Billabong International Limited Financial Statement Analysis

The report provides an overview of Billabong International Limited's financial performance, ratio analysis, global review, impact of GFC, and critical factors of financial viability. The company's liquidity, asset management, profitability, and leverage ratios are analyzed. The report also discusses the impact of the global financial crisis and the company's market position among competitors.

Running Head: FINANCIAL STATEMNET ANALYSIS 0
Billabong International Limited
Financial Statement Analysis

FINANCIAL STATEMNET ANALYSIS 1
Executive Summary
The below report provides an overview about an Australian Company Billabong International
which deals in clothing segment of the industry. An in depth analysis of the financial
performance of the company has been done along with the ratio analysis. Further, the global
review is also done to view the market position of the company in terms of its competitors.
Also the impact of the global financial crisis has been undertaken and the list of events that
lead to this kind of financial position has also been discussed relevantly.

FINANCIAL STATEMNET ANALYSIS 2
Table of Contents
Introduction................................................................................................................................2
Financial Performance...............................................................................................................2
Financial issues.......................................................................................................................3
Global Overview........................................................................................................................3
Average Price Comparison........................................................................................................4
Events Branding and Market position........................................................................................5
Impact of GFC........................................................................................................................6
Critical Factors of financial viability......................................................................................7
Ratio Analysis............................................................................................................................7
Liquidity ratios.......................................................................................................................7
Assets management ratio........................................................................................................9
Fixed asset ratio..................................................................................................................9
Profitability Ratios................................................................................................................11
Profit Margin.....................................................................................................................12
Return on Assets...............................................................................................................13
Return on Capital Employed.............................................................................................13
Leverage Ratios....................................................................................................................14
Debt to Equity Ratio.........................................................................................................15
Asset to Equity Ratio........................................................................................................15
Debt to EBITDA...............................................................................................................16
Conclusion................................................................................................................................16
References................................................................................................................................17

FINANCIAL STATEMNET ANALYSIS 3
Introduction
Billabong Australia is a surf company, primarily a clothing retailer which is also involved in
the businesses of wide range of accessories such as backpacks, skate boards and products
related to snowboard. This company came into existence on 1973 by Rena merchant and
Gordan and was founded in the Gold coast, Queensland. On 11th of August 2000, the
company was first traded on the Australian Securities Exchange. The name of the company
was derived from the word “bilaban” which means a creek that is operating only in the rainy
season. The most prominent and futuristic brands owned by the company billabong are Von
Zipper and Element.
Financial Performance
EBITDA of the brand Billabong escalated by $7.5 million globally in contrast to the sales
which want down by 0.8%. This reflects the contraction of the plan in the Europe and to
deliver the whole attention on key accounts and revenue shall be not only quantity wise but
also shall account for quality. Outside Australia the market coverage of the Billabong grew
by 13.2% (Annual reports, 2018).
For RVCA the investment was heavy and high in the area of marketing to drive the growth of
the product globally. Though the EBITDA rise by only $0.5 million yet the initiative led to
sales grew by 12.8% outside the region (Annual reports, 2018). Also in Asia pacific region
the sales were above by 30%.
Lastly the Element brand was also playing a vital role in reshaping the position of the
organisation. EBITDA was up by $3 million and on the contrary the sales were down 9.7%.
However, element’s covered the largest market, were up 5.6% (Annual reports, 2018).

FINANCIAL STATEMNET ANALYSIS 4
The financial results of the company after the Net Profit after Tax for the full year to 30th
June were $4.2 million, compared to $233.7 million loss for the previous year entirely. It was
almost a surprise for the company as it returned to full year EBITDA after the year 2008. The
overall result which was derived after eliminating certain items and discounted business the
value amounted to $65.7 million. Also when compared to the previous year the result was up
by 8.9% (Corporate Finance Institute, 2016).
Financial issues
Due to the initial recovery of the company the dividend was not allocated for the year 2015.
For the year 2016-2017 the EBITDA was of $10.8 million for as compared to $21.8 million
of the previous year. If the performance is reviewed from the regional side than the EBITDA
of $11.9 million for the Asia Pacific was highest. EBITDA was $4.8 million for the American
region and $1.3 million for the European region (Annual reports, 2018). On the contrary in
terms of the revenue, the revenue of the American region was highest 1.1% higher, otherwise
for both the European region and Asia pacific region the revenue was 6.5% lower and 3.7%
lower respectively (Sarlin, 2015).
Global Overview
 Strong second half lifts EBITDA to $51.1 million up by 2.8%. The results mark a
turning point for the company to build itself for long term.
 Europe also rebounded after facing the tough market conditions.
 Totals sales are of $974.7 million exclusive of Tigerlily and Sector 9.
Particulars Asia Pacific American European
Bricks and
Comparable Store
0.8% higher 0.7% higher 2.3% down

FINANCIAL STATEMNET ANALYSIS 5
Gross Margin 120 basis point 110 basis point 100 basis point
Ecommerce 28.7% growth Grew by19.5% A growth of 15.1%
Revenue 6.6% lower 1.15% higher 3.7% lower
Income Tax Expense $2.2 million $2.8 million $2.1 million
Average Price Comparison
(Source: Edited, 2017)
The above table determines the average price for each garment in comparison to its
competitors among various ranges. Due to increase in the prices the company faced a lot
of issues in terms of keeping competitive prices (Lacinka, Fathoni and Gagah, 2018).

FINANCIAL STATEMNET ANALYSIS 6
Events Branding and Market position
These events provide a wide range of platform through which the company can take
challenge itself for revamping the business to support our world class brands. The year 2014-
2015 has been year of the rebuilding because of the fact that the company was returning to its
original profit state after 2011 (Annual reports, 2018). The performance was achieved
specially by having a team which is focused globally and uniformly. The company had strong
collaborations and relations both within the region as well as in the brands (Sarlin, 2015).
After an in depth analysis the company sold the interest in SurfStitch and the completely
owned Swell in September 2014. Due to this step the transactions were retrieved and entire
control was given to the company. The previously licensed websites which were allocated for
the SurfStithc also retains the supply agreements in bulk (Annual reports, 2018).
The second move was towards the mono brand focus and in particular the major attention
was on three big brands namely Billabong, RVCA, Element are the key drivers in improving
the overall performance of the business (My Accounting Course, 2017).
Consistently following an old logo, the new mantra for success was “fewer, bigger, better”. A
heavy load of the projects were segregated among the four major projects which are given
priority namely Omni-channel, distribution and transportation, customer the cream and
sourcing and chain of supply (Kaur, Aggarwal and Gupta, 2017). These four projects were
provided more evaluation and attention and eventually they helped in accelerating the volume
globally.
The reduction in the distribution costs by $10 million per annum is now an initiative of sober
implementation. The group worked on the closure of the Canadian Warehouse and also
transitioned the third party logistics.

FINANCIAL STATEMNET ANALYSIS 7
(Source: Edited, 2017).
The above picture depicts the market position of the company among the other similar
companies.
Impact of GFC
The global financial crisis made a square pit for the Billabong International to test itself on
account of performance in the emerging retail operations with a wider wholesale account
base. The Australian dollar stays at US92c and the net profit is down by 6%, excluding the
prior year’s impairment change if there is any fluctuation in the rate as what is recorded. The
overall impact was held on the net profit after tax attributable to the shareholders which
amounted to $152.8 after a drop by more than 13%.

FINANCIAL STATEMNET ANALYSIS 8
Critical Factors of financial viability
 Global sourcing of the products and the services
 The preferred vendors are included in the new initiatives and the schemes
 To convert the losses into at par profits through the highly strategic moves and
transformational methods.
 To improve the gross margin is also one of the critical factors for the future
sustainability.
 To continue to gain the effective cost in the productivity of the company.
 To keep the top line inventory cautiously.
Ratio Analysis
Ratio analysis is the quantitative analysis of the financial statements which is used to evaluate
the various aspects of the company such as efficiency, liquidity, solvency and profitability.
This type of comparison is particularly useful for many users of the financial statements both
within the organisation as well as outside it. The investors, shareholders, suppliers, customers
and employees majorly take decisions on the basis of the ratio analysis (Alin-Eliodor, 2014).
There are majorly four types of ratios liquidity, Asset Management Ratio, Profitability and
Leverage Ratios.
Liquidity ratios
A liquidity ratio is an indicator in which it can be determined that how much of the current
assets are sufficient to pay back the company’s obligations as and when they become due. It
is also known as the acid test ratio (Entwistle, 2015). Under the liquidity ratio there are
majorly three ratios which are current ratio, quick ratio and working capital ratio.

FINANCIAL STATEMNET ANALYSIS 9
Liquidity Ratios
Particulars 2014 2015 2016 2017
Current Assets 4958 5237 4423 4217
Current Liabilities 2256 2390 1854 1744
Current Ratio 2.20 2.19 2.39 2.42
Particulars 2014 2015 2016 2017
Cash 1450 1533 1969 1173
Accounts Receivable 1538 1645 1372 1692
Current Liabilities 2256 2390 1854 1744
Quick Ratio 1.32 1.33 6.12 5.08
Particulars 2014 2015 2016 2017
Current Assets 4958 5237 4423 4217
Current Liabilities 2256 2390 1854 1744
Working Capital Ratio 2702 2847 2569 2473
2014 2015 2016 2017
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Current Ratio
Quick Ratio

FINANCIAL STATEMNET ANALYSIS 10
(Source: By author)
From the above graph it can be analysed that the current ratio of the Billabong International is
consistently within the rule of the ideal ratio. The ideal ratio is 2:1. However as can be seen
from the above calculations the current ratio is more than 2:1 in all the four years.
The quick ratio of the company is also consistent around 1.5, whereas the ideal ratio is 1:1. A
higher quick ratio shows the company’s ability to liquidate its assets to pay back the
obligations (Flammer, 2015).
And lastly the working capital ratio will determine how much of the current assets are
available against the current liabilities.
Assets management ratio
Asset Management Ratios are available to measure the firm's success in managing its assets
to generate volume of sales (Uechi, et al 2015). For example, these ratios can provide insight
into the success of the firm's credit policy and inventory management. These ratios are also
termed as Activity or Turnover Ratios.
Fixed asset ratio
It is the ratio of sales to the net asset of the company which is very important for knowing
how much the asset of the company are contributing towards the sales of the company. A
positive ratio tells the assets are contributing in the required manner and negative means
declining ratio explains that the assets are not in the favour of sales that is required for the
company. It is the magnitude relation of sales to cyber web plus of the corporate that is
incredibly vital for knowing what proportion the plus of the corporate square measure

FINANCIAL STATEMNET ANALYSIS 11
contributory towards the sales of the corporate. In the table below the company has improved
its fixed assets ratio as seen from the previous years.
Similarly Receivable Turnover Ratio and Inventory Turnover Ratio have also been reshaped
itself as compare to the previous year. A positive magnitude relation tells the assets square
measure contributory within the needed manner and negative suggests that declining
magnitude relation explains that the assets don't seem to be within the favour of sales that's
needed for the corporate.
Asset Management Ratios
Particulars 2014 2015 2016 2017
Sales 10274 10561 4921 4764
Accounts Receivables 10275 7202 7519 7351
Receivables turnover Ratio 1.00 1.47 0.65 0.65
Particulars 2014 2015 2016 2017
Cost of goods sold 4910 4953 2418 4217
Inventory 1802 1871 1860 1623
Inventory Turnover Ratio 2.72 2.65 1.30 2.60
Particulars 2014 2015 2016 2017
Sales 10274 10561 4921 4764
Net Fixed Assets 943 895 822 731
Fixed Assets turnover Ratio 10.90 11.80 5.99 6.52

FINANCIAL STATEMNET ANALYSIS 12
2014 2015 2016 2017
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Receivables turnover Ratio
Inventory Turnover Ratio
(Source: By Author)
From the graphical representation it can be depicted that the receivables turnover ratio is
within the boundary of the ideal ratio. A higher ratio indicates that too much of the discount
is allowed by the company. Therefore the lower the ratio more the scenario will be
comfortable for the organisation.
Profitability Ratios
Profitability Ratios
Particulars 2014 2015 2016 2017
Net Profit -2399 2552 -1794 -1840
Net sales 10274 10561 4921 4764
Profit Margin -23% 24% -36% -39%
Particulars 2014 2015 2016 2017
Net Income 5364 5608 2503 547
Average total assets 7014 7778 7646 6517
Return on Assets 0.76 0.72 0.33 0.08

FINANCIAL STATEMNET ANALYSIS 13
Particulars 2014 2015 2016 2017
Net Operating Profit -1284 -201 -140 -162
Capital employed 2590 2815 2382 1752
Return on Capital Employed -0.50 -0.07 -0.06 -0.09
The ability of a business to generate revenue against all the expenses and cost that is being
incurred in the meanwhile taking down the operations. This is an important ratio which helps
to know the capability of a firm to generate revenue on the basis of several factors which are
related to income and expenses while generate the total cost which has to be spent (Yu and
Kim, 2017). The higher the ratio it is good for the company and if the company is not doing
well than it may encounter a low ratio than the previous year which may emphasize the
company to work better.
Profit Margin
There is a margin which has been set for every company to earn profit in compliment to the
sales which has been done by the company. Hence, the margin by which the revenue exceeds
the sales is the profit margin (Lins, Servaes and Tamayo, 2017). Like profit for a product is
80% so the actual cost of the product plus the 80% is the market cost. Hence, this justifies
how much a company is earning on every product which helps to set up the prices according
to the demand of the company as well as the market. The above table determines the
company is facing losses as compared to previous years. From (36%) to (39%).
Return on Assets
There are some assets which are being deployed here and there in form of current assets for
some period, lease, rent etc. So, any amount of profit a company earns from those assets is

FINANCIAL STATEMNET ANALYSIS 14
the return. This factor is important as it helps to know the market return value of the assets as
well as it helps in generating the proper amount for the assets which are being deployed in the
market. It also specifies the relation of profit with the assets of the company and how the
administration is using the assets to generate the amount of profit for company. It helps to
know the valuation and the amount of contribution each asset is deploying to the revenue of
the company in terms of support for operations. The return on assets of the company is
however improved from 0.72 to 0.33 and then again reduced to 0.08 which shows the amount
of assets are not sufficient.
Return on Capital Employed
The factor to know the return on the capital which is being deployed in the market is
important so as to asses that whether it is going with the standards of the company or not. It is
a way of calculating whether the appropriate amount of return on capital as compare to
market in business is returning or not. To know the efficiency of the company with the
revenues it is earning as well as knowing how good the returns on the money which is
invested as capital is being generated. To know the productivity of the organization with the
incomes it is gaining and additionally knowing how great the profits on the cash which is
contributed as capital is being created. Yet the amount of capital employed Ratio was
negative and improved a little bit.

FINANCIAL STATEMNET ANALYSIS 15
2014 2015 2016 2017
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Return on Assets
Return on Capital
Employed
Leverage Ratios
It is a ratio which helps to know the loans of the company in the form of debt and the ability
of the company at a point of time to meet the obligation it is having. This is a good way of
having a complete source for the data to know how good a company can perform and how
bad it is performing. This help in assessing the position of company at a point of time to pay
back the loans in the form of debt by the company.
Leverage ratios
Particulars 2014 2015 2016 2017
Debt 2120 2599 2804 2161
Equity 2590 2815 2382 1752
Debt to Equity Ratio 0.82 0.92 1.18 1.23
Particulars 2014 2015 2016 2017
Total Assets 7518 8039 7254 5781

FINANCIAL STATEMNET ANALYSIS 16
Equity 2590 2815 2382 1752
Assets to Equity Ratio 2.90 2.86 3.05 3.30
Particulars 2014 2015 2016 2017
Debt 2120 2599 2804 2161
EBITDA -1284 -201 -140 -162
Debt to EBITDA -1.65 -12.93 -20.03 -13.34
Debt to Equity Ratio
In order to measure the financial leverage of the company this ratio is being taken into
account. This is being done by dividing all the debt to equity of the company to know the
state of the company for paying the debt it is having at a point of time. It is also used to know
how much debt the company is using to finance its equity and other assets so as to have the
required performance of the operations for the revenue which has to be earned (Campbell,
Galpin and Johnson, 2016). From the above table and the graph below it can be analysed that
the debt to equity ratio is increasing rapidly which indicates that the company is financing
debt more. A higher ratio is not favourable.
Asset to Equity Ratio
The relationship between the assets and the equity of a company is inclined to have a result
for the total assets of the company to the equity which is owned by the shareholder of the
company. It is used to justify the financial leverage owned by the company so as to have a
result for the actual financial position at a point of time. The assets are sufficient against the
capital invested in the business as per the table.

FINANCIAL STATEMNET ANALYSIS 17
Debt to EBITDA
The ratio of the debt to earnings before interest depreciation and amortization which helps in
knowing the financial position of the company at a point of time where the company have to
have the financial status so as to compliment the debt to have an actual figure upon what is
actually being earned before giving any kind of deduction for the expenses of the company
(My Accounting Course, 2017). The ratio is negative however; it has been improved from the
last year from (20.03) to (13.34).
2014 2015 2016 2017
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Debt to Equity Ratio
Assets to Equity Ratio
Conclusion
Therefore form the above report it can be concluded that to assess the financial position of the
company the ratio analysis is important and certain events are also there which lead to the
improvement of the financial position of the Billabong International Limited. The company
shall focus on reshaping its market share by introducing necessary schemes to avoid further
losses and to convert the previous losses into profits.

FINANCIAL STATEMNET ANALYSIS 18
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FINANCIAL STATEMNET ANALYSIS 19
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June 2018]
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FINANCIAL STATEMNET ANALYSIS 20
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