The company under review is Billabong International limited whose core business includes marketing, distribution, wholesaling and retailing of the various apparels, accessories, eyewear, wetsuits and the hard goods which is mainly used in the business of sports sector. The company has about 5000 employees across the world and also, its shares are traded publicly on the Australian Securities Exchange.
The products of the company are licensed and are also distributed in more than 100 countries and are also available in across 10,000 doors across the world. The products of this company are distributed through the specialised board sports retailers and also through the own branded outlets of the company.
The major amount of the revenue is generated in the countries like Australia, North America, Europe, Japan, New Zealand, South Africa and Brazil.
The brand of the company are marketed and is also promoted internationally through the association of the high profile professional athletes, junior athletes and also the events (Billabong, 2017).
Ratio analysis:
This is the ratio which is the coverage ration which measures the amount of the income which is earned and it is used to cover the expense of the interest in the future.
In some of the respects as well, this ratio is often considered to be a solvency ratio since it measures the ability of the company to make the interest and the payments of the debt service. Since these are the payments that are usually paid once in a year, they are treated as the ongoing or the fixed expense. As most of the fixed expenses, in case the company makes the payments, then there is a chance that it would go bankrupt and even cease to exist. Hence, this is the ratio which is considered to be a solvency ratio (My accounting course, 2017).
The times interest earned has reduced since the amount of the earnings before taxation which is actually a loss has reduced and also, since there is an increase in the amount of the interest. This is bad for the company since the company has incurred a loss.
The amount of the profit of the company is divided by the number of the outstanding shares. The higher this ratio, the better it is for the company (Nasdaq, 2017).
Since the company has incurred a loss during the year, hence the loss per share has increased. The company will have to earn profit if it wants to pay something to its investors in the form of a return on their hard earned money or on their investment.
This is the financial and the liquidity ratio which compares the total debt that the company has to the total amount of the equity. The debt to equity shows the specific % of the company’s financing which comes from the creditors and the investors. This ratio must be higher which indicates that is an increased creditors financing which is used for the purposes of financing from the investment which is made from the investors (My accounting course, 2017).
The above ratio has increased which is good for the company since a higher ratio shows a more favourable business and hence, is good for the company. The company has a stable business when this ratio is higher.
This is the investment leverage or the solvency ratio which helps in measuring the amount of the assets that are employed in the company and when the same has been financed by the investment made by the owners of the company or shareholders in other terms. This is the ratio which highlights the financial concepts of a solvent and a sustainable business. The first component of the same is the fact that the assets are owned by the investors and after all these liabilities have been paid off, then the investors would end up with the remaining assets. The second component shows the leverage of the company which is the debt (My accounting course, 2017).
A lower ratio would indicate better results for the various stockholders as long as the company earns a good rate of return on the assets which is greater than the rate of the interest that is paid to the creditors. The ratio shows a decrease which is considered good for the company since a lower ratio gives better result for the company.
This is the ratio which is the efficiency ratio which helps in the measurement of the ability of the company to generate the sales from the employment of its assets when compared with the net sales of the company. This ratio shows the net sales as the % of the sales to show the amount of the sales which has been generated from each dollar of the assets of the company which have ben employed in the business of the company (My accounting course, 2017).
This ratio shows an improvement when compared with the previous year. The reason behind the same is the increase in the amount of the net sales and also a reduction in the total amount of the average assets.
This is the efficiency ratio which measures the number of times any business is able to turn into the accounts receivables into the cash during the stated period. The accounts receivable turnover ratio helps in measuring the number of times in which the average accounts receivables are collected during the year. Further, it also shows the efficiency of the company in the way in which the credit sales are collected from the customers by the company (My accounting course, 2017)
This is the ratio of liquidity and is also the efficiency ratio which helps in measuring the ability of the company to pay off its short term liabilities and this is done by the way of its current assets. This is the important measure when it comes to paying off the short term liabilities which are due within the next year (My accounting course, 2017).
This ratio shows an increase since there has been a decrease in the amount of the current assets and also in the amount of the current liabilities. The current assets of the company must be increased further so that this ratio could be improved even more. The higher this ratio, the better it is for the company.
This is the ratio which measures the ability of the company to repay the current liabilities as and when the same becomes due. These are the liabilities that are paid off through the use of the current assets within the period of 90 days. (My accounting course, 2017)
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This ratio shows a decrease since there has been a decrease in the amount of the current assets less inventory, quick assets and a decrease in the amount of the current liabilities. The company must make some efforts so that its net sales and hence, the accounts receivables could be improved.
This is the ratio which defines the net sales after the company has paid off all its cost of goods sold. It shows the relationship between the amount of the gross profit and the total amount of the net sales revenue (Accounting for management, 2017).
This ratio shows a decrease since the increase in the amount of net sales is less than the increase in the amount of gross profit the has been earned by the company. Also, the company must make efforts for increasing this profit (Accounting tools, 2017).
This is the ratio which shows the amount of the net profit after all of the expenses have been paid off from its net sales. This ratio shows a decrease since the increase in the amount of net sales is less than the increase in the amount of gross profit the has been earned by the company. Also, the company must make efforts for increasing this profit.
Conclusion
From the point of view from an investor, this company would not be good when it comes to making an investment. This is mainly due to the reason that the company has reduced or the falling ratios. These falling ratios shows inefficiency on the part of the management. Hence, the company must make some efforts so that its profitability could be improved. The steps that could be taken includes the following stated measures stated under the topic of recommendations.
References:
Accounting For Management. (2017). Gross profit (GP) ratio – explanation, formula, example and interpretation | Accounting For Management. [online] Available at: https://www.accountingformanagement.org/gross-profit-ratio/ [Accessed 24 May 2017].
Billabongbiz.com. (2017). Billabong Biz : Behind the Brand – Investors – Corporate Overview. [online] Available at: https://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-homeprofile [Accessed 24 May 2017].
Business.qld.gov.au. (2017). Tips for improving your business | Business Queensland. [online] Available at: https://www.business.qld.gov.au/running-business/growing-business/tips-improving [Accessed 24 May 2017].
Editors, R. (2017). 46 Tips to Help Improve Your Business | Reader’s Digest. [online] Reader’s Digest. Available at: https://www.rd.com/advice/work-career/46-tips-to-help-improve-your-business/ [Accessed 24 May 2017].
My Accounting Course. (2017). Accounts Receivable Turnover Ratio | Formula | Analysis | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/accounts-receivable-turnover-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Asset Turnover Ratio | Analysis | Formula | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/asset-turnover-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Current Ratio | Formula | Analysis | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/current-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Debt to Equity Ratio | Formula | Analysis | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/debt-to-equity-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Equity Ratio | Formula | Analysis | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/equity-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Quick Ratio | Acid Test | Formula | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/quick-ratio [Accessed 24 May 2017].
My Accounting Course. (2017). Times Interest Earned Ratio | Analysis | Formula | Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/times-interest-earned-ratio [Accessed 24 May 2017].
NASDAQ.com. (2017). Definition of “Earnings per share (EPS)” – NASDAQ Financial Glossary. [online] Available at: https://www.nasdaq.com/investing/glossary/e/earnings-per-share [Accessed 24 May 2017].
www.accountingtools.com. (2017). Net profit ratio. [online] Available at: https://www.accountingtools.com/net-profit-ratio [Accessed 24 May 2017].
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