The Profitability Efficiency Liquidity Gearing and Investment Performance - Case Study Example

FINANCIAL ANALYSIS OF BILLABONG INTERNATIONAL LIMITED Student Name Institution 1. Profitability This analysis will show the use of profitability and asset efficiency 2014 2013 Profit margin ratio -22% -78% Gross profit margin 51% 52% Operating profit margin -18.6% -62% Return on assets -27% -56% Total asset turnover 1.2 0.7 Return on equity -0.84 -1.3 The gross profit margin has performed poorly in the year 2014 51% compared to year 2013 which had 52% .This is may be as a result in the company manufacturing operations , according to the company cost of production was at $ 555 .758M (2014,2014 P.76). This may occur due to increase in the material prices due to the inflation in the economy or non co-operation between manufacturers and the company. The other reason that may cause decline in profit margin may be the company decision to reduce the sales price of its products, this will greatly affect gross margin The increase in operation costs which comprised of selling, general administration expenses at $457.098M (2014, 2014 P.76) and other expenses $ 748.385M (2014,2014 P.76) which facilitated to the operation loss 2013 at -62% as compared to year 2014 where the operation cost was selling, general administration expenses at $466.634m(2014, 2014 P.76) and other expenses $ 166.722M (2014,2014 P.76) which facilitated to the operation loss 2014 at -0.18%. This trend is also experienced on the net profit margin ratio where it was percent loss of -78 %( 2013) and increased abit in to percent loss -22 %( 2014). The returned in assets where also affected by the unfavorable profitable ratio since it generated a loss $ 0.27 (2014) per each dollar use of the company assets when compared to a loss $ 0.56 (2013)\ The favorable performance was also witnessed in total asset turnover there is an increase of 1.2(2014) and 0.7 (2013) this may be as a result of company trying to utilize its assets in 2014 compared to 2013. This can as well be the company ability to determine the material mix and in a position to control the production costs. The return on equity also has a negative increase -0.84 (2014) this may be perceived as increase compared to the pervious year -1.3(2013) The reason for this negative increase occurred due to equity has reduced in 2014 to $ 259.036M compared to $ 312.067M in 2013(2014, 2014, 78) The decrease in the profitability ratio made the company to have a weak profitable performance this may be as a result of increase factory cost and other operational costs. This may occur due to the inflated material prices and which may be as a result of increased labor cost. 2. LIQUIDITY 2014 2013 Current ratio 2.2 1.02 Quick ratio 1.39 0.58 Cash ratio 64% 18% Working capital 270.13 9.873 The current assets have increased from 1.02 in 2013 to 2.2 in 2014, which may be as a result of the company paying its current liabilities frequently with its current assets. The main reason for the increase in the current ratio is due to decrease in borrowings in current liabilities of the company from $314.556m in 2013 to $7.358m (2014, 2014, P.48 The quick ratio also experienced a growth trend from 0.58 in 2013 to 1.39 in 2014. This is due to the company being in a position to pay off its debt current obligation with current asset when the value of stock is deducted. This favorable growth trend has lend to increase in working capital from $ 9 .873m in 2013 to 270.13m in 2014 .the reason for increase is due to great reduction in borrowing . The cash ratio has also increased from 18% in 2013 to 64% in 2014. The company cash management is hard since it is taking borrowing in 2014 3. GEARING 2014 2013 Times interest earned 6.76 76.42 Debt ratio 0.6 0.7 Debt to Equity ratio 1.91 2.77 The times interest earned has improved in the year 2014 at -6.76 compared to -76.4 in 2013 this implies the company profitability as a whole is worse. The company is having difficulties in paying its debts as borrowings and incapacity to contain the costs of production and operation. The debt ratio has reduced 0.6 in 2014 compared 0.7 in 2013 .this is due to increase in asset to total debt in 2014 while in 2013 the total debt has was higher compared to the total assets. The debt to equity ratio has shown similar trend to the debt ratio, this show weak profitability performance to the company in general. 4. EFFICIENCY Receivable turnover 2014 2013 Receivable turnover 5.51 4.58 Receivable turnover in days 67 days 80 days Inventory turnover 2.49 1.94 Inventory turnover in days 147 days 189 days The receivable turnover has improved to 5.51 in 2014 compared to 4.58 this shows increased rate of cash collection from the debtors. The receivable period has also decline from, 80 days in 2013 to 67days in 2014 following the trend of the receivable turnover. These improved results may be as a control measure by the management in regulating the credit period of the receivables i.e. reducing the credit period. The inventory turnover has improved in 2014 at 2.49 when compared 2013 at 1.94. This shows challenges in the product mix due to the external conditions of the market. The inventory turnover period has improved from 189 days in 2013 to 147 days in 2014 thus concurring the inventory turnover, this shows the management is trying to improve on the material mix by maximizing the sales output and reducing the dead stocks. The asset performance on the as a whole has improved thus portraying strong efficiency performance. 2014 2013 Price/earning ratio -0.04 -0.14 Dividend payout -0.017 -0.0009 Dividend yield 0.45 0.063 The earning per share of the company has increased from -132.4 in 2013 to -28.6 in 2014 This may give an upward trend to the investor but it is a negative performance figure, the investor wont be happy with this, this may be as a result of market conditions .the market price per share has declined from 1.9 in 2013 to 1.1 in 2014 this is because of increase in weighted average shares from 649 258 641 in 2013(2014, 2014, p .153 to 818 285 428 in 2014 (2014, 2014 p.153) The dividend payout is poor due to the worse performance of the company hence no dividends paid to the investors which will affect the investor’s perception. The dividend payout ratio is maintained at 45% in the 2014 to attract interest of investors since the negative performance of the company. Conclusion The company has mixed performance (both weak and strong performance). This may be due to hard economic conditions of the market thus affecting the overall company profitability The loss made by the company has greatly affected the gearing, investment and liquidity ratios. The overall company operation is not favorable to the potential and existing investors thus the interest will be hardly maintained. References Billabong International Limited (2013). Full Financial Report 30 June 2013 Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjEwMjA5fENoaWxkSUQ9LTF8VHlwZT0z&t=1 Billabong International Limited (2014). Full Year 2014 Preliminary Final Report and Full year Statutory Accounts. Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjQ5NTAxfENoaWxkSUQ9LTF8VHlwZT0z&t=1 Appendix A: Computation of Ratio Billabong In millions 2014 2013 source 2012 source (AUD) Current assets 495.8 622.368 p.62 898.92 p.48 Current liabilities 225.671 612.495 p.62 611.48 p.48 Cash and cash equivalents 145.07 113.837 p.62 317.26 p.48 Trade and other receivables 153.38 204.42 p.62 245.04 p.48 Inventories 180.22 266.8 p.62 293.2 p.48 Total assets 751.87 1,019.29 p.62 2,079.87 p.48 Trade and other payables 185.68 240.23 p.62 320.23 p.48 Non current liabilities 267.16 94.75 p.62 441.16 p.48 Total liabilities 492.83 707.23 p.62 1,052.6 p.48 Stockholders equity 259.04 312.07 p.62 1,027.27 p.48 Revenue 1,125.55 1,107.50 p.60 1,444.08 p.46 Cost of goods sold 555.76 541.47 p.60 765.31 p.46 Gross profit 569.70 566.3 p.60 678.77 p.46 Income before interest -135 .24 - 653.87 p.60 - 481.69 p.46 And taxes Finance costs 82.37 245.32 p.60 40.97 p.46 Net income before tax -135.23 -653.87 p.60 -522.67 p.46 Net income after tax - 209.8 - 683.7 p.60 -275.65 p.46 Basic earnings per share -28.6 -132.4 p. 153 -1.59 Diluted earnings per share -28.6 -132.4 p. 153 -1.58 Weighted average shares 818.828 649.258 p.153 303.50 p.124 Market value 1.1 1.9 Yahoo 1.08 Yahoo a) Profitability 2014 2013 Profit margin ratio Net income -239 933 -22% -863,002 -78% Sales 1125454 1107492 Gross margin Gross income 569,696 51% 566,026 52% Sales 1,125,454 1,107,492 Operating profit margin Operating profit -209, 812 -18.6% -683, 732 -62% Sales 1,125,454 1,107,492 Asset efficiency Return on assets Net income -239 933 -27% -863 002 -56% Average total assets (751 866+1019 292)/2 ( 1019292+ 2080684)/2 Total assets turnover Net sales 1125454 1107492 Average total asset (751 866+1019 292)/2 1.20 ( 1019292+ 2080684)/2 0.71 Return on equity Net income -239 933 -863 002 Average total equity (259036+312 067)/2 -0 .84 (312 067+1072 261)/2 -1.24 Liquidity ratio Current ratio Current assets 495 801 2.2 622 368 1.02 Current liabilities 225 671 612 495 Quick ratio Current assets - inventory 495 801 - 180 222 1.39 622 368 -266 806 0 .58 Current liabilities 225 671 612 495 Cash ratio Cash and cash equivalents 145 070 64% 113 837 18% Current liabilities 225 671 612 495 Working capital Current assets- current liabilities 495 801- 225 671 270 130 622 368- 612 495 9 873 Gearing Times interest earned -863 002 76.42 Net Income before interest -239 933 -6.76 11294 Interest expense 35539 Debt ratio Total debt 492 830 0.66 707 225 0.70 Total assets 751 866 1019292 Debt to Equity ratio Total debt 492 830 1.91 707 225 2.27 Total equity 259 036 312 067 Efficiency Receivable turnover Net sales 1125454 5.51 1107492 4.58 Average receivables (174 538+234 425)/2 (234 425+ 249 513)/2 Receivable turnover in days 365 365 67days 365 80days Receivable turnover 5.51 4.58 Inventory turnover Cost of goods 555 758 2.49 541466 1.94 Average inventory (180 222+ 266 806)/2 266 806+ 293 201)/2 Inventory turnover in days 365 365 147 days 365 189 days Inventory turnover 2.49 1.94 Investment ratios Basic Earning per share - 28.6 -132.4 Diluted Earning per share - 28.6 -132.4 Price per earning ratio Market price 1.1 -0.04 1.9 -0.14 Diluted earning per share -28.6 -132.4 Dividend payout Divided per share 0.5 -0.017 0 .12 -0.0009 Diluted earning per share -28.6 -132.4 Dividend yield Dividend per share 0.5 0.45 0.12 0.063 Market price 1.1 1.9 Read More