Business Valuation and Analysis: Evaluation of Blackmores Limited

This report evaluates the financial performance of Blackmores Limited through ratio analysis and cash flow analysis. It also analyzes the impact of major expenses on profit margin and financial risk and cash flow management. The report concludes with a forecast of the company's future performance.

Running Head: Business Valuation and Analysis
1
Project Report: Business Valuation and Analysis

Business Valuation and Analysis 2
Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Ratio analysis....................................................................................................................3
Impact of major expenses on profit margin..................................................................7
Ratio trend....................................................................................................................9
Cash flow analysis............................................................................................................9
Financial risk and cash flow management..................................................................11
Conclusion......................................................................................................................11
References.......................................................................................................................12
Appendix:.......................................................................................................................13

Business Valuation and Analysis 3
Introduction:
Identifying the financial performance and non financial performance of a business sis one of
crucial element in order to forecast the future performance and evaluate the total worth of a business.
The report has been prepared to evaluate the overall financial performance of an Australian company
named by Balckmores limited. The financial data from 2013 to 2018 has taken into concern to
measure the actual performance of the business. The reformatting of financial statement of the
company has been done in order to identify the operating and financial performance of the business.
And the ratio analysis and cash flow analysis has been done to identify the financial condition of the
company.
Company overview:
Blackmores limited is an Australian company which operates in the health supplements. It has
been founded in 1930 at Australia. It was the first health product shop in the Brisbane, Australia. The
market capitalization of the company is around $ 2 billion. 843 people are employed by the company
and the company mainly manufactures the herbal supplements, extensive range of vitamins etc which
are sold across the Australian, Asian and Europe market (annual report, 2017).
Ratio analysis:
Ratio analysis is a process which focuses on the main items of the final financial statements
of a business to evaluate the performance and make decision about the company. In case of
Blackmores, the financial ratios of the company from 2014-2018 has been calculated through
transforming the final financial statement into the operating and financial activities of the business.
The liquidity and profitability ratios of the business have been calculated which are as follows:
Return on equity:
Return on equity is a profitability ratio which measures the total earnings of the company
against the available funds of the business (Madhura, 2014). The return on equity position of
Balckmores limited has been improved in the year of 2016 because of higher profits. But after that the
company is facing huge reduction because of the reduction in the profitability position of the
company. It express that the profitability level of the company is average.

Business Valuation and Analysis 4
Figure 1: Return on equity
(Annual report, 2017)
Return on net operating assets:
Return on net operating assets is also a profitability ratio which measures the total earnings of
the company against the operating assets of the business which is calculated through formatting the
financial statements of the business. The return on net operating assets position of Balckmores limited
has been improved in the year of 2016 from 2013 because of higher profits. But after that in the year
of 2017, the level has been reduced at great level and 2018 explains few positive changes into the
position of the business. It express that the profitability level of the company is average.
Figure 2: Return on net operating assets

Business Valuation and Analysis 5
(Annual report, 2017)
Profit margin:
Profit margin depicts the total profits from the operations of the business which has been
generated by the company after deducting all the expenses. It briefs the profitability level of the
business (Gapenski, 2008). The profit margin of Blackmores limited has been calculated from 2013 to
2018. The profit margin position of Balckmores limited has been improved in the year of 2016 from
2013 because of increased profit. But after that in the year of 2017, the level has been reduced at great
level and 2018 explains few positive changes into the position of the business. It express that the
profitability level of the company is average.
Figure 3: Profit Margin
(Annual report, 2016)
Asset turnover ratio:
Asset turnover ratio depicts about the efficiency position of the company. It measures the total
sales of the business against the total available assets of the business, the higher the ATO of an
organization would be, and the better the efficiency position would be. In case of Blackmores limited,
it has been found that the sales of the company was at peak in the year of 2016 due to which the
efficiency level of the company has been improved. The ATO position of Balckmores limited has
been changed at great level in last 5 years. The company is required to maintain great efficiency in
order to manage the performance of the business.

Business Valuation and Analysis 6
Figure 4: Asset turnover ratio
(Annual report, 2015)
Financial leverage:
Lastly, the financial leverage ratio has been calculated to identify the relation among the
assets and equity of the business, it explains that how much assets are holding by the company against
the total equity of the business (Higgins, 2012). The higher financial average explains about higher
debt and borrowings and lower financial leverage briefs about higher equity in the business. In case
of Blackmores limited, it has been found that the financial leverage position of the company has been
reduced in the current years. The changes explain that the company has improved the debt level.
Figure 5: Financial Leverage
(Annual report, 2014)

Business Valuation and Analysis 7
On the basis of the overall ratio analysis evaluation and key term evaluation on the
Blackmores limited of last 5 years from 2014 to 2018, it has been found that the performance of the
company was extremely better in the year of 2016. However, the current position of the business is
also average.
Impact of major expenses on profit margin:
From the financial statement of the business, it has been found that the total operating
expenses of the company has been improved from $ 2,47,676 to $ 5,00,242 along with an average
growth of 109% (Annual report, 2017). The changes have taken place due to various operation,
activities and items of the business. Few of the expenses due to which, the operating expenses have
been this much higher and affected the profit margin of the business are as follows:
Raw material and consumables:
Raw material is one of crucial element of the business. It contributes the maximum in the total
expenses of the business. In the year of 2018, the raw material has contributed around 46.45% of total
expenses. The total % of expenses of the company is quite average. However, the % is higher and the
company is required to make focus on these expenses to make control over it and improve the position
of the business. The significant improvement in the contribution of raw material could improve the
profitability position of Balckmores limited in the market.
2018 2017 2016 2015 2014
Raw materials and consumable
used
46.45% 50.95% 47.16% 46.61% 45.42%
Figure 6: Raw material and consumables

Business Valuation and Analysis 8
(Annual report, 2017)
Employee benefits expenses:
Employee benefit expenses are also considered as one of the highest contributed expenses in
an organization. Labour of a business is either first or second higher expenses of the business. It
affects the profitability position at great level. It contributes the second highest in the total expenses of
the business. In the year of 2018, the employee benefits expenses have contributed around 27.41% of
total expenses. The total % of expenses of the company is quite average in last 5 years. However, the
% of total contribution is higher and the company is required to make focus and the significant
improvement must be done in order to improve the profitability position of Balckmores limited
in the market.
2018 2017 2016 2015 2014
Employee benefits expenses 27.41% 25.93% 29.70% 29.77% 28.33%
Figure 7:Employee benefits expenses
(Annual report, 2017)
Selling and administrative expenses:
Selling and administrative expense are those expenses which take place in order to improve
the sales of the product in the market and thus a business spent enough to improve the sales of the
business. However, some times unnecessarily expenses are also done by the business which doesn’t
help the business in improving the sales. In case of the company, the total contribution of the
company is 11.84% which is average. The same level must be maintained by the business in market
so that the profitability position of Balckmores limited in the market could be improved at great level.

Business Valuation and Analysis 9
2018 2017 2016 2015 2014
Selling and marketing expenses 11.84% 11.03% 10.82% 10.97% 11.64%
Figure 8: Selling and administrative expenses
(Annual report, 2017)
Ratio trend:
The trend in the ratio performance of the business has been discussed already in the ratio
analysis heading. On the basis of the evaluation on various ratios of the business, it has been found
that in the year of 2016, the performance of the business was great and it was the highest in last 5
years. These changes have occurred into the company because of the huge demand of the product into
the market. It was an abnormal position of the business (Lord, 2007). However, the industry position
of the business has been measured and it has been found that the company is one of the largest
companies in the industry and the growth rate of the industry is also satisfactory. Further, the
economical position of the business has been studied and it has been found that the huge changes have
occurred into the overall economical position of the business from global financial crisis, 2008 which
is in the g=favour of the business (Moles, Parrino and Kidwekk, 2011). To conclude, the external
factors and the industry factors of the business are in the favour of the business and depict about the
improved performance of the comapny.
Cash flow analysis:
The section focuses on the different ratios of the company such as liquidity ratio, solvency
ratio and cash flow ratios. The evaluation on each of the position of the company is as follows:
Liquidity analysis:

Business Valuation and Analysis 10
The below graph depict about the short term debt management capabilities of the business. It
contains the data of current ratio, quick ratio, cash ratio and operating cash flow ratio of the business.
On the basis of the calculations on the liquidity ratios and the evaluation, it has been found that earlier
the liquidity level of the company was higher which leads to the business towards higher cost. But in
recent years, the company has lowered the level to maintain the risk and cost position both. The
current position of the business is impressive.
Figure 9: Liquidity analysis
Debt and long term solvency:
The below table depict about the debt and long term solvency position of the business. It
expresses that the liabilities level of company has been improved in 2018 from 1.4 to 1.27 in 2014.
The debt equity level has been reduced to 0.45 as well as the interest coverage ratio of the business
depict about the negative position of the business. The interest cover cash flows of the business and
debt against the CFOPS has also been improved (Kaplan and Atkinson, 2015). It explains that the
short term solvency position of the company has been hampered because of the few internal issues.
However, the overall debt position of the company is quite impressive.
Debt and Long Term
Solvency
2018 2017 2016 2015 2014
iabilities quityL / E 1.40 1.30 1.46 1.21 1.27
Debt quity/ E 0.45 0.44 0.30 0.32 0.69
nterest CoverageI -
arningsE
-25.86 20.63 80.23 21.06 8.24
nterest Cover Cash lowI - F 16.00 16.16 28.12 23.34 9.64
Debt C S/ FOP 1.48 1.71 0.65 0.60 1.91

Business Valuation and Analysis 11
Financial risk and cash flow management:
The financial risk and the cash flow management position of the company have been
evaluated further and it has been found that the associated financial risk of the company is lower
because of the strategies and the operations of the business (Barlow, 2006). As well as, the ratio
analyse brief that the cash flow level has also been agreed by the business in better way that the
company is nether required to pay additional charges nor the risk level of the company gets higher.
Conclusion:
To conclude, the financial performance and financial position of Balckmores limited has
faced various fluctuations in last 5 years from 2014 to 2018. On the basis of the profitability, solvency
and liquidity position of the business, it has been found that the fluctuations have been occurred still;
the financial strategies of the company are stable and work for the betterment of the business. The
forecasting of the business was easier because of the stable changes into the performance of the
business.

Business Valuation and Analysis 12
References:
Barlow.J.F. 2006. Excel models for business and operations management, 2nd edition, John Wiley &
sons ltd, England.
Blackmores. 2014. Annual Report 2014. Available at:
https://www.blackmores.com.au/-/media/files/investor-centre/annual-and-half-yearly-reports/blackmores-
annual-report-2014.pdf?la=en&hash=25748D5558646DF1EC9D7DB7083E4C193BB11E62 >
(accessed 15/9/18)
Blackmores. 2015. Annual Report 2015. Available at: https://www.blackmores.com.au/- (accessed
15/9/18).
Blackmores. 2016. Annual Report 2016. Available at:
http://blackmores2016.annual-report.com.au/ (accessed 15/9/18).
lackmoresB . 2017. nnual eport vaila le atA R 2017. A b :
https://interactivepdf.uniflip.com/2/41140/1086995/pub/html5.html?utm_source=website-
article&utm_medium=link&utm_campaign=outbound&utm_content=annual-report-
2017#page/1 (accessed 15/9/18).
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial management.
Health Administration Press.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3 (2) p.p. 32.
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Moles, P. Parrino, R and Kidwekk, D,.2011. Corporate finance, European edition, John Wiley &sons,
United Kingdom

Business Valuation and Analysis 13
Appendix:
2018 2017 2016 2015 2014
$'000 $'000 $'000 $'000 $'000
Revenue
Sales 601,136 692,790 717,211 471,615 346,760
romotional and other rebatesP -
-
143,547
-
118,771
-
83,285
-
59,302
ther incomeO 718 545 1,086 908 7
Total Operating Revenue 601,854 549,788 599,526 389,238 287,465
Expenses
Raw materials and consumable
used 232,374 236,184 214,263 147,750 112,501
mployee benefits e pensesE x 137,135 120,209 134,933 94,353 70,156
Selling and marketing e pensesx 59,229 51,141 49,177 34,779 28,840
Depreciation and amortisation
e pensesx 8,940 8,411 7,045 6,391 6,266
perating lease rental e pensesO x 9,306 7,942 4,496 3,519 3,163
rofessional and consulting e pensesP x 11,647 8,923 9,168 7,372 4,442
Reparis and maintenance e pensesx 7,014 5,172 4,683 3,275 2,869
reight e pensesF x 13,546 9,809 10,906 6,615 5,905
ank chargesB 1,141 1,300 2,099 1,355 845
Research and development
e pensesx 2,035 3,592 10,200 8,972 9,162
ther e pensesO x 17,875 10,874 7,335 2,593 3,527
Total Operating Expenses 500,242 463,557 454,305 316,974 247,676
Net operating profit from ordinary
activities 101,612 86,231 145,221 72,264 39,789
nusal itemU
Net operating profit before tax
(NOPBT) 101,612 86,231 145,221 72,264 39,789
Tax on operating profit (@ 30% tax
rate) 30,484 25,869 43,566 21,679 11,937
a adjustments from operationsT x
-
846
-
468
-
275 1,529
-
618

Business Valuation and Analysis 14
ver nder rovision of income(O )/U P
ta in previous yearx
-
124 643 97
-
337
a ation on profit after adjustmentsT x 29,638 25,277 43,934 23,305 10,982
Net operating profit after tax
(NOPAT) 71,974 60,954 101,287 48,959 28,807
Borrowing cost
nterest revenueI 416 384 462 415 309
nterest e pensesI x
-
4,346
-
4,564
-
2,272
-
3,847
-
5,135
Net Financial Expense 3,930 4,180 1,810 3,432 4,826
a ShelterT x
-
1,179.0
-
1,254.0
-
543.0
-
1,029.6
-
1,447.8
Interest Expense after tax 2,751.0 2,926.0 1,267.0 2,402.4 3,378.2
Net profit after tax (NPAT)/ Net
income 69,223 58,028 100,020 46,556 25,429
Other comprehensive income
(OCI) 3228 -1961 -301 3758 -1216
Total comprehensive income 72,451 56,067 99,719 50,314 24,213
2018 2017 2016 2015 2014
$'000 $'000 $'000 $'000 $'000
Operating Assets and Liabilities
Current Assets
Cash and cash equivalents 36,468 34,251 37,653 36,931 18,599
Receivables
15
0,788 132,146 134,636 107,076 70,567
nventoriesI
10
3,965 84,794 116,486 38,665 38,742
a receivableT x
ther AssetsO 11,286 7,471 5,849 5,172 3,468
Total current assets 258,662 258,662 294,624 187,844 131,376
Current Liabilities

Business Valuation and Analysis 15
rade and other payablesT
15
7,868 124,365 160,478 94,908 49,153
Current ta liabiltiesx 4,246 1,811 24,204 12,862 2,793
a payableT x
rovisionsP 8,065 11,549 7,588 6,284 5,471
ther liabilitiesO 4,288 4,831 9 944 623
Total current liabilities 142,556 142,556 192,279 114,998 58,040
Net Current Assets 116,106 116,106 102,345 72,846 73,336
- 0.13 0.40
-
0.01
-
0.07
Non Current assets
roperty plant and equipmentP , 76,261 74,207 67,626 60,735 63,613
ther intangible assetsO 36,751 32,293 32,736 18,530 18,363
oodwillG 29,461 29,461 29,371 16,863 16,863
Deferred ta assetsx 12,590 9,960 12,257 6,713 3,815
ther assetsO 1,520 1,320 628 562 404
Amount advanced to related parties 3,600 4,111 3,960
Total non-current assets 160,183 151,352 146,578 103,403 103,058
Non Current Liabilities
ther liabilitiesO 1,239 235 3,655 562 422
Deferred ta liabilitiesx 483 10,224 10,255 202
Total Non Current Liabilities 1,722 10,459 13,910 764 422
Net Non-Current Asset 158,461 140,893 132,668 102,639 102,636
Net Operating Asset 274,567 256,999 235,013 175,485 175,972
7% 9% 34% 0% -4%

Business Valuation and Analysis 16
Financing Activities
nvestment roperty on current AssetI P - N
-
2,160
-
2,160
-
2,160
-
2,160
-
2,160
rovisions of on Current mployeeP N E
enefits on Current iabilitiesB - N L 9,341 1,372 1,134 730 906
nt bearing liabilities on current liabilitiesI - N 78,968 78,968 55,446 44,000 73,000
et inancing bligationsN F O 86,149 78,180 54,420 42,570 71,746
7,969 23,760
Equity
ssued capitalI 37,753 37,753 37,753 37,753 34,502
Reserves 5,926 4,085 5,252 8,063 3,227
Retained arningsE
14
9,196 135,703 135,258 87,099 66,497
Minority interests 455 1,278 2,330
193,330 178,819 180,593 132,915 104,226
pening CSO E
19
3,330 180,593 132,915 104,226 98,051
Comprehensive income C et(O I + N
income) 72,451 56,067 99,719 50,314 24,213
Dividend declared 49,957 58,568 57,704 25,954 21,593
ssue of shares under DividendI
Reinvestment lanP
-
3,251
-
3,506
Share based payment 12,895
-
727
-
3,362
-
1,078
-
49
Share issue to holders of non controlling-
interest
-
2,301
Net dividend 62,852 57,841 52,041 21,625 18,038
Changes in ownership interests in
subsidiaries - - - - -
Restatement in equity
Calculated Closing CSE 202,929 178,819 180,593 132,915 104,226

Business Valuation and Analysis 17
Double Check Closing CSE 9,599
-
0
-
0 0 0
Difference
C A changes in A CF F=NOP T- NO + O I 57,634 37,007 41,458 53,204 35,232
C at changes in d changesF F=NFE - NFO+ -
in OI 57,634 37,007 41,458 53,203 35,232
Double check 0
-
0
-
0 0 0
Blackmores Ltd.
Financial Analysis
2018 2017 2016 2015 2014
Return on equity (ROE)
A quityNP T/E
37.20
% 32.29% 63.81% 39.26% 25.14%
Return on Operating assets
A avg A R ANOP T / . NO ( NO )
27.08
% 24.78% 49.35% 27.86% 16.02%
rofit Margin MP (P )
11.96
% 11.09% 16.89% 12.58% 10.02%
Asset urnover AT ( TO) 2.26 2.23 2.92 2.21 1.60
R A M ANO (P * TO)
27.08
% 24.78% 49.35% 27.86% 16.02%
Spread (RNOA-NBC)
R ANO 27.08
%
24.78% 49.35% 27.86% 16.02%
CNB 3.35% 4.41% 2.61% 4.20% 4.30%
Spread
23.73
% 20.36% 46.74% 23.66% 11.73%
Financial Leverage (FLEV)
Avg Avg quity.NFO / .E
44.16
% 36.89% 30.94% 48.21% 77.77%
Cost of Capital
10.48
% 7.51% 14.46% 11.40% 9.12%
Return on equity (ROE)
RNOA + [ FLEV*SPREAD]
37.56
% 32.29% 63.81% 39.26% 25.14%
Return on Net Operating Assets (RNOA)

Business Valuation and Analysis 18
Sales / Net Operating Assets (NOA) 2.26 2.23 2.92 2.21 1.60
Expenses / Net Operating Assets (NOA) 1.88 1.88 2.21 1.80 1.38
Tax / Net Operating Assets (NOA) 0.11 0.10 0.21 0.13 0.06
NOPAT / NOA
27.08
% 24.78% 49.35% 27.86% 16.02%
Profit Margin (PM)
et perating rofit After a A SalesN O P T x (NOP T) /
11.96
% 11.09% 16.89% 12.58% 10.02%
Assets Turnover Ratio (ATO)
Sales et perating Assets A/N O (NO ) 2.26 2.23 2.92 2.21 1.60
PM*ATO
27.08
% 24.78% 49.35% 27.86% 16.02%
Expenses / Total Revenues
Raw materials and consumable used
38.61
% 42.96% 35.74% 37.96% 39.14%
mployee beneftis e pensesE x
22.79
% 21.86% 22.51% 24.24% 24.41%
Selling and marketing e pensesx 9.84% 9.30% 8.20% 8.94% 10.03%
Depreciation and amortisation e pensesx 1.49% 1.53% 1.18% 1.64% 2.18%
perating lease rental e pensesO x 1.55% 1.44% 0.75% 0.90% 1.10%
rofessional and consulting e pensesP x 1.94% 1.62% 1.53% 1.89% 1.55%
Reparis and maintenance e pensesx 1.17% 0.94% 0.78% 0.84% 1.00%
reight e pensesF x 2.25% 1.78% 1.82% 1.70% 2.05%
ank chargesB 0.19% 0.24% 0.35% 0.35% 0.29%
Research and development e pensesx 0.34% 0.65% 1.70% 2.31% 3.19%
ther e pensesO x 2.97% 1.98% 1.22% 0.67% 1.23%
83.12
% 84.32% 75.78% 81.43% 86.16%
Expenses Growth (Annual) 7.91% 2.04% 43.33% 27.98% 3.48%
Net Working Capital/ Sales
19.29
% 21.12% 17.07% 18.72% 25.51%
Revenue / Geographic Segments
ANZ
38.45
% 53.69% 67.20% 70.42% 67.18%
China and other Asian Countries
20.68
% 31.25% 22.12% 17.80% 19.22%
ioCeuticalsB
15.67
% 14.77% 10.08% 11.77% 13.60%
emore partnershipsB 11.89 0.29% 0.60% 0.00% 0.00%

Business Valuation and Analysis 19
%
86.69
%
100.00
%
100.00
%
100.00
%
100.00
%
Revenue Growth (Annual) 9.47% -8.30% 54.03% 35.40% 3.39%
Asset Turnover
Sales / Net Operating Assets (NOA) 2.26 2.23 2.92 2.21 1.60
Net Operating Assets (NOA) / Sales 0.44 0.45 0.34 0.45 0.63
et Current perating Assets SalesN O / 0.19 0.20 0.15 0.19 0.26
Current perating Assets SalesO / 0.43 0.50 0.40 0.41 0.44
Current perating iabilities SalesO L / 0.24 0.30 0.26 0.22 0.18
roperty lant and quip SalesP P E / 0.13 0.13 0.11 0.16 0.22
Other Non Current Net Operating Assets /
Sales 0.12 0.12 0.09 0.10 0.14
ther on Current perating Assets SalesO N O / 0.13 0.14 0.10 0.11 0.14
ther on Current perating iabilities SalesO N O L / 0.010 0.022 0.012 0.002 0.002
Net Operating Assets (NOA) / Sales 0.44 0.45 0.34 0.45 0.63
1/(NOA / Sales) = Sales / NOA 2.26 2.23 2.92 2.21 1.60
Short Term Liquidity
Current Ratio 1.73 1.81 1.53 1.63 2.26
uick RatioQ 1.14 1.22 0.93 1.30 1.60
Cash Ratio 0.21 0.24 0.20 0.32 0.32
perating Cash low RatioO F 0.33 0.32 0.44 0.62 0.65
Debt and Long Term Solvency 2018 2017 2016 2015 2014
iabilities quityL / E 1.40 1.30 1.46 1.21 1.27
Debt quity/ E 0.45 0.44 0.30 0.32 0.69
nterest Coverage arningsI - E -25.86 20.63 80.23 21.06 8.24
nterest Cover Cash lowI - F 16.00 16.16 28.12 23.34 9.64
Debt C S/ FOP 1.48 1.71 0.65 0.60 1.91
Dividend Ratios
Dividend ayout Ratio Dividend paid AP ( /NP T) 72% 101% 58% 56% 85%

Business Valuation and Analysis 20
Sustainable rowth RateG 0.10 0.00 0.27 0.17 0.04