hand, the assets turnover ratio represents 1.27 and 1.35 for the financial year of 2014 and 2015 respectively. The assets are carried and amortised at cost by the organisation (Delen, et al., 2013). The company values the financial assets at fair value through the help of profit and loss account. It is worth mentioning that the financial assets are recorded on the date of trade on which the company commits its self to purchase or sell the assets of the ownerships. Management also classifies the assets at initial recognition date until it is held to maturity by re-evaluating the assets at the time of their disposal.     

The accounts receivables ratio shows the same amount for the financial year of 2014 and 2015 respectively with 20.46 is estimated as the average days of accounts receivable by the organisation (Sridharan, 2015). This represents that the collectability of the trade receivables is largely viewed because of ongoing accounting entries by the organisation. An allowance is also established by the organisation with the objective that group will not be able to collect all the amounts of the receivables. 

Gering ratio can be defined as the ratio, which compares the owners equity with the funds borrowed by the equity owners. The ratio is primarily concerned with the measurement of proportion of company’s borrowed funds in contrast to its equity. The gearing ratio of the company represents the figure of 0.76 and 0.91 for the financial year of 2014 and 2015 respectively (Robinson et al., 2015). The borrowing of company is usually recognised at the fair value for the net transactions cost incurred. Therefore, the ratio signifies that any difference between the proceeds and redemption amount should be recognised in the income statement over the period covered. On the other hand, the gearing ratio of the company also includes Debt ratio.

Gearing	2014-03	2015-03
Debt ratio	1.23	1.08

The debt ratio consists of 1.23 and 1.08 for the financial year of 2014 and 2015 respectively. The debt ratio indicates that the debts incurred by the company are at cost for the construction of qualifying assets are capitalised during a period of accounting year in order to complete and prepare the assets which is intended to be used for sale. Hence, the other borrowing cost consist of long term debt and expenses (Kim, et al., 2013).

Gearing	2014-03	2015-03
Interest Coverage	-0.64	0.41

Liquidity

The gearing ratio also consists of the interest coverage ratio which represents a negative value for the financial year of 2014 however, the ratio grew to a positive benchmark with 0.41 for the financial year of 2015.

Gearing	2014-03	2015-03
Gearing Ratio	0.76	0.91

Investing can be considered as a daunting task and very often a complex procedure. This ratio is largely used by the investors in order to estimate the attractiveness of a potential or existing investment opportunity in an organisation and obtain an idea of the valuation. Thus, this ratio primarily attempts to simplify the relationship between the money invested and the amount of profits derived from it (Clor-Proell et al., 2015). The investment ratio of Billabong consists of the earning per share. In the year 2014, the company reported a poor investing ratio with poor earnings per share of -1.43 for the financial year of 2014 where as in the year of 2015 the earning per share of the company however improved and moved towards positive scale with 0.02. The company reports the earning per share after adjusting the figure derived from the determination of basic earnings per share. Therefore, it should be noted that the weighted average number of additional ordinary shares is assumed to have been utilised by the company in the conversion of diluted potential ordinary shares. 

Investment ratio	2014-03	2015-03
Price Earning	-0.6713	60.5

The company reports that the basic amount of earning per share is computed through subdivision of profits, which is attributable to the equity holders of the company excluding the cost of servicing equity other than the non-ordinary shares (DoÄŸan, 2013). The earnings per share of the company is largely based on the weighted average number of the ordinary shares outstanding for the year which is adjusted with the bonus elements for the ordinary shares which is issued during the year after excluding the treasury shares. 

Investment ratio	2014-03	2015-03
Earnings Per Share SGD	-1.43	0.02

 

The efficiency ratio is used to analyse the procedure employed by the company to use its assets and liabilities internally. An efficiency ratio takes into the consideration the turnover which is receivables from the debtors along with the repayment of liabilities. Efficiency ratio on certain occasion looks to evaluate the cash collection period from the customers and the time it takes to convert the inventory into cash (Bandt et al., 2014). The efficiency ratio of Billabong represents receivables turnover. In the financial year of 2014, the receivable turnover represents 6.26, which considerably increased to 6.61 in the financial year of 2015.

Gearing ratio

The company follows the policy of valuating the receivables at fair value by subsequently measuring the amount at cost on a term of 30 days. On the other hand, efficiency ratio also includes the inventory turnover ratio with 2.49 and 2.7 for the financial year of 2014 and 2015 respectively. The inventory turnover rate was lower in the financial year of 2014 however; it grew to 6.61 for the financial year of 2015, which represents that the inventory is used at a faster rate for production of goods (Cantoni, 2012). The raw materials are determined at cost the company makes the use of First In and First out method in approximating the actual cost involved in inventory. The inventory is largely allocated at cost after subtracting the rebates and discounts. Fixed asset turnover ratio represents the figure of 10.53 and 11.44 for the financial year of 2014 and 2015 respectively. This largely because the assets are carried forward in the accounting year are amortised at cost, representing the present value of future amount of cash flow.

Efficiency Ratio	2014	2015
Asset Turnover	1.27	1.35

Conclusions and findings:

The financial statement of the organisation shows a contrasting view that the organisation does have a potential market share. Though the company was under loss for few years however with the implementation of new business policies it has been noticed that there has been an upward rising trend for the company in the parameters of earnings per share and working capital. The earnings per shares is one of the positive factor in terms of revenue growth. The comparative shows that firm is back on the path of progress through extensive research and developments. Thus financial provides a positive indication that company is deriving extra ordinary returns where the leverages (financials) are far above the ground and superlative due to its ROIs (Return on investments) is greater comparative to other relative costs and expense.

Speaking considerably about recommendations the operational efficiencies of the company is visibly having enormous spaces to develop and progress that subsequently increase margins. Billabong international should focus and line up its hard work to incorporate its resources with the capability to exploit the corporation vital competencies, potencies and opportunities as well. This will assist the company to achieve its competitive lead and increasing its worth as well as reducing production and management costs.

Therefore, the investigation performed under this report suggest that the company should diversify its product line through employing the promotional strategy of its existing product and emphasising the its potential investors to actively participate in the capital raising programme.Strategically, Billabong should protect the brands and to image monetarily. It is worth mentioning that the corporation should sufficiently spotlight on the formation of capital with the help of enhanced innovation and marketing. It is recommended that the company should reorganise its process of research and development approaches in order to remain ahead of its competitors and return to profitability.

Reference List:

Bandt, D., Camara, B., Pessarossi, P. & Rose, M., (2014). Regulatory changes and the cost of equity: evidence from French banks (No. 11). Banque de France.

Cantoni, E., (2012). Financial statement analysis and insolvency forecast models: a proposal for local firms. Economia Aziendale Online, (4), pp.1-17.

Clor-Proell, S., Koonce, L. & White, B., (2015). How do financial statement users evaluate hybrid financial instruments?.

Delen, D., Kuzey, C. & Uyar, A., (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications,40(10), pp.3970-3983.

DoÄŸan, M., (2013). Does firm size affect the firm profitability? Evidence from Turkey. Research Journal of Finance and Accounting, 4(4), pp.53-59.

Kim, S., Kraft, P. & Ryan, S.G., (2013). Financial statement comparability and credit risk. Review of Accounting Studies, 18(3), pp.783-823.

Li, K. & Mohanram, P., (2014). Fundamental Analysis: A comparison of Financial Statement Analysis Driven and Intrinsic Value Driven Approaches.

Robinson, T.R., Henry, E., Pirie, W.L. & Broihahn, M.A., (2015). International financial statement analysis. John Wiley & Sons.

Sridharan, S.A., (2015). Volatility forecasting using financial statement information. The Accounting Review, 90(5), pp.2079-2106.

van den End, J.W. & Kruidhof, M., (2013). Modelling the liquidity ratio as macroprudential instrument. Journal of Banking Regulation, 14(2), pp.91-106.