Discuss about the Financial Statement Analysis of Billabong International.
Gordon Merchant founded Billabong in 1973 in Queensland, Australia. It was basically a surf company producing skateboards, snowboards, cloths and backpacks etc. Billabong is traded on Australian Securities Exchange from 11th August 2000.
By the late 1980s Billabong started to export its products outside Australia after its success in Australia. In its expansion strategy, it acquired “Von Zipper” an eyewear brand, “Kustom Surf Shoe” a shoe brand, “Nixon Inc.” a watch and accessories brand in the boards’ sports market till 2004. In 2007 it acquired the retail operations of the “Quiet Flight” an American retail company to operate in New York City. Further advancing in retail markets, Billabong acquired a UK based 13 store retail chain “Two Seasons” and a US based online retailer “Swell”.
Group Overview: The Group Billabong International Limited operated 424 retail stores as at 30th June 2014 but on the Financial Year ending 30th June 2015 these stores remained 404 in numbers. The downfall in different regions is as follows:
North America: Only 60 stores in 2015 remained as these were 64 in 2014.
Europe: Only 102 stores in 2015 remained as these were 111 in 2014.
Australia: Only 123 stores in 2015 remained as these were 128 in 2014.
New Zealand: Only 30 stores in 2015 remained as these were 35 in 2014.
Japan: 46 stores in 2015, one store has increased as these were 45 in 2014.
South Africa: Only 23 stores in 2015 remained as these were 27 in 2014.
Only one store increased over financial year 2014 in Japan during financial year 2015 and 21 stores over the entire world closed down during financial year 2015. (Investopedia, n.d.)
Revenue from continuing operations remained to $ 1,056,130,000 only for the year ended 30th June 2015 as this were $ 1,125,454,000 for the year ended 30th June 2014. The revenue from continuing operations has fallen down by $ 69,324,000 in financial year 2015; this may be the result of the closure of 25 stores of the group over the entire world and significant locations. This fall down of 6.16 % in revenue is a big loss to the company in 2015, the company should consider it as a serious threat. (Accounting Tools, n.d.)
Other incomes for the company were $ 10,790,000 for the year ended 30th June 2014 as this remained to only $ 10,553,000 for the year ended 30th June 2015. The company should consider increasing its other revenues to grow and prosper and to get competitive advantage. This downfall of $ 237,000 in its other revenues is a bad symbol for the company’s future prospect.
Cost of goods sold for the year ended 30th June 2014 were $ 555,758,000 over the revenue of $ 1,125,454,000 while it was $ 495,308,000 for the year ended 30th June 2015 over the revenue of $ 1,056,130,000. The cost of goods sold for the year ended 30th June 2014 was 49.38 % of that year’s revenue while this was 46.90 % for the year ended 30th June 2015. This shows the good performance of the company towards achieving efficiency in its operations. The company is working towards achievement for perfect efficiency and to be a cost leader in the industry by cutting down its costs. (Investopedia, n.d.)
Selling, general and administrative Expenses amounted to $ 466,634,000 for year 2014 and $ 429,614,000 for the year 2015. These were 41.46 % of the revenue for the year 2014 and 40.68% of the revenue for the year 2015. The company was able to cut down its expenses in the year 2015 as compared to year 2014 relatively. This shows the commitment towards obtaining efficiency in expenditures.
The other expenses for the company amounted to $ 166,722,000 for the year 2014 and $ 127,681,000 for the year 2015, on comparing these expenses according to the revenues this come as 14.81% for the year 2014 and 12.09% for the year 2015. This again is the result of the company’s commitment towards achieving the efficiency in expenditures and cutting down the different costs of the company. (Accounting Tools, n.d.)
Finance Cost of the company amounted to $ 82,366,000 for the year 2014 and $ 34,275,000 for the year 2015. The company was able to cut down the finance cost for the year 2015 by $ 48,091,000 which is very helpful to get the better returns for the owners of the company and increasing its net wealth. This will help directly in increasing the net profits of the company or reducing the net losses of the company.
In the year ending 30th June 2014, the company had a net loss for the year amounted to $ 239,933,000 which shows the company’s bad performance and inability to generate wealth for the company and its owners, while for the year ending 30th June 2015, the company earned a net profit of $ 2,552,000, which shows the company’s better performances over the last year. This is the result of the company’s strategy to achieve the efficiency in its operations and cutting down its expenditures. The company is improving as compared to last year and earning the wealth for the company. (Bhatia, A., 2012)
On analyzing the Balance Sheet of the Company for the two years, the intangible assets of the company had increased from $ 143,664,000 to $ 161,534,000 during the year 2014-15. This is due to profit on account of translation differences of $ 21,386,000 mainly and a very short addition in the finite life intangible assets of $ 3,207,000 & WIP of $ 6,255,000.
The Non Current Receivables of the company was $ 7,202,000 for the year 2015 and $ 10,275,000 for the year 2014, the company was able to recover the receivables of the worth $ 3,073,000. This will help the company to grow as this will add to the funds of the company and will equip the company with better investing options.
The trade and other receivables of the company have increased from $ 153,850,000 in 2014 to $ 164,504,000 in 2015 this shows the poor collection mechanism of the company for the trade receivables. The trade receivables management should work towards this area of the company for the better results and to increase the resources of the company for its working capital requirements. The working capital is much needed to finance the operations of the company and to prosper in the market efficiently. (Bhatia, A., 2012)
The Inventories of the company have increased to $ 187,125,000 in the year 2015 from $ 180,222 in the year 2014. This will increase the storage cost of the company and shows poor inventory turnover. The inventory management of the company should work towards this area to minimize the different costs associated with the inventory and work towards better inventory turnover ratio. Out of the inventories stored by the company, the inventory of the finished goods is more than the Raw materials and WIP items; the sales department is also responsible for the low inventory turnover of the finished goods.
The other current assets of the company show the Forward foreign exchange Contracts with the company in the year 2015 for $ 3,879,000 which was $ 91,000 only in the year 2014. This is the better financial position of the company as this will generate revenues for the company in the near future.
The property, Plant and equipments of the company include an increase in the furniture & fittings in the year 2014 for $ 15,975,000 and for $ 21,243,000 in the year 2015, and disposals in furniture & fittings worth $ 467,000 in the year 2014 and $ 1,216,000 in the year 2015 except these there were no addition and no disposals in the fixed assets of the company.
The Trade and Other Payables of the company have increased from $ 185,687,000 in the year 2014 to $ 207,917,000 in the year 2015 which is a very high increase in the liabilities of the company and affects the financial position of the company adversely.
Further we can analyze the financial performance & financial position of the company with the help of financial ratio:
|
1. Current Ratio |
||||
|
Particulars |
2015 |
2014 |
2013 |
2012 |
|
Current Assets ($000) |
5,23,753.00 |
4,95,801.00 |
6,22,368.00 |
8,98,921.00 |
|
Current Liabilities ($000) |
2,39,045.00 |
2,25,671.00 |
6,12,495.00 |
6,11,443.00 |
|
Current Ratio [(Current Assets/Current Liabilities *100)] |
2.19 |
2.20 |
1.02 |
1.47 |
Current Ratio measures the liquidity of the company. With the help of current ratio the liquidity position of the company is being measured. What is the position of the liquid fund in the company? According to the above observation Liquidity position of the company is strong. Liquidity position of the company is positive as compared to last year. According to the industry standard Current Ratio should be 2 and the same is high in case of company. Hence we can conclude the liquidity position of the company is sound.
|
2. Quick Ratio |
||||
|
Particulars |
2015 |
2014 |
2013 |
2012 |
|
Liquid Assets ($000) |
3,36,628.00 |
3,15,579.00 |
3,55,562.00 |
6,05,720.00 |
|
Current Liabilities ($000) |
2,39,045.00 |
2,25,671.00 |
6,12,495.00 |
6,11,443.00 |
|
Liquid Ratio [(Liquid Assets/Current Liabilities *100)] |
1.41 |
1.40 |
0.58 |
0.9 |
Quick Ratio of the company is used to measure real liquidity position of the company. It measures the highly liquid fund if the company. In this case liquidity ratio of the company is showing increasing trend. The Quick ratio should be near 1.5 as per industry standard. Thus in this case the company is having sound liquidity ratio.
|
3. Debt to Equity Ratio |
||||
|
Particulars |
2015 |
2014 |
2013 |
2012 |
|
Debt ($000) |
2,59,950.00 |
2,12,033.00 |
5,916.00 |
2,49,069.00 |
|
Equity ($000) |
2,81,584.00 |
2,59,036.00 |
3,12,067.00 |
10,72,261.00 |
|
Debt to Equity Ratio |
0.92 |
0.82 |
0.02 |
0.2 |
Debt to Equity ratio measures the capital structure position of the company. How much debt is in the proportion of equity in the capital structure of the company is being measured. Proportion of debt is increased in the capital structure of the company as compared to last years. This represents that the risk is increased and cost of the fund is minimized by the company. According to industry standard it should be 0.5 and in this case it is high. (My Accounting Course, n.d.)
|
4. Debt to Asset Ratio |
||||
|
Particulars |
2015 |
2014 |
2013 |
2012 |
|
Debt ($000) |
2,59,950.00 |
2,12,033.00 |
5,916.00 |
2,49,069.00 |
|
Asset ($000) |
8,03,980.00 |
7,51,866.00 |
10,19,292.00 |
20,80,684.00 |
|
Debt to Asset Ratio |
0.32 |
0.28 |
0.01 |
0.12 |
Debt to Asset Ratio represents the percentage of debt in relation to total assets. Debt should be low and in this case debt is low but the same is increased as compared to last year. The company is trying to increase debts in the capital structure. The ratio is 0.32 in the year 2015 as compared to 0.12 in the year 2012. (Accounting Coach, n.d.)
|
5. Gross Profit Ratio |
|||
|
Particulars |
2015 |
2014 |
2013 |
|
Gross Profit |
5,60,822.00 |
5,69,696.00 |
5,66,026.00 |
|
Sales |
10,56,130.00 |
11,25,454.00 |
11,07,492.00 |
|
GP Ratio [(Gross Profit/Sales *100)] |
53.10 |
50.62 |
51.11 |
Gross Profit Ratio of the company represents how much the company is earning on the product without deducting any administrative or indirect expenditure. It represents the difference between revenue and cost of goods sold. The Company is earning with a growth rate as compared to last years. Gross Profit ratio of the company is 53.10 in the year 2015 as compared to last year 50.62 which is showing increasing trend. If the company is showing increasing trend that means company is growing and growth of the company in future will be in multiplier. (My Accounting Course, n.d.)
|
Particulars |
2015 |
2014 |
2013 |
|
Net Profit |
2,552.00 |
-2,39,933.00 |
-8,63,002.00 |
|
Sales |
10,56,130.00 |
11,25,454.00 |
11,07,492.00 |
|
NP Ratio [(Net Profit/Sales *100)] |
0.24 |
-21.32 |
-77.92 |
Net Profit of the company is representing what the company is earning in net to provide return to its shareholders. The Company is bearing losses continuously in the year 2013 and 2014. In the year 2015 company is earning profit or we can say company is over Break Even Point. The Company is earning with increasing rate which is showing that growth of the company is high in the future. Net Profit Ratio of the company is 0.24 in the year 2015 as compared to losses in the previous years. (My Accounting Course, n.d.)
|
7. Debtors Turnover Ratio |
|||
|
Particulars |
2015 |
2014 |
2013 |
|
Sales |
10,56,130.00 |
11,25,454.00 |
11,07,492.00 |
|
Accounts Receivables |
1,64,504.00 |
1,53,850.00 |
2,04,429.00 |
|
Debtors Turnover Ratio [(Sales/Accounts Receivable)] |
6.42 |
7.32 |
5.42 |
Debtors Turnover Ratio of the company is represent the times in which debtors are converted into sales. According to the industry it should be high. In this case it is 6.42 in the year 2015 as compared to 7.32 in the year 2014. It is low as compared to last year. The Company is not performing well in the year 2015. The Company should try to improve its debtors turnover ratio so that profits will increase. (My Accounting Course, n.d.)
|
8. Stock Turnover Ratio |
|||
|
Particulars |
2015 |
2014 |
2013 |
|
Sales |
10,56,130.00 |
11,25,454.00 |
11,07,492.00 |
|
Stock |
1,87,125.00 |
1,80,222.00 |
2,66,806.00 |
|
Debtors Turnover Ratio [(Sales/Accounts Receivable)] |
5.64 |
6.24 |
4.15 |
Stock turnover ratio represents the no. of times stock has been converted into sales. It should be high as high ratio is preferable. If ratio is high the profits are also high. The Company should perform to increase its Stock turnover Ratio. Stock Turnover Ratio of the company is 5.64 in the year 2015 as compared to 624 in the year 2014. It is showing decreasing trend which is presenting poor performance of the company. The company should try to improve its performance. (Accounting Coach, n.d.)
Conclusion and Recommendation:
The Financial Performance of the company is sound. The Financial Performance is showing increasing trend. However the company was bearing losses up to 2014. It is represented from the financial statement of the company that company is growing over the period. With the help of Growth rate in previous year it can be presented that the company will grow with a multiplier rate in the future. The Company should increase its sales revenue. From the point of view of investor i suggest that investment should be made in the company as company is growing with a constant rate. Financial position of the company is also sound. It is reflected from the capital structure ratios that the company is increasing debts in its capital structure and trying to minimize the cost of fund. It is in the benefit of its stakeholders. I recommend to invest into the company to earn more return and fund is also secured. The Company is also having highly liquid fund and the investor should invest into the company.
References:
Investopedia, n.d., Financial Statement Analysis, [Online], Available at https://www.investopedia.com/terms/f/financial-statement-analysis.asp [Accessed on 23/01/2017]
Accounting Tools, n.d., Financial Statement Analysis, [Online], Available at https://www.accountingtools.com/financial-statement-analysis [Accessed on 23/01/2017]
Ready Ratio, n.d., Financial Statement Analysis, [Online], Available at https://www.readyratios.com/reference/analysis/financial_statement_analysis.html [Accessed on 23/01/2017]
Bhatia, A., 2012, Financial Statement Analysis, [Online], Available at https://www.slideshare.net/AnujBhatia3/financial-statement-analysis-15102101 [Accessed on 23/01/2017]
My Accounting Course, n.d., Ratio Analysis, [Online], Available at https://www.myaccountingcourse.com/financial-ratios/ [Accessed on 23/01/2017]
Investopedia, n.d., Ratio Analysis: Using Financial Ratios, [Online], Available at https://www.investopedia.com/university/ratio-analysis/using-ratios.asp [Accessed on 23/01/2017]
Accounting Coach, n.d., Ratio Analysis, [Online], Available at https://www.accountingcoach.com/financial-ratios/explanation [Accessed on 23/01/2017]
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