This report will provide the information of the Billabong International Limited financial performance for the years 2015 and 2016. The performance of this company is assessed through conducting ratio analysis technique to recommend whether the existing investor should continue to invest in the company or not and also to the potential investor whether to invest in the company or not. Further this report begins with the company overview followed by ratio calculation for the years 2015 and 2016 and ends with recommendations and conclusions.
Company Overview
Billabong derived from the word ‘bilaban’ which means ‘creek which goes only throughout the rainy period’. Billabong was established by Gordon Merchant in Gold Coast, Queensland, Australia in 1973. It has been part of the world for over more than 44 years. It is publicly listed company on Australia Stock Exchange (ASX: BBG) (ASX, 2017). Its headquarters is located in Queensland, Australia. It provides skateboards, snowboards, accessories, hardware goods and sports clothing under Billabong, Von Zipper, Xcel, Palmers etc. trade names. It also runs retail online e-commerce business (Billabong, 2017).
The company operates 407 retail outlets as on 30 June 2016 under name of Billabong, two seasons, element, Amazon, rush etc. Key executives are: Dr. Ian Pollard, he is the chairman of the company and Mr. Mcneil Seymour Fiske Jr., he is the Chief executive officer of the company (Bloomberg, 2017). The company sells sports products worldwide with more than 100 countries and about 10000 doors worldwide. The revenue is generated mainly from North America, Australia, Europe, Japan, Brazil, New Zealand etc. The Billabong employs approximately 5000 workforce and the products of this company are marketed and promoted by high profile events and athletes (Billabong International Limited, 2015).
Ratio analysis
Ratio analysis is very vital for the assessing economic performance of the company. It is the quantitative theory which determines the financial position in figures. It is also helpful in making comparisons from the previous year’s data. The required information is obtained from the Statement of financial position, statement of Income or loss and from the cash flows statement of Billabong International Limited for 2015 and 2016. In this report following ratios are determined such as Liquidity, profitability, efficiency, leverage and performance so as to evaluate the company’s performance.
Liquidity ratios:
This ratio determines the short-term creditworthiness of the company. It assesses the company’s ability to payback its financial obligations from existing resources whey they become due. In other words, it identifies the company’s capability to payback its immediate debts. The two common calculations covered under this ratio are current ratio and quick ratio. These ratios will measure the liquidity of the entity. This ratio is computed in times (Tracy, 2012).
(i). Current Ratio: This ratio measures the liquidity of the firm through establishing the relationship between current assets and current liabilities. Current ratio helps in finding out the ability of the company to disburse the current liabilities from the current assets.
Current ratio is computed as below:
Current ratio = Current Assets ÷ Current Liabilities
(ii). Quick ratio: It describes how well the companies can meet its current obligations with its most liquid assets. Mostly all the current assets are liquid that is they are quickly converted into cash except inventory. It is also termed as acid test ratio.
The formula for calculating quick ratio is:
Quick ratio = (Current Assets – Inventories) ÷ Current Liabilities
Examples of Current Assets are cash, prepaid expenses, marketable securities, accounts receivables, inventories and other financial assets.
Examples of Current Liabilities are Accounts payable, provisions, short-term notes payable and other financial liabilities.
Data taken from the consolidated balance sheet:
|
Particulars |
2016 ($’ 000) |
2015 ($’ 000) |
|
Total Current Assets |
464,454 |
523,753 |
|
Inventories |
185,556 |
187,125 |
|
Total Current Liabilities |
197,932 |
236,768 |
(Source: Appendix II).
Liquidity ratios for 2015 and 2016 are computed as follows:
|
Particulars |
2016 |
2015 |
|
Current Ratio |
2.35 |
2.21 |
|
Quick Ratio |
1.41 |
1.41 |
Liquidity performance evaluation:
Below is the assessment of Billabong International Limited performance by taking figures of 2015 and 2016.
Having said that, higher the liquidity ratios better is the wealth of the company that is company is able to meet its short-term liabilities when they come due.
Current ratio: The current ratio of 2015 was 2.21 which were increased to 2.35 in 2016 that indicates the short-term financial condition of the company is satisfactory.
Quick ratio: This ratio excludes inventories from current assets. In both years 2015 and 2016, the quick ratio remains constant that indicates Billabong can meet its short-term liabilities with most liquid assets very easily.
Profitability ratios:
The most frequently tools of ratio is profitability ratio because it determines the company’s overall efficiency and performance. The main aim of the company is to earn adequate profits. Some of the important profitability ratios are as follows:
(i). Net Profit Ratio: It is the main ratio of the profitability ratios. The high net profit ratio indicates company’s operations is efficient in converting revenue into actual profits. It is expressed in percentage form. The formula for calculating Net profit ratio is:
Net profit ratio = Net profit after Tax ÷ Revenue
(ii). Return on Investment (ROI): This ratio defines the overall profitability of the company. This ratio compared the net income and the capital employed. It is also known as Return on capital employed or rate of return. It is expressed in percentage form. The formula for calculating ROI is:
ROI = Operating profit or EBIT ÷ Capital Employed
Where,
Capital Employed = Total assets – current liabilities
(iii). Return on Equity (ROE): this ratio is very important for the investors of the company in deciding whether or not to invest in the company. It is expressed in percentage terms. The formula is:
ROE = Net profit after tax ÷ Stockholder’s equity
Data Taken from consolidated Balance Sheet and consolidated Income Statement:
|
Particulars |
2016 ($’ 000) |
2015 ($’ 000) |
|
Net Profit after tax |
(23,739) |
4,150 |
|
Revenue |
1,103,535 |
1,056,130 |
|
Stockholder’s Equity |
259,289 |
281,584 |
|
Operating Profit or EBIT |
18,455 |
10,047 |
|
Capital Employed |
546,316 |
567,212 |
(Source: Appendix II).
Profitability ratios for 2015 and 2016 are computed as follows:
|
Particulars |
2016 |
2015 |
|
Net profit ratio |
-2.15% |
0.39% |
|
ROI |
3.38% |
1.77% |
|
ROE |
-9.16% |
1.47% |
Profitability Performance Evaluation:
Below is the assessment of Billabong International Limited performance by taking figures of 2015 and 2016.
Net profit ratio: The above ratio shows declination in net profit over the previous year indicates overall profitability and effectiveness of the business is decreased. That means the company is incapable to convert their revenues into earnings for the stockholders (Tracy, 2012).
ROI: It indicates how efficiently company’s capital employed is used in the business (Friedlob and Welton, 2008). This ratio is the indicator of the overall financial position of the company. Further it also identifies the borrowing capacity of the company. In this case, ROI has increased over the year by 1.61% which means the company is well managing its investment in assets. Thus, the company is doing well.
ROE: This is very important for the point of view of investors. It calculates the return earned by the investors on their money invested. In this case, ROE is decreased tremendously in 2016 which indicates that the investors were not earned returns from their money invested (Roth, 2017).
Efficiency ratios:
This ratio measures the swiftness and the efficiency of the assets of the company in producing income. In other words, it describes how well the company is managing its assets and controlling their debts. This ratio is also termed as Activity ratios or turnover ratios (Australian institute of business, 2016). This is expressed in times. Some of the common efficiency ratios are discussed below:
(i). Inventory Turnover ratio: It helps in determining the inventory levels of the company. The High inventory turnover ratio indicates that the company is selling its inventories very frequently. This means the company’s inventory policy is efficient. The formula is:
Inventory Turnover ratio = Cost of sales ÷ Average Inventory
Where,
Average inventory = (opening inventory + closing inventory) ÷ 2
Cost of sales is also termed as cost of goods sold.
(ii). Accounts receivable turnover ratio: It indicates the rapidity of collecting the debts from the customers. Higher ratio indicates that the company is finding easy in collecting dues from the customers very quickly which shows that the chances of bad debts are also low and it increases the liquidity of the company. The formula is:
Accounts receivable turnover ratio = Revenue ÷ average accounts receivable
Where,
Average accounts receivable = (opening receivables + closing receivables) ÷ 2
(iii). Accounts payable turnover ratio: This ratio indicated how well the company is able to meet its immediate payments from its available resources. Higher ratio indicates that the accounts payable is paid very frequently and thus the creditworthiness of the company is satisfactory. The computation is as follow:
Accounts payable turnover ratio = Cost of sales ÷ average accounts payables
Where,
Average accounts payable = (opening payables + closing payables) ÷ 2
Data Taken from consolidated Balance Sheet and consolidated Income Statement:
|
Particulars |
2016 ($’ 000) |
2015 ($’ 000) |
|
Cost of sales |
542,373 |
495,308 |
|
Average inventory |
186,340.5 |
183,673.5 |
|
Revenue |
1,103,535 |
1,056,130 |
|
Average accounts receivables |
7,497 |
8,738.5 |
|
Average Accounts payables |
177,060.5 |
196,802 |
(Source: Appendix II).
Efficiency ratios for 2015 and 2016 are computed as follows:
|
Particulars |
2016 |
2015 |
|
Inventory turnover ratio |
2.91 |
2.70 |
|
Accounts receivables ratio |
147.20 |
120.86 |
|
Accounts payables ratio |
3.06 |
2.52 |
Efficiency Performance Evaluation:
Below is the assessment of Billabong International Limited performance by taking figures of 2015 and 2016.
Inventory turnover ratio: This ratio described the inventory levels of the company. In this case, inventory turnover trend is improving over 2015 which indicates that the Billabong sells its inventories very frequently and the company’s inventory policy is very effective.
Accounts receivables turnover ratio: It measures the company’s credit policies. Higher ratio indicates company is finding easy in collecting dues from the customers very promptly. In this case, receivables turnover trend is improving over 2015 which indicates that the Billabong collects debts from their customers very rapidly.
Accounts payables turnover ratio: This ratio measures the creditworthiness of the company. Higher ratio indicates that the company is paying its dues very promptly. As per this case, increasing ratio indicates that Billabong paying its debts very quickly.
Gearing (Leverage) ratios:
It compares the owner’s equity with borrowed funds. It assesses the company’s performance on long-term basis. It is used to evaluate the company’s survival at the time of financial downturn. The two most common calculations covered under this ratio are debt to equity ratio and interest coverage ratio. This ratio expressed in times.
(i). Debt to equity ratio: This ratio establishes the link between the long-term debts and stockholder’s equity. This ratio will evaluate the company’s long-term solvency position. The formula is:
Debt to equity ratio = Debt ÷ Equity
Where,
Debt = total liabilities
Equity = total stockholder’s equity
(ii). Interest Coverage ratio: This ratio is computed by dividing the operating profit or EBIT by the interest costs. Higher ratio indicates that the company paying its interest expense regularly. The formula for calculating interest coverage ratio is:
Interest Coverage ratio = Operating profit or EBIT ÷ Interest expense
Figures Taken from consolidated Balance Sheet and consolidated Income Statement:
|
Particulars |
2016 ($’ 000) |
2015 ($’ 000) |
|
Total Liabilities |
484,959 |
522,396 |
|
Total Stockholder’s equity |
259,289 |
281,584 |
|
Interest Expense |
34,350 |
30,242 |
|
Operating profit or EBIT |
18,455 |
10,047 |
(Source: Appendix II).
Gearing ratios for 2015 and 2016 are computed as follows:
|
Particulars |
2016 |
2015 |
|
Debt to Equity ratio |
1.86 |
1.86 |
|
Interest coverage ratio |
0.54 |
0.33 |
Gearing Performance Evaluation:
Below is the assessment of Billabong International Limited performance by taking figures of 2015 and 2016.
Debt to equity ratio: Generally, 2:1 is considered safe and sound. This ratio evaluates the company’s ability to pay its long-term liabilities. Hence, as per this case the debt to equity ratio is lower than 2:1 which states that adequate safety is provided to long-term lenders.
Interest Coverage Ratio: It identifies the company’s ability to meet the interest expense on time. The interest coverage ratio of Billabong in 2016 is higher from 2015 which clearly shows that company has enough profits to pay the interest obligations frequently.
Investment ratios:
Investment ratios are calculated to judge the company’s share performance. A most common investment ratio is earnings per share (EPS).
EPS = Net profit after tax ÷ weighted average number of shares.
Data Taken from consolidated Balance Sheet and consolidated Income Statement:
|
Particulars |
2016 ($’ 000) |
2015 ($’ 000) |
|
Net profit after tax |
(23,739) |
4,150 |
|
weighted average number of shares |
197,655,647 |
197,539,609 |
(Source: Appendix II).
Investment ratio for 2015 and 2016 are computed as follows:
|
Particulars |
2016 |
2015 |
|
EPS |
(12.0) |
2.1 |
Investment Performance Evaluation:
Below is the evaluation of Billabong International Limited performance by taking figures of two years i.e. 2015 and 2016.
As per the above calculation, it is clearly seen that Billabong does not distribute profits in 2016 to their shareholders as compared to 2015 because of loss incurred by the company. Further, it is noted that EPS does not considered by the investors for their investment decision making.
Conclusions
The clear picture of the company’s financial performance is evaluated through ratio analysis technique and also it provides the clear picture to the investors both existing and potential whether to invest or not.
Thus, it can be concluded that Billabong short-term performance is satisfactory as they can meet its current obligations on time. On the other hand, profitability performance is not sound because company has incurred loss in 2016. On the basis of efficiency, it is observed that inventory policy of Billabong is very well together with company are paying its dues on time and also collects debts from their customers very easily. In addition to this, it is also observes that Billabong is paying interest charges regularly and the long-term debtors are also protective. But the company is not able to generate returns for the members.
Recommendations
It is recommended that existing and potential investors should invest in the company for long-term purpose because in 2016 it has incurred huge losses but the overall performance of the company is quite satisfactory.
References
Australian Institute of Business. (2016). Financial Management. 7thEd.
Friedlob,G,T and Welton,R,E. (2008). Keys to reading an Annual Report. Barron’s Educational Series.
Tracy, A. (2012). Ratio Analysis Fundamentals. Ratio analysis. Net.
Roth, M. (2017). Top Stocks 2017: A Sharebuyer’s Guide to Leading Australian Companies. John Wiley & Sons.
Brigham, E.F. and Ehrhardt, M.C. (2016).Account Finance. Cengage Learning. pp.1-549.
Brigham, E.F. & Ehrhardt, M.C. (2016). Financial Management: Theory & Practice. 15th ed. Boston: Cengage Learning.
Bloomberg. (2017). Company overview of Billabong International limited. Retrieved on 24 May 2017 from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=1061739.
Billabong. (2017). Corporate Overview. Retrieved on 24 May 2017 from https://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-homeprofile.
Billabong. (2017). Reports. Retrieved on 24 May 2017 from https://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-reportsannual.
Billabong International limited. (2015). Annual general meeting and annual reports. Retrieved on 24 May 2017 from https://www.annualreports.com/HostedData/AnnualReportArchive/B/ASX_BBG_2015.pdf.
MorningStar. (2017). Billabong international limited annual report. Retrieved on 24 May 2017 from https://quote.morningstar.com/stock-filing/Annual-Report/2016/6/30/t.aspx?t=XASX:BBG&ft=&d=33d11f57842b80e3f98f2d3a357515ea.
ASX. (2017). BBG. Retrieved on 24 May 2017 from https://www.asx.com.au/asx/share-price-research/company/BBG.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download
