The analysis shows that the overall performance has grown. The ratio analysis shows a sound liquid position by having a quick ratio above 2.5 it shows the ability to meet the immediate obligations which are even highlighted in the long term liability where the company has more equity than debt. With regard to the turnover ratio, it shows soundness in policy as the company recovers money from the debtors in 77 days but pays in 104 days. This enables the company to use money efficiently and build a better reputation. The concern for the company is a dip in profits to 18% owing to the growth in indirect expenses.
Despite declaring dividends and having a sound EPS profits seems to be a consideration that needs to be worked upon. The financial analysis thus shows improvement in certain areas and areas where it needs to work upon. This will help the company to grow and ensure better returns and policies in the future. Introduction Billabong International Ltd which started in 1973 deals in surf, skates, and snow apparel and accessories. The company operates over different countries by having a presence in Australia, New Zealand, South Africa, and others where it operates both through the wholesale and retail format.
The company by dealing with products that are scarce has been able to grow since its operations from 1973. The company has an employee base of more than 1800 employees. Added with the geographic location the company has been able to improve its sales over the 2600 locations. The increased nature of adventurous tours has bound the sales to grow further and will help them consolidate their position in the market. Financial Analysis The financial analysis defines the success of every business.
A careful analysis of the financials helps to “ plan, budget, monitor, forecast and improve so that useful decisions can be taken accordingly” . (Financial Ratio, 2011) The following is the ratios for Billabong International Ltd Profitability Ratios The profitability ratios are as follows Gross Profit Margin: It is calculated as “ Gross Profit / Sales X 100” . (Gross Profit, 2011) The graph for the ratio looks as The ratio shows a fall in profit from 55.11% in 2008 to 53.39% in 2009.
This is due to the increase in expenses. The company needs to reduce the direct expenses as gross profit has a bearing from direct expenses. This will help to ensure smooth manufacturing for the company thereby generating sufficient returns. Profit Margin: It is calculated as “ Earnings before Interest and taxes (EBIT) / Sales X 100” . (Net Profit, 2011) The graph for the ratios is as Net profit has fallen to 12.31% from 18.13% on account of indirect expenses. The company needs to reduce the indirect expenses as the change from gross profit to net profit is very high and is due to indirect expenses. Return on Assets: It is calculated as “ Earnings before Interest and Taxes (EBIT) / Average assets X 100).
(Kennon, 2011) The graph for the ratios is as The return on assets has fallen to 9.28% from 15.11%. This signifies that the assets are being underutilized. This is due to the rise in indirect expenses high is affecting the return on assets. This is making the company carry more assets than required thereby hampering the growth for the equity shareholders.
Return on Equity: It is calculated as “ Net Profit / Average Equity X 100” . (Kennon, 2011) The graph for the ratio is as follows The return on equity has decreased from 22.18% in 2008 to 12.99% in 2008. This is due to a decrease in net profits. The company needs to take steps to revive the profits else investor might withdraw money in some other share thereby having a double effect on growth Asset Efficiency Ratios The operating ratios are as follows Asset Turnover Ratio: It is calculated as “ (Sales Revenue / Average Total Assets)” .
The graph for the ratio is as follows The ratio has decreased slightly from 0.83 to 0.75 in 2009. This shows that the company has more assets and efficient in using them has reduced. They need to improve the usage of the assets so that fewer funds are parked in assets and used elsewhere. Days Inventory: It is calculated as “ Average Inventory / Cost of Sales X 365)” . (Schreibfeder, 2011) The graph for the ratio is as follows The day’ s inventory has increased to 97.13 from 114.52 in 2008. This shows better policies in using inventories.
This is due to proper ordering limits and economic order quantity being sound by the company. This has helped to reduce the expenses associated with storage and will pay rich dividends in the long run.
Liquidity Ratios, 2011, “Financial Statement Analysis: Liquidity ratios”, retrieved on February 2, 2011 from http://www.creditguru.com/ratios/ratiopg1.htm
Kennon J, 2011, “Return on Assets”, about.com guide, The New York Times Company retrieved on February 2, 2011 from http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm
Kennon J, 2011, “Return on Equity”, about.com guide, The New York Times Company retrieved on February 2, 2011 from http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-return-on-equity.htm
Schreibfeder J, 2011, “Why is Inventory Turnover important”, retrieved on February 2, 2011 from http://www.effectiveinventory.com/article2.html
Gross Profit, 2011, “Gross Profit Margin”, Bizzed, retrieved on February 2, 2011 from http://www.bized.co.uk/compfact/ratios/profit3.htm
Net Profit, 2011, “Net Profit Ratio”, accuntingformanagemnt.com retrieved on February 2, 2011 from http://www.accountingformanagement.com/net_profit_ratio.htm
Receivable Turnover, 2010, “What is the Account Receivable Turnover Ratio”, accounting coach retrieved on February 2, 2011 from http://blog.accountingcoach.com/receivables-turnover-ratio/
Financial Ratio, 2011, “Financial Ratio Analysis”, retrieved on February 2, 2011 from http://www.finpipe.com/equity/finratan.htm
Capital Structure Ratios, 2011, “Capital Structure Analysis Ratios Homework held Tutoring”, retrieved on February 2, 2011 from http://www.tutorsonnet.com/homework_help/capital_structure_analysis_ratios/capital_structure_analysis_ratio_assignment_help_online_tutoring.htm