Billabong International Limited is an Australia-based company which wholesales and retails surf, snow, skate, sports apparel and equipment (Billabongbiz.com, 2010). The following report on Billabong is written for a current investor. The scope of the analysis spans 5 years from 2009 to 2013 and covers profitability, efficiency, liquidity, solvency and gearing ratios. The limitations of the analysis is that the data provided is in the month of July and the company’s financial health may fluctuate in other months. All calculations, analysis and further comments can be found in the appendixes attached.
Profitability
All profitability ratios for Billabong are negative for the company. As calculated in appendix 2.1, the return on equity ratio has declined annually and is at -4% in 2013. A high sustained ratio is attractive to any investor but Billabong’s ROE is undesirable. A downward trend is also seen for the return on assets ratio which has decreased from 13% in 2009 to only 2% in 2013. This means the company is unable to generate significant profits from the assets invested. The gross profit margin and profit margin show that Billabong is not making substantial earnings in 2012 and 2013. Comparatively, the cash flow to sales ratio also states that the business is not generating high earnings from their sales. Moreover, the company does not issue dividends in 2013 which is a large contrast to 2011 where the dividend payout rate was 115%.
Efficiency
The efficiency ratios are a mix of positive and negative aspects for the company. The asset turnover ratio has improved drastically over a period of 5 years. For an investment of $1, the company is able to produce $2 of sales revenue. Although the efficiency ratio may be positive, it is n...
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...not issue dividends in 2013. Secondly, the solvency ratios confirm the inability for Billabong to pay interests or repay their debts. Lastly, the business is funding their business with debt which is very risky. These debts are not used efficiently as the return on equity is continually depressed. It is not recommended for the current investor to continue his/her investment in Billabong. Furthermore, the current investor should sell off all their shares since the financial health of the company is deteriorating year by year.
Works Cited
Billabongbiz.com. (2010). Billabong biz: Behind the brand. Retrieved from http://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-irhome
Morning Star DatAnalysis. (2014). Billabong International Limited. Retrieved from http://datanalysis.morningstar.com.au.elibrary.jcu.edu.au/af/company/corpdetails?ASXCode=BBG&xtm-licensee=dat
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