Debt and Equity Valuation of Billabong International Ltd

ACCOUNTING AND
FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(I) DEBT VALUATION..................................................................................................................1
1. Short and long term debts used by Billabong International Ltd.........................................1
2. Debt structure of firm along with industry.........................................................................1
3. Influence of industry on short and long terms debt's proportion........................................1
4. Cost of debt of the Billabong company..............................................................................1
(II) SHARE VALUATION..............................................................................................................2
1. Cost of equity of Billabong Ltd..........................................................................................2
2. Evaluating as well as discussing business performance using revenue, earnings, EPS,
dividends and growth.............................................................................................................2
3. Value of Billabong using P/E ratio and dividend growth rate model.................................3
4. Most reasonable value of Billabong company...................................................................4
5. Additional data which required for business valuation......................................................4
(III) COST OF CAPITAL................................................................................................................4
1. Computing weighted average cost of capital (WACC) of Billabong Ltd..........................4
2. Explaining tax rate of Billabong firm.................................................................................5
3. Difference in cost of debt as well as equity........................................................................5
4. Explanation about including current liabilities in cost of capital.......................................5
5. Value of WACC and its application...................................................................................6
6. Use of WACC for making investment decisions in projects..............................................6
7. Capital structure of Billabong company.............................................................................6
8. Optimal capital structure and elements create impact on it................................................6
(IV) MARKET ANALYSIS............................................................................................................6
1. Comment on Billabong's business performance................................................................6
2. Review of different kinds of literatures about Billabong Ltd.............................................6
3. Thing which differs for the firm.........................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In a particular industry or market, when an organisation operates then must compute its
value which helps to take various business decisions in a fruitful direction. The present study
focuses on Billabong International Limited company which is a public firm and operates in a
retail industry within the Australian economy. The current project reflects on debt as well as
equity or share valuation of the selected firm. Apart from this, cost of capital and market of
Billabong enterprise are analysed in the present assignment.
(I) DEBT VALUATION
1. Short and long term debts used by Billabong International Ltd.
In order to raise fund within company for different projects, an organisation uses wide
range of sources which are for long and short term both. The Billabong International Limited
company uses borrowing and current tax liabilities for raising capital for the short period. Apart
from this, for the long term, it considers bank borrowings which is in form of bank loan. Cost of
capital on bank borrowings which is used for short and long term is interest rate which varied in
accordance with the market situation. At the end of FY 2017, bank borrowings of Billabong for
shortt and long terms are worth of $4207 and $216114 respectively.
2. Debt structure of firm along with industry
The proportion of the debt to equity of Billabong company is 1.30 which reflects that
majority of the capital is raised by considering debt source. On the other side, it uses the equity
financing source at the very rare time. When looking at the capital structure of retail industry
then it can be seen at 0.53 which better in comparison to the cited business.
3. Influence of industry on short and long terms debt's proportion
In the retail industry, specifically apparel market level of competition is very high or of
the cut-throat position. Due to this, the Billabong has to produce unique, innovative and higher
quality of the goods and services. For this particular situation, huge amount requires which create
directly impact on short and long term debt up to the greater extent (Dempsey, 2013).
4. Cost of debt of the Billabong company
Interest expense 28.71
Book value of debt 184.87
1