This report analyzes the strategic analysis of Blackmores Company through evaluating its internal and external business environment factors along with competitive advantages through corporate or business strategies. The report also offers effective recommendations on improving strategic capability of the company.
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Running head: STRATEGIC ANALYSIS REPORT ON BLACKMORES Strategic Analysis Report on Blackmores Name of the University: Name of the Student: Authors Note:
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1STRATEGIC ANALYSIS REPORT ON BLACKMORES Executive Summary Blackmores Limited is involved inthebusiness of developing and marketing healthcare goods for animals and humans. The company also follows a culture of passion for health, integrity, respect, leadership and social responsibility among the employees.Thevertical integration strategies are followed by Blackmores Company in which it controls more than one aspect of its supply chain. The report analyzed that Blackmores Company deals with certain political and resource-based issues as it is not beingableto address the challenges presented by new entrants within the industry and has lost a considerable market share in niche categories. Effective implementation of the business strategies by Blackmores Company has facilitated in attaining exceptional performance outcomes. Certain risks with the strategy implementation must be considered by the companywhiledealing with them. Considering another risk of increasing entrants in the market, Blackmores must focus on launching innovative healthcare nutrition products in competitive prices.
2STRATEGIC ANALYSIS REPORT ON BLACKMORES Table of Contents 1. Introduction..................................................................................................................................4 2. External Environment Analysis of Blackmore............................................................................4 2.1. PESTEL Analysis of Blackmore.....................................................................................4 2.2. Industry Analysis.............................................................................................................7 2.3. Critical Forces and Key Success Factors Analysis.........................................................8 3. Internal Environment Analysis of Blackmore.............................................................................8 3.1. Financial Performance Analysis......................................................................................8 3.2. Company Culture, Core Competencies and Cross-Cultural Competencies..................10 3.3. Political and Resource Issues........................................................................................10 4. Competitive Advantages through Business and Corporate Strategies......................................11 4.1. Business Level Strategies..............................................................................................11 4.2. Level of Vertical Integration.........................................................................................11 4.3. Diversification and External Associations....................................................................12 4.4. Performance Outcomes and Industry Characteristics...................................................12 5. Organizational Design Enabling Strategies...............................................................................13 5.1. Recent Organizational Structural Changes...................................................................13 5.2. Level of Centralization..................................................................................................13 5.3. Horizontal Structural Characteristics............................................................................13
3STRATEGIC ANALYSIS REPORT ON BLACKMORES 5.4. Structure Diversification Affects and Integrating Mechanisms Being Used................14 6. Recommendations on Strategic Capability Improvement.........................................................14 6.1. Functional and Business Strategy Options....................................................................14 6.2. Vertical and Horizontal Integration...............................................................................15 6.3. Diversification and Alliance Changes Considering both Fit and Stretch......................15 6.4. Risk and Return Inherent in Suggestions......................................................................16 7. Conclusion.................................................................................................................................16 References......................................................................................................................................17 Appendices....................................................................................................................................19
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4STRATEGIC ANALYSIS REPORT ON BLACKMORES 1. Introduction Strategyanalysisfacilitatesinanalyzingstrengthsandweaknessesfacedbythe companies in its operating environment that can facilitate in developing effective business strategies (Bergh, Sharp, Aguinis and Li 2017). Blackmores Limited is involved in business of developing and marjrting of healthcare goods for animals and humans. It also includes herbal, vitamins along with mineral nutrition-based supplements. The objective of this paper is to carry outthestrategic analysis of Blackmore Company through evaluating its internal and external business environment factorsalong withcompetitive advantages through corporate or business strategies. Moreover, the report will also offer effective recommendations on improving strategic capability of the company. 2. External Environment Analysis of Blackmore 2.1. PESTEL Analysis of Blackmore PoliticalStable political system in Australia Australian trade agreement facilitates Blackmores in attaining benefit from low taxes Deregulationcanbenefitbusinesses andbringprofitablechangesin politicalenvironment(Bettis, Gambardella,HelfatandMitchell 2014)
5STRATEGIC ANALYSIS REPORT ON BLACKMORES EconomicBlackmores Products being desirable facestheissueofprofitreduction when economy is sluggish Increasingunemploymentratesand slow economic growth of the nation has resulted in decreased profit over years SocialSupporting“EqualOpportunityfor WomeninWorkplaceAgency”, Blackmores have attained 70% women employeesforsupportingthem (Durand, Grant and Madsen 2017) Constantinvestmentinpeopleby meansoftraininganddevelopment programs TechnologicalBlackmores have considered increased investmentintechnologyfor improving its supply chain distribution structure In-builtsmartphoneapplication facilitates its target consumers to attain alltheinformationregardingits healthcare products
6STRATEGIC ANALYSIS REPORT ON BLACKMORES EnvironmentalBlackmores Company complies with alltheaspectswithinthe environmentallaws(Engert,Rauter and Baumgartner2016) Severalstepshavebeentakenin decreasingpackingwastesthrough participation with “National Packaging Covenant” Missionofthecompanyisalsoto make sure compliance with “People andCorporateEnvironment Responsibility”. This is to make sure that its responsible product sourcing can decrease carbon footprints in the environment. LegalChina-Australia free trade agreement has facilitated Blackmores in ensuring increasedinvolvementwithChina (Grantet al.2014) Porter’s Five Forces Analysis of Blackmores Threat of New EntrantsNewentrantswithinthepersonaland household products brings innovation that is
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7STRATEGIC ANALYSIS REPORT ON BLACKMORES excretingpressureonBlackmoresto implement competitive pricing strategy and newvaluepropositionsforconsumers (Grantet al.2014). Supplier Bargaining PowerMost organizations in household and personal products industry purchase raw material from several suppliers. Suppliers holding dominant position can reduce the company’s margin in the market. To deal with this, the company canmaintaineffectivesupplychainwith several suppliers. Buyer Bargaining PowerBuyers are observed to be demanding those desire to purchase best available offerings in lowpricesaspossiblethatimpacts Blackmores profitability in long term. New productsinnovationisconsideredbythe company to decrease the buyers bargaining owner(Durand, Grant and Madsen 2017). Substitute Products or Services ThreatNew services and products address consumer demands in distinct mannersuchthat industry profitabilitysuffers.Todealwithsuch situationincreasingswitchingcostfor consumers is considered by Blackmores.
8STRATEGIC ANALYSIS REPORT ON BLACKMORES Existing Competitor RivalryBlackmoreshasitsbusinessoperationsin highly competitivepersonal and household productssector.Maintainingasustainable differentiation can facilitate the company in ensuring a sustainable edge. 2.2. Industry Analysis The vitamin and dietary supplement industry of Australia is anticipated to grow at a CAGR value of 2% at constant prices (Grant2016). The industry is also estimated to attain advantages from demand of consumers in the future years. Changing public perception towards maintaining healthy lifestyle along with complementary goods is persuading industry leaders to supply their goods within big retail chains such as Woolworths and Coles. The industry is dominated by established companies such as Swisse and Nature’s Own. However, Blackmores is observedtoattainsecondpositionwithintheindustry(Hill,JonesandSchilling2014). Moreover, therapeutic goods administration maintains strict regulation in decreasing misleading information on labels. 2.3. Critical Forces and Key Success Factors Analysis Critical forces owned by Blackmores Company that facilitates it in attaining success within the global marketplace (Hill and Schilling2015). The resources and competencies attained by the company acts as its critical forces. One of critical force is its extensive health care product ranges along with its digital marketing and education programs. Another critical force is its financial aspect that is focused maintaining low operational cost. The key success factors of Blackmores are focused on three aspects such as people, product and passion (Hill 2017).
9STRATEGIC ANALYSIS REPORT ON BLACKMORES Product-Blackmores offers compelling products that is callable of increasing sales People-Successful business is maintained through maintainingstrong corporate culture and by understanding value of people Passion-Passionate employees are motivated to attain larger organizational goals 3. Internal Environment Analysis of Blackmore 3.1. Financial Performance Analysis Profitability Ratios-It has been observed that gross margin, net margin and return on capital employed for Blackmores Company has decreased from the year 2016 to year 2017. This is for the reason that the company is dealing with issues related to generating earnings in comparison to its expenses. Gross margin has decreased from 23.92% to 14.92%from 2016 to 2017and then increased to 36.93% in the year 2018.This can be stated to be a good rate of growth as the organization has adopted various strategies to increase operations and reduce the costs associated with them. Net margin has decreased from 13.96% to 8.30% from 2016 to2017 andcome back to a stable rate of 11.65% in the year 2018.Hence, this shall improve the financial standing of the organization on a whole.Return on capital employed has decreased from 27.82% to 20.75% from 2016 to 2017 and then come up to35% inthe year 2018.Therefore, it can be stated that the performance of the organization has improved considerably in the current year and its strategies seem to be working well. Such decreased profitability ratio is because of the reason that the Australian-Chinese consumers stopped buying at that point of time. However, as the firm has targeted new markets, profitability stabilized recently. This also indicates that Blackmores was not able to use its assets profitably in generating sales
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10STRATEGIC ANALYSIS REPORT ON BLACKMORES signifying decreased return on assets,however the changing strategies helped the firm to perform well later(Blackmores Annualreports.com. 2018). Liquidity Ratios-It is gathered that the liquidity ratios such as current and quick ratios of Blackmores are observed to decrease in the year 2017 from 2016. Current ratio of the company has decreased from 2.07% to 1.35% from the year2016 to 2017 andthen increased to 1.73% in the year 2018.Quick ratio of the company has decreased 1.25% to 0.90% from 2016 to 2017and then came up to 1.14%in the year 2018.This is because of the reason that the company was not that capable to pay its debt obligations for maintaining its safety margin in attaining increased cash flows.However, recently, the finances of the firm have improved and it has improved its accounts payable and receivable which has led to the increased ratio. This also indicates that the company was facing increased difficulties in selling inventories or prepaid assets in case of any emergency but now it has improved its position(Ingramet al.2015). Liquidity issues are generally being faced by the company as the debt levels for the company increased because of its new Warriewood site construction. Asset Efficiency Ratios-The asset efficiency ratios of Blackmores are indicating a decreasing trend from the year 2016 to 2017 in the averagetotal assets.Asset efficiency ratio of Blackmores is observed to decrease from 0.76 to 0.46 from year 2016 to 2017 and 0.23 in the year 2018.This is because of the reason that it is not able to employ its assets effectively to generate enough sales. This is because of the reason that Blackmores have dealt with decrease in 41% because of declined sales in its vitamin supplement segment.
11STRATEGIC ANALYSIS REPORT ON BLACKMORES Gearing Ratios-The gearing ratios of Blackmores is signifying a decreasing trend in interest cover ratio and an increasing trend in debt-to-equity ratio in the year 2017 in comparison to year 2016. Debt to equity ratio of Blackmores has increased from 0.10 to 0.25 over the years from 2016 to 2017and 0.26 in the year 2018.Interest cover ratio of the company has also decrease from 36.83 to 10.00 over the years 2016 to 2017and26.5 in the year 2018.This is because the company is able to net interest obligations from operating earnings which is a good sign because thefirm is being able to meet its obligations(Jenkins and Williamson 2015). However, the company is unable togenerate sufficientcash to address its debt obligations. 3.2. Company Culture, Core Competencies and Cross-Cultural Competencies Corporate culture of Blackmores is focused on two aspects, behavioral ad aspirational. The work practices within the company are supported by the legal procedures and policies. Moreover, the company also follows a culture of passion for health, integrity, respect, leadership andsocialresponsibilityamongtheemployees(Lasserre2017).Thecross-culturalcore competencies are explained below: Effective working capital management through decreasing short-term obligations to consumers Investment within additional warehousing all over Western Sydney PartnershipagreementwithAsianuniversitiesforfollowingpharmacyeducation programs Offering online learning program intended for health care professionals in distinct languages
12STRATEGIC ANALYSIS REPORT ON BLACKMORES 3.3. Political and Resource Issues Blackmores Company deals with certain political and resource-based issues as it is not being must capable to address the challenges presented by new entrants within the industry and has lost a considerable market share in niche categories (Morden 2016). In consideration to resources,the day`sinventory is observed to remain high in contrast to business rivals. This is deemed to affect long term growth of the company. To deal with such concerns the company is focused on maintaining automation of activities that can manufacture based on market demands. 4. Competitive Advantages through Business and Corporate Strategies 4.1. Business Level Strategies The business level strategies developed by Blackmores Company in order to attain suitable competitive advantages in the global market are explained under: Through developing effective pricing strategy, Blackmores has focused on differentiating itself from its business rivals through charging premium pricing. Certain other benefits offered by the company to attain business advantages of attaining excellent consumer satisfaction through its innovative technologies (Omaret al.2014). Another strategy implemented by Blackmores is to increase its product portfolio through offering wide range of products in its online and departmental stores. This has facilitated in ensuring increased visibility and availability of all its products through RTL voice picking and Pick-to-Light systems (Rothaermel 2015). 4.2. Level of Vertical Integration Vertical integration strategies are followed by Blackmores Company in which it controls more than one aspect of its supply chain. In following this strategy, the company made sure that
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13STRATEGIC ANALYSIS REPORT ON BLACKMORES Vertical integration strategy of the company facilitates in maintaining increased control over production (Trigeorgis and Reuer 2017). The company has implemented backward integration in its business with aligning with its units supplying raw materials to it. Blackmores has considered opening its own showrooms for its healthcare products increased visibility and has decreased costs by means of its own distributors and suppliers. Such vertical strategy implementation has made its product distribution and after sales services in the global market highly efficient. 4.3. Diversification and External Associations Blackmores diversification strategy is focused on developing new growth sources all through Asia. The company also has expanded its business operations and is continuously offering innovative health care products in Indonesia and India. The vitamin supplements organizations have developed long term sights in entering these markets and attained decent returns (Uechiet al.2015). In future the company has also planned to expand thousands of outlets all over China through implementing a “Bonded Store” model and implementing three pilot storesinHangzhou.InbuiltsmartphoneapplicationofBlackmoresfacilitatesitstarget consumers to attain all the information regarding its healthcare products Blackmoresismakingexternalassociationswithconductingretailpartnershipsfor attainingenhancedbusinessplatform.ThebusinessassociatedwithAlibabastrategic partnerships for better store purchasing andmanagement. Moreover, it also associated with “China We-Chat Stores” for increasing social impressions and online page views (Wahlen, Baginski and Bradshaw 2014).
14STRATEGIC ANALYSIS REPORT ON BLACKMORES 4.4. Performance Outcomes and Industry Characteristics EffectiveimplementationofthebusinessstrategiesbyBlackmoresCompanyhas facilitated in attaining exceptional performance outcomes. The company has attained several awards for its exceptional performance such as Yunji strategic partnership award and “Tmall Global 100+ million Club of 2018” award in the international partners summit that is considered as Oscar in e-commerce. The industry is also estimated to attain advantages from demand of consumers in the future years (Vogel 2014). Blackmores is observed to attain second position within the industry. Moreover, therapeutic goods administration maintains strict regulation in decreasing misleading information on labels. 5. Organizational Design Enabling Strategies 5.1. Recent Organizational Structural Changes Organization structure of Blackmores has been revised in order to make sure that it attains best support for its future growth. The company has made changes in leveraging operational along with manufacturing efficiencies (Wahlen, Baginski and Bradshaw 2014). The structure of the company has made structural changes to be highly consumer focused all across its channels and the employees must focus on following culture of constant innovation. The operationalforcesarealsobetteralignedadnewallocationofaccountabilitiesand responsibilities in the senior executive level that can ensure minimal disruption to its business. 5.2. Level of Centralization The strategies developed by Blackmores Company are focused on maintaining level of centralization. This is focused on implementing strategies that can enhance the supply chain processofthecompanythroughinvolvinginaggressivemarketingstrategies.Increased
15STRATEGIC ANALYSIS REPORT ON BLACKMORES investment within its inventory, research and development and developing consumer touchpoints that is centered on increasing direct sales(Bettis, Gambardella, Helfat and Mitchell 2014). 5.3. Horizontal Structural Characteristics Horizontal structural characteristics of Blackmores is focuses on developing effective strategies such as company’s acquisition of similar or competitive business or getting involved in merger to strengthen its position in the global market. Such strategy has also facilitated the company in increasing its capacity for attaining increased economies of scale and uniqueness of product rat can decrease competition and related risks. For attaining a competitive advantage, the company has taken the decision of acquiring Catalent Australia. Such acquisition is intended offer the company with high control along with agility for agility for responding to the changing market situations that facilitates the company in attaining assistance on employment and corporation tax. 5.4. Structure Diversification Affects and Integrating Mechanisms Being Used Structure diversification has been ensured by Blackmores in manufacturing, wholesaling, distributing, marketing and retailer their products in order to develop a stable and reliable business surrounding within which can develop a reliable environment for the company. The company is focused on delivering strongbusiness performance through distributing majority of its goods to pharmacies, supermarkets and health food stores. The business structure is integrated with such business mechanisms of the company through maintaining continuous improvement. This can be done through increasing acquisition and product diversification in international markets by not being reliant on a particular product.
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16STRATEGIC ANALYSIS REPORT ON BLACKMORES 6. Recommendations on Strategic Capability Improvement 6.1. Functional and Business Strategy Options In terms of functional and business strategy options, Blackmores is suggested to increase operational capacity by 50% by the end of 2019 so that the challenges related to supply, e- commerce channels and healthy food stores in Australia could be addressed accordingly. Moreover, it needs to follow competitive pricing strategy for raising its overall group sales by 50% in contrast to the past year(Bettis, Gambardella, Helfat and Mitchell 2014). The operating cash flows need to increase by minimum of 25% over the period starting from 2018 to 2019. Finally, Blackmores is needed to raise the number of research symposia and clinical trials at its research institute along with doubling education touch points for the healthcare experts within three years. 6.2. Vertical and Horizontal Integration In terms of vertical integration, Blackmores is required to enhance its supply chain by ensuringfastsupplyofvitaminproductsintheaccuratespecificationsneeded(Bettis, Gambardella, Helfat and Mitchell 2014). Focus needs to be kept on distribution and after sales services to make them more efficient by initiating new showrooms in the operating market. Moreover, it needs to absorb upstream as well as downstream profits, which include the earnings passed over to the vitamin manufacturing companies and showrooms, which are not owned by Blackmores. Furthermore, entity barriers could be increased for the new entrants through minimization of costs from the distributors and suppliers. In terms of horizontal integration, Blackmores is suggested to increase its product differentiation by including more healthcare products to the customers(Bettis, Gambardella,
17STRATEGIC ANALYSIS REPORT ON BLACKMORES Helfat and Mitchell 2014). It could plan to merge with popular foreign companies operating in the same industry to gain access to the cross-border market. 6.3. Diversification and Alliance Changes Considering both Fit and Stretch For Blackmores, it could enter the new markets with the help of mobile advertising, which would enable cell phone carrier for providing alerts to the customers regarding the location of the closest store(Bettis, Gambardella, Helfat and Mitchell 2014).Moreover, it could enter into partnership with global brands for advertising its products by displaying selling advertisements and short clips.In built smartphone application of Blackmores facilitates its target consumers to attain all the information regarding its healthcare products, which could be considered as strategic fit of the organization. 6.4. Risk and Return Inherent in Suggestions There are certain risks and returns associated with the recommendations offered to Blackmores(Bettis, Gambardella, Helfat and Mitchell 2014). Certain risks with the strategy implementation must be considered by the company in dealing with them. The onset of the sluggish economy can persuade the company in changing its schedule. In such scenario, the demand for the company’s products can get decreased than anticipated. In such situations scaling back the marketing plan is decreasing its costs. Considering another risk of increasing new entrants in the market Blackmores must focus on launching innovative healthcare nutrition products in competitive prices (Helfat and Mitchell 2014). 7. Conclusion The objective of this paper was to carry out strategic analysis of Blackmore Company through evaluating its internal and external business environment factors and competitive
18STRATEGIC ANALYSIS REPORT ON BLACKMORES advantages through corporate or business strategies. It was gathered from the report that Blackmores Company deals with certain political and resource-based issues as it is not being must capable to addressthe challenges presented by new entrants within the industry and has lost a considerable market share in niche categories. Certain recommendations are provided to the company in planning to expand thousands of outlets all over China through implementing a “Bonded Store” model and implementing three pilot stores in the nation.
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19STRATEGIC ANALYSIS REPORT ON BLACKMORES References Bergh, D.D., Sharp, B.M., Aguinis, H. and Li, M., 2017. Is there a credibility crisis in strategic managementresearch?Evidenceonthereproducibilityofstudyfindings.Strategic Organization,15(3), pp.423-436. Bettis, R., Gambardella, A., Helfat, C. and Mitchell, W., 2014. Quantitative empirical analysis in strategic management.Strategic Management Journal,35(7), pp.949-953. BlackmoresAnnualreports.com.,2018.[online]Availableat: http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BKL_2017.pdf [Accessed 11 Aug. 2018]. Durand,R.,Grant,R.M.andMadsen,T.L.,2017.Theexpandingdomainofstrategic management research and the quest for integration.Strategic Management Journal,38(1), pp.4- 16. Engert, S., Rauter, R. and Baumgartner, R.J., 2016. Exploring the integration of corporate sustainability into strategic management: a literature review.Journal of cleaner production,112, pp.2833-2850. Grant, R., Butler, B., Orr, S. and Murray, P.A., 2014.Contemporary strategic management: An Australasian perspective. John Wiley & Sons Australia, Ltd.. Grant, R.M., 2016.Contemporary strategy analysis: Text and cases edition. John Wiley & Sons. Hill, C.W., Jones, G.R. and Schilling, M.A., 2014.Strategic management: theory: an integrated approach. Cengage Learning.
20STRATEGIC ANALYSIS REPORT ON BLACKMORES Hill, C.W., and Schilling, M.A., 2015.Strategic management theory. Cengage Learning,. Hill, T., 2017.Manufacturing strategy: the strategic management of the manufacturing function. Macmillan International Higher Education. Ingram,T.N.,LaForge,R.W.,Williams,M.R.andSchwepkerJr,C.H.,2015.Sales management: Analysis and decision making. Routledge. Jenkins, W. and Williamson, D., 2015.Strategic management and business analysis. Routledge. Lasserre, P., 2017.Global strategic management. Macmillan International Higher Education. Morden, T., 2016.Principles of strategic management. Routledge. Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish Model and ratio analysis.International Journal of Trade, Economics and Finance,5(2), p.184. Rothaermel, F.T., 2015.Strategic management. McGraw-Hill Education. Trigeorgis, L. and Reuer, J.J., 2017. Real options theory in strategic management.Strategic Management Journal,38(1), pp.42-63. Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance ratio analysis of financial markets.Physica A: Statistical Mechanics and its Applications,421, pp.488-509. Vogel, H.L., 2014.Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
21STRATEGIC ANALYSIS REPORT ON BLACKMORES Wahlen, J., Baginski, S. and Bradshaw, M., 2014.Financial reporting, financial statement analysis and valuation. Nelson Education. Appendices Profitability Ratios:- ParticularsDetails Blackmore 201620172018 RevenueA599,526549,788601 Gross profitB143,41182,051222 Net profitC100,02058,02870 Operating profitD83,67645,634102 Total assetsE443,362412,174193 Current liabilitiesF142,556192,27946 Gross marginB/A23.92%14.92%36.93% Net marginC/A13.96%8.30%9.65% Return on capital employedD/(E-F)27.82%20.75%35% Liquidity Ratios:- ParticularsDetails Blackmore 201620172018 Current assetsA294,624258,662303 InventoriesB116,48684,794104 Current liabilitiesC142,556192,279174 Current ratioA/C2.071.351.73 Quick ratio(A-B)/C1.250.901.14 Gearing Ratios:- ParticularsDetails Blackmore 201620172018 Total debtA17,79344,71750 Total equityB178,263177,541193 Operating profitC83,67645,634102 Interest expenseD2,2724,5644 Debt-to-equity ratioA/B0.100.250.26 Interest cover ratioC/D36.8310.0026.15
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22STRATEGIC ANALYSIS REPORT ON BLACKMORES Asset Efficiency Ratios:- ParticularsDetails Blackmore 2016201720182015 RevenueA599,526549,788601 Cost of revenueB717,211692,790232.4 Opening total assetsC294,624258,662 178,80 0 Closing total assetsD443,362412,174 193,30 0293,407 Average total assetsE=(C+D)/20.760.460.23