Business Valuation and Analysis: A Study on Blackmores Limited

Running Head: Business Valuation and analysis
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Project Report: Business Valuation and analysis

Business Valuation and analysis 2
Contents
Introduction.......................................................................................................................3
Company analysis.............................................................................................................3
Financial analysis..............................................................................................................3
Ratio analysis................................................................................................................3
Major expenses which impact the profit margin..........................................................8
Ratio trend..................................................................................................................10
Cash flow analysis..........................................................................................................10
Liquidity analysis........................................................................................................10
Cash flow analysis......................................................................................................11
Solvency analysis........................................................................................................12
Cash flow management and financial risk..................................................................12
Conclusion......................................................................................................................13
References.......................................................................................................................14
Appendix.........................................................................................................................16
Reformatted income statement...................................................................................16
Reformatted Balance sheet.........................................................................................17
Ratios..........................................................................................................................20

Business Valuation and analysis 3
Introduction:
Business valuation is a set of processed and methods which is used by the financial managers,
financial analyst, investors and other stakeholders of the business to identify the economic value and
actual worth of the equity in the business (Vogel, 2014). Business valuation and analysis could be
done through various tools such as economic value added, cash flow analysis, ratio analysis, trend in
the financial performance etc. This report has been prepared to identify the business value of
Blackmores limited. To identify the performance of the business, the ratio analysis study has been
done and the various expenses which affect the performance of the business has been studied along
with the performance of the cash flow analysis of the business to identify the overall position of the
business in the industry.
Company analysis:
Balckmores limited is an Australian company which develop markets and sells the natural
products related to the health of human and animals. The main market are of the company is Asia,
Australia and New Zealand. Mainly, the company offers the herbal, mineral and vitamin nutrition
product and supplements to its customers. Company also offers various other products for the cold,
flu, joint pains, bones, muscles, brain health etc. the company also offers the product for the
betterment of its customers (Bloomberg, 2018).
Financial analysis:
Financial analysis is a process which collects the financial statement of a business and
conducts various valuation models on the company to identify the financial status and performance of
the business (Moyer, McGuigan, Rao and Kretlow, 2011). In the report, the financial ratio analysis
method has been applied on Blackmores financial statement to identify the changes and the
performance of the company.
Ratio analysis:
Ratio analysis method is one of the most used and easier method of financial analysis
technique. This method collects and records the main data of the company in order to reach over the
conclusion about the financial status of the business. The ratio analysis study of the company is as
follows:
Return on equity (ROE):
Return on equity is major ratio analysis method which is used to identify the profit generation
capabilities of the business against the total owner’s equity of the business which is maintained by the
business to run the operations (Brigham and Daves, 2012). The return on equity position of the

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company expresses that the ROE level of the business was 25.14% in 2014 which has became 63.81%
in 2016 and again reduced to 37.20% in 2018. The current position of the business express that the
ROE level of the company is enough competitive and company should manage the same level. The
performance in the year of 2016 was extra ordinary which has taken place due to sudden demand of
the products of the company.
Figure 1: Return on equity
(Annual report, 2018)
Return on net operating assets (RNOA):
Return on net operating assets (RNOA) is calculated by the financial analyst and other
stakeholders of a business to identify the profit generation capabilities of the business against the net
assets of the business which is maintained by the business to run the operations (Brigham and
Houston, 2012). The return on net operating assets position of the company expresses that the RNOA
level of the business was 16.02% in 2014 which has became 49.35% in 2016 and again reduced to
27.08% in 2018. The current position of the business expresses that the RNOA level of the company
is still better and the level is enough competitive in the industry to manage the profitability level of
the business.

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Figure 2: Return on net operating assets
(Annual report, 2017)
Profit margin (PM):
Profit margin is one of the common ratio analysis methods which are used to identify the
profit generation capabilities of the business against the total turnover of the business (Baker and
English, 2011). The profit margin position of the company expresses that the PM level of the business
was 10.02% in 2014 which has became 16.89% in 2016 and again reduced to 11.96% in 2018. The
current position of the business expresses that the profit margin level of the company is average.
Company should make few changes into its strategies to improve the position of the business.
Figure 3: Profit margin
(Annual report, 2015)

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The profit margin position of the company further has been studied and it has been found that
the better the profit margin of the business would be, the better the business would be able to
manage the market performance:
PM:7.00%
PM ratio share price Δ share price change
Optimistic 10% 7.70% 192.90 15.50%
5% 7.35% 179.96 7.75%
0 7.00% 167.01 0.00%
Pessimistic -5% 6.65% 154.07 -7.75%
-10% 6.30% 141.12 -15.50%
(Ahrendsen & Katchova, 2012)
Asset turnover ratio (ATO):
Asset turnover ratio is calculated by the business to identify the total turnover of the business
against the available resources of the business. The reformatted sales and net operating assets of the
business have been calculated to identify the ATO level of the business (Madura, 2011). The asset
turnover position of the company expresses that the various changes have occurred into the asset
turnover of the business because of the fluctuations in the assets level. The current level of the
business is quite competitive.
Figure 4: Asset turnover ratio
((Morningstar, 2018)