The paper "Financial Statement Analysis - Billabong International Ltd" is a perfect example of a finance and accounting assignment. Recasting a financial statement such as consolidated income statement or a balance sheet is the taking of present historical statements and presenting them in a more consistent and precise manner to reflect profitability, cash flow and asset base of the business (Palepu, Healy, Bernard, Wright, Bradbury, and Lee P 2010). In the recast income statement, there is the inclusion of sales and cost of sales whose addition results to a higher Gross profit for 2011 than that of 2010.
When evaluating a company, gross profit is incredibly imperative since it points out how resourcefully management makes use of the workforce and supplies in the process of production (Palepu et al. , 2010). More distinctively, information of this type can facilitate the determination of gross profit margin which is a very important ration in indicating the possible red flags for a business (Ferguson, 2003). The recast financial statement also indicates the inclusion of both interest income and interest expenses. This is to basically give the precise figures of these parameters so that a true value of overall expenses is arrived at.
This true value will eventually lead to the accurate computation of Net profit. The interest income and expenses as well reveal to the management and investors the actual benefits of interests from other non-core investments and whether or not they ought to be pursued (Friedlob, and Schleifer, 2003). There are other several items that have been shown in the income statement recast. Justifications for Income Statement classifications (using additional information available from notes to actual financial statements): Other operating income: this entails royalty income, related directly to Billabong brands, and other income related to continuing operations (Billabong, 2011, Note 5). Other expense: this entails items from continuing operations, not related directly to operations, including depreciation, loss on disposal of property plant & equipment, foreign exchange loss, inventories losses on write down to net realizable value and doubtful & bad debts expense (Billabong, 2011, Note 7). In regards to the balance sheet, the recast model describes cash equivalent assets as marketable securities.
This is important in explaining the deeper meaning of some financial aspects (Bragg, 2007).
In the consolidated balance sheet, debt is merely indicated under both current and non-current liabilities as borrowings. Justifications for Balance Sheet classifications (using additional information available from notes to actual financial statements): Accounts Payable: this entails trade payables and other payables, categorized jointly in real financial statements. Long term debt: this entails non-current borrowings and deferred payment. This was recognized in Note 1 to the financial statements (Billabong, 2011) as being revealed at discounted current value, hence meaning an interest rate adjustment has been taken care of. Question two: Financial Analysis In the most logical sense, there is a stagnation of Billabong from 2007 to 2011.
There are very apparent and noticeable changes that can be discussed when comparing the performance of the two financial years of Billabong international limited. First of all the gross revenue has taken an upward trajectory of growth since 2007 a sure sign that the company is enjoying a bigger share of the market or that its market is steadily growing with time as they advance their operations (William, 2003).
Palepu, K, Healy, PM, Bernard, VL, Wright, S, Bradbury, M and Lee P 2010, Business Analysis and Valuation Using Financial Statements: Text and Cases, Cengage Learning: Australia.
Billabong International limited Financial Report 2011.
Recast consolidated Income statement of Billabong for 2007
Bragg, MS 2007, Financial Analysis: A Controller's Guide ,Wiley: New York.
Friedlob, GT and Schleifer LF 2003, Essentials of Financial Analysis, John Wiley and Sons: New York.
Kontoghiorghes, EJ 2007, Optimisation, Econometric and Financial Analysis, Springer: Verlag
Ferguson, Stuart 2003, Financial analysis of M&A integration, McGraw-Hill: Sydney
William, WA 2003, The Corporate Merger, Beard Books: Texas