Company Analysis: Blackmores Limited

This report analyzes the financial performance and ratios of Blackmores Limited, an Australian health supplements company. It provides insights into profitability, efficiency, and liquidity ratios, along with recommendations for the company.

Company
FIN600 TX YYYY
NAME: STUDENT ID:

Student name – ID FIN600 TX YYYY
Assignment – Company
Executive Summary
The company chosen for review is Blackmores Limited which is engaged in the business of health
care supplements. This report talks about the meaning of the various ratio and what they indicate.
Further, the suggestions have been given for the company.
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Student name – ID FIN600 TX YYYY
Assignment – Company
Contents
Page Number
1 Introduction 2
1.1 Background and Business
2 Company Analysis
2.1 Analysis of financial statements of the business
Current Financial performance, economic outlook
3 Ratio Analysis
3.1 Profitability ratios
3.2 Efficiency ratios
3.3 Liquidity ratios
3.4 Gearing ratios
4 Recommendations and overall assessment
5 References/Bibliography
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Student name – ID FIN600 TX YYYY
Assignment – Company
Appendices – attached Excel Spreadsheet
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Student name – ID FIN600 TX YYYY
Assignment – Company
1 Introduction
1.1 Background and Business
The company undertaken for review is Blackmores Limited which is an Australian Health
supplements company which was founded in the year 1930. The founder of the company was
Maurice Blackmores. The company had successfully opened its first food shop in the country of
Australia in Brisbane, Queensland. If considered today, the company is listed in the ASX 200
companies and has the market value of its share of an amount of $2 billion. The company also gives
an employment to about 843 people and also manufactures a wide variety of products. The example
of the products being manufactured include vitamins, minerals along with various health
supplements. The company operates in about 17 markets all across the Asia Pacific region of the
world. The company under review was inducted into the Queensland Business Leaders Hall of
Fame (Blackmores, 2019).
2 Company Analysis
2.1 Financial statements, Current Financial performance, economic outlook
The founder of the company was of the view that the properties of the herbs and the minerals helps
in the development of the entire system of the health care which was based upon some naturopathic
principles. His viewpoints majorly existed on the natural health, the medicines that could prevent
diseases and also the environment along with recycling that dated to the early years of 1930. It was
his view point that led to the development of many medicines that could treat different illnesses and
also help in the maximisation of health. The founder of the company Maurice was responsible for
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Student name – ID FIN600 TX YYYY
Assignment – Company
the starting up of the various health food stores in the areas of Brisbane during the year of 1938 and
he also worked with his colleagues and friends for the purposes of establishing the college of
naturopathic facts. He also led to the establishment of many professional associations in the country
of Australia itself. It were his beliefs that still hold truth and his relevant teachings and thought
process were successfully incorporated into the various training programs of the various
practitioners concerned with the natural health.
It was then during the year of 1975 that his son Marcus took the company to greater heights and that
led the company to become a world most appreciated company in the natural health on one side
whereas it kept its core to the founding principles on the other. Till today, the company enjoys an
unmatched heritage at heart and also enjoys a holistic approach when it comes to health and the
well-being of the people. The company has remained committed when it came to the delivering of
the new and the innovative products and supply the relevant health information and these have been
passed on to the customers (Blackmores, 2019).
The company led to a decrease in the amount of sales in the country of China. This happened
majorly due to the change in the strategy which was being used and also targeted and affected the
trade in china. The net effect of this led to an increase in the amount of the sales to the Chinese
consumers which led to the growth of 8% when compared with the previous year.
The investors of the company sold off the majority of its shares when the company announced that
it would be burgeoning sales in the Chinese market and also a decrease in the sales of the company
by 11%. This would ultimately lead to the weakening of the earnings during the second half of the
year. The company made majority of the sales to the country of China in the health conscious
middle class which led the company to report double sales in the country of China (SMH, 2019).
3 Ratio Analysis
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Student name – ID FIN600 TX YYYY
Assignment – Company
3.1 Profitability and Market ratios
The following table shows the calculated ratios:
2018 2017
Return on
Assets (Profit / Average total assets)
Profit / ((Year
1 Total A +
Year 2 Total
A)/2)
Profit /Year 2
Total A
0.039464712 0.140785202
3.95% 14.08%
Return on
Equity (Profit / Average equity)
Profit / ((Year
1 OE + Year 2
OE)/2)
Profit /Year 2
OE
0.093004415 0.324506904
9.30% 32.45%
Net Profit
Margin Net profit / Sales or revenue NP/ Revenue NP/ Revenue
0.115153642 0.105092727
12% 11%
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Student name – ID FIN600 TX YYYY
Assignment – Company
Gross Profit
Margin Gross profit / Sales or revenue GP/ Sales GP/ Sales
0.61390304 0.57086714
61% 57%
Net Interest
Income
Net Interest Income / Average Earning
Assets
NII / ((Year 1
earning A +
Year 2 earning
A)/2)
NII / Year 2
earning A
for banks only 0 0
0.00% 0.00%
Expense ratio Expenses (excluding tax) / Net sales Exp / Revenue Exp / Revenue
(using operating expenses/operating
income) 0.838389377 0.85224125
84% 85%
Cash return on
sales
Net cash flow from operating activity /
Sales or Revenue
$ op activities /
REV
$ op activities /
REV
0.096418733 0.08256484
10% 0.08256484
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Student name – ID FIN600 TX YYYY
Assignment – Company
Earnings per
share
Profit for shareholders / Number of
ordinary shares $xx per share $xx per share
EPS taken from annual report 4.064 3.426
Price earnings
ratio Share price 30 June / Earnings per share $XX / EPS $XX / EPS
share price 30 June taken from annual
report 34.1166 2.9912
XX times XX times
Earnings yield EPS / Share price 30 June EPS / $XX EPS / $XX
share price 30 June taken from annual
report 34.11663386 26.56450671
3411.66% 2656.45%
Dividends per
share
Dividends - Special dividends/ No of
shares $XX per share $XX per share
(determined) DPS taken from annual report 2.899988675 3.400014873
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Student name – ID FIN600 TX YYYY
Assignment – Company
Return on assets ratio is the ratio which shows the profitability of the company in relation with the
total assets of the company. This ratio indicates the way in which the company has performed when
it comes to the profits and the amount of the capital the company is able to generate from
employing its assets. The higher this ratio, the more is its productivity and the more effective its
management is when it comes to the utilization of the economic resources. A higher ratio is
recommended for the company. This ratio shows a decrease which means issues for the company
(Corporate finance institute, 2019).
The Return on Equity is the ratio which indicates the return that the company earns on the equity
which has been invested into the company of the shareholders. This ratio indicates the amount of
the return son the investment which have been invested by the shareholders of the company. A
higher ratio is recommended for the company. This ratio shows a decrease which means issues for
the company (Economic times, 2019).
The net profit ratio is the ratio which shows the amount of the revenue which is left in the
hands of the company after all of the expenses have been deducted from the amount of the
revenue generated by the company. This helps in the measurement of the profit of the company
which could be extracted from its total amount of the sales. The gross sales equation after all of
the expenses along with sales allowances equals to the net sales. A higher ratio is recommended
for the company. This ratio shows an increase which shows good performance of the company
(Bragg, 2019).
Gross profit margin ratio is the ratio of profitability which helps in the calculation of the sales over
and above the cost of goods sold. This is the ratio which suggests the efficiency of the company
when it comes to using the material and labour to be used and also sell its products profitably. In
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Student name – ID FIN600 TX YYYY
Assignment – Company
other words, it could be said that this is the amount of the sales left over and above all of the direct
costs that have been incurred. These are the costs that directly are connected with the cost of the
goods sold and comprise of the direct labour and the raw materials. A higher ratio is recommended
for the company. This ratio shows an increase which shows good performance of the company (My
accounting course, 2019).
An expense ratio is the ratio which is charged by the company for the purposes of managing the
funds of the investor (Economic times, 2019).
The return on sales ratio indicates the efficiency of the company when it comes to the generation of
profits from its revenue. It helps in the measurement of the performance of the business operations
of the company by the way of analyzing the % of the total amount of the revenues earned by the
company into the profits that are being generated by the company. A higher ratio is recommended
for the company. This ratio shows a decrease which shows good performance of the company (My
accounting course, 2019).
The earnings per share or the EPS is the financial measure of the company which indicates the
profitability of the company. This is calculated by the way of dividing the net income which has
been earned by the company and dividing the same by the way of outstanding shares. This is the
tool which the various participants in the market use for the purposes of assessing the future
prospect of the company. A higher ratio is recommended for the company. This ratio shows an
increase which shows good performance of the company (Economic times, 2019).
The price earnings ratio is the ratio which shows the connectivity between the stock price and the
earnings that the company earns on each share or on each dollar invested into the company. This
ratio helps the investors in assessing the company and whether the company would be able to meet
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Student name – ID FIN600 TX YYYY
Assignment – Company
its future expectations or not. A higher ratio is recommended for the company. This ratio shows an
increase which shows good performance of the company (Corporate finance institute, 2019).
The ratio of earnings yield is the reverse of the price earnings ratio. The price earnings ratio and the
earnings yield ratio indicate the same result. A higher ratio is recommended for the company. This
ratio shows an increase which shows good performance of the company (Equity master, 2019).
The dividend per share is the total amount of the dividend which has been earned by the company
and is allocated to each one of the share which is outstating for the company. This amount of
dividend per share helps an investor in understanding the income from the company and the amount
which the company earns on each share. These are the dividends that are usually paid in cash to the
investors of the company. A higher ratio is recommended for the company. This ratio shows a
decrease but this does not mean that the performance of the company has deteriorated since it
means that the company has set aside its major earnings for investment in future (corporate finance
institute, 2019).
The profitability ratios of the company throws light on the profits that have been earned by the
company. A higher ratio shows that the management of the company is efficient enough to generate
profits and there is as such no issues that the company would be exposed to in the near future.
Hence, the high these ratios are, the better it is for the company. The majority of the ratios that have
been calculated above shows a decrease when compared with the previous year of 2017. Hence, an
improvement in the operations of the company is recommended.
3.3 Efficiency ratios
The following table shows the calculated ratios:
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Student name – ID FIN600 TX YYYY
Assignment – Company
2018 2017
Asset
turnover Sales / Average total assets
revenue /
((Year 1 Total
A + Year 2
Total A)/2)
revenue / Year
2 Total A
0.343122879 1.340950666
xx times xx times
Cashflow
return on
assets
Net cash from op activities / Average total
assets
$ op activities/
A
$ op activities/
A
0.033083473 0.110715377
result times result times
Fixed-
Asset
Turnover
Ratio Sales / Total non current assets
revenue / Total
NCA
revenue / Total
NCA
3.707298744 3.600402574
xx times xx times
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Student name – ID FIN600 TX YYYY
Assignment – Company
An asset turnover ratio is the ratio which indicates the ability of the company to generate sales
revenue by the way of comparing the net sales with the average amount of the total assets. In other
words, this ratio shows the efficiency of the company when it comes to the generation of sales from
employing its assets. A higher ratio is recommended for the company. This ratio shows a decrease
which is not good for the company since lack of efficiency on the part of the company (My
accounting course, 2019).
The cash flow to sales ratio is the ratio which indicates the ability of the company to generate in
cash flows in relation with the sales volume of the company. This ratio is calculated by the way of
divided the operating cash flows by the amount of the net sales. This is the ratio which increases or
decreases in the same proportion as the sales. In case, this ratio reduces, then that would mean
issues with the efficiency of the company. A higher ratio is recommended for the company. This
ratio shows an increase which shows good performance of the company (Accounting tolls, 2019).
The fixed asset turnover ratio is the ratio which helps in the measurement of the return on the
investment of the company in the fixed assets such as the property, plant and equipment. This is
done by comparing the net amount of the sales with the fixed assets. It helps in the assessment of
the efficiency of the company when it comes to the production of sales by the way of employing the
machines and the equipment by the company. A higher ratio is recommended for the company. This
ratio shows an increase which shows good performance of the company (Bragg, 2019).
The efficiency ratios of the company throws light on the efficiency of the management when it
comes to the generation of the revenue for the company. A higher ratio shows that the management
of the company is efficient enough to generate profits and there is as such no issues that the
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Student name – ID FIN600 TX YYYY
Assignment – Company
company would be exposed to in the near future. Hence, the high these ratios are, the better it is for
the company. The majority of the ratios that have been calculated above shows an improvement
which means that the company’s management is working on improving its efficiency.
3.3 Liquidity ratios
The following table shows the calculated ratios:
2018 2017
Current
Ratio
Total current assets / Total current
liabilities CA / CL CA / CL
1.733892369 1.814458879
XX:1 XX:1
Quick Ratio
(Total current assets - Inventory) /
Total current liabilities (CA - INV) / CL (CA - INV) / CL
1.137991712 1.219647016
result:1 result:1
Receiveables
turnover
Credit sales rev / Avg receivables (Credit sales rev/
((Year 1 Acc rec
(Credit sales
rev/Acc
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Student name – ID FIN600 TX YYYY
Assignment – Company
+ Year 2 Acc
rec)/2)/100) *365 rec)/100*366
0.972622944 3.634449397
result days result days
Average
collection
period
Average receiveables x 365 / Net
credit sales rev
(Acc rec *365) /
Rev
(Acc rec *365) /
Rev
375.2738945 100.4278668
xx days xx days
The current ratio is the ratio which helps in measuring the capability of the company to pay off its
short term debts in the near future. This ratio shows the weights of the current assets and compares
the same with the weight of the total amount of the current liabilities. This ratio shows the financial
health of the company and the way in which the company could maximize its liquidity position
(Corporate finance institute, 2019).
A higher ratio is recommended for the company. This ratio shows a decrease which shows inability
on the part of the company.
The quick ratio is the ratio which helps in measuring the capability of the company to pay off its
short term debts in the near future. This ratio shows the weights of the current assets and compares
the same with the weight of the total amount of the current liabilities. This ratio shows the financial
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Student name – ID FIN600 TX YYYY
Assignment – Company
health of the company and the way in which the company could maximize its liquidity position. A
higher ratio is recommended for the company. This ratio shows a decrease which shows inability on
the part of the company (Accounting coach, 2019).
The ratio accounts receivable ratio is the ratio which is an efficiency ratio which helps in the
measurement of the number of times the business is able to convert the accounts receivables derived
from sales into cash during a given period of time. This is the ratio which helps in the measurement
of the number of times the company is able to collect its average accounts receivables during any
given period of time (My accounting course, 2019).
A higher ratio is recommended for the company. This ratio shows a decrease which shows inability
on the part of the company.
The average collection period is the difference between the average number of the days during
which the credit sales were made and the dates during which the money was realized from the
customers (Accounting coach, 2019).
A lower ratio is recommended but the calculated ratios shows an increase which means stocking of
working capital of the company.
The liquidity ratios throws light on the cash position of the company, a higher ratio would mean that
the cash position of the company is good and it would not face any obstacles when trying to meet its
short term expenses. The ratios calculated shows a decrease which means that the cash position of
the company has only fallen. Hence, it is recommended that the company goes for measures to
improve its cash position.
3.4 Gearing ratios
The following table shows the calculated ratios:
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Student name – ID FIN600 TX YYYY
Assignment – Company
YYYY YYYY
Debt to
Equity
Total debt/Total equity or Total
liabilities/Total equity Debt / Equity Debt / Equity
(use debt figures only) - DEBT
or BORROWINGS 1.404438008 1.304978777
140.44 130.50
Debt ratio Total debt / Total assets Debt / Total Assets Debt / Total Assets
0.584102399 0.566156526
58% 57%
Equity Ratio Total equity / Total assets OE / A OE / A
0.415897601 0.433843474
42% 43%
Cash debt
coverage
$$ from op activities / Avg total
liabilities
$ operating
activities / ((Year 1
Total L + Year 2
Total L)/2)
$ operating
activities / Year 2
Total L
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Student name – ID FIN600 TX YYYY
Assignment – Company
51832 22817
5183200% 2281700%
Interest
coverage
ratio EBIT / Interest expense EBIT / Interest Exp EBIT / Interest Exp
25.85547074 20.62942584
xx times xx times
The debt to equity ratio is the ratio which helps in comparing the total amount of the debt that the
company owes to the total amount of equity which has been invested into the company by the
shareholders. This ratio shows the % of the financing from the creditors and the investors. A higher
ratio who’s more riskiness to the company along with the fact that more amount of bank loan has
been used for the purposes of investor financing (My accounting course, 2019).
A lower ratio is recommended but this ratio shows an increase which exposes the company to many
risks.
The cash debt coverage ratio of the company indicates the connection or the relation between the
operating amount of the cash flows and its total amount of the liabilities and it merely shows the
ability of the company to pay back its debt (Wealthy education, 2019).
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Student name – ID FIN600 TX YYYY
Assignment – Company
A higher ratio is recommended for the company. This ratio shows an increase which is good for the
performance of the company.
The interest coverage ratio is the ratio which helps in measuring the capability of the company to
make the payments of interest on its debt. This ratio has nothing to do with making the payments of
the principle amount on that amount of debt itself. This ratio merely shows the ability of the
company to meet its interest payments (My accounting course, 2019).
A higher ratio is recommended for the company. This ratio shows an increase which is good for the
company.
4 Recommendations and overall assessment
The year 1 or the year 2017 was much better for the company. The majority of the ratios calculated
above have decreased which is and for the company.
If the ratios kept on decreasing at such a level, then it is difficult for the company to succeed in the
future years. Looking at the ratios, an acquisition is most likely.
In order to succeed, it must start working on its efficiency. It must look for the ways in which the
profitability of the company could be improved. The sales could be increased but the expenses
could be reduced on the other hand. When any organization becomes insolvent, it affects all of the
stakeholders. The management is questioned, the government and the public losses interest. The
public at large starts questioning the ethics of the management and of the people associated with the
company which led to the failure of the company. If the environment is competitive, then it
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Student name – ID FIN600 TX YYYY
Assignment – Company
becomes difficult for the company to function since the rules and regulations become tough for the
company.
The external factors include the competition with the other companies, benchmarking etc.
It seems difficult for the company to invest since looking at the way the ratios are reducing, the
future of the company seems a bit tough. In the end, I would suggest that the company should go for
the ways through which its revenue could be increased and expenses be decreased. Further, it
should look for the alternative sources through which the purchases could be made without
compromising on the quality of the materials being used by it. Also, the company should identify
any irrelevant cost and eliminate them, so that its profitability improves.
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Student name – ID FIN600 TX YYYY
Assignment – Company
5 References/Bibliography
References
Accounts Receivable Turnover Ratio | Formula | Analysis | Example. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/accounts-receivable-turnover-ratio
Asset Turnover Ratio | Analysis | Formula | Example. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/asset-turnover-ratio
Bragg, S., & Bragg, S. (2019). Cash flow to sales ratio. Retrieved from
https://www.accountingtools.com/articles/2017/5/14/cash-flow-to-sales-ratio
Current Ratio Formula - Examples, How to Calculate Current Ratio. (2019). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/
Debt to Equity Ratio | Formula | Analysis | Example. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/debt-to-equity-ratio
Definition of Earnings Per Share (eps) | What is Earnings Per Share (eps) ? Earnings Per Share
(eps) Meaning - The Economic Times. (2019). Retrieved from
https://economictimes.indiatimes.com/definition/earnings-per-share-eps
Dividend Per Share - Overview, Guide to Calculate Dividends Per Share. (2019). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/dividend-per-share/
Fixed Asset Turnover Ratio Formula | Example | Calculation Explanation. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/fixed-asset-turnover
Interest Coverage Ratio | Formula | Example | Analysis. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/interest-coverage-ratio
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Student name – ID FIN600 TX YYYY
Assignment – Company
Investing Strategies That Work!. (2019). Retrieved from https://wealthyeducation.com/cash-debt-
coverage-ratio/
Price Earnings Ratio - Formula, Examples and Guide to P/E Ratio. (2019). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/valuation/price-earnings-ratio/
Return on Sales Ratio Formula | Analysis | Example. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/return-on-sales
What is the average collection period? | AccountingCoach. (2019). Retrieved from
https://www.accountingcoach.com/blog/average-collection-period
What is the quick ratio? | AccountingCoach. (2019). Retrieved from
https://www.accountingcoach.com/blog/quick-ratio-acid-test
Yield, E. (2019). Earnings Yield Formula, Definition & Example | Equitymaster.com. Retrieved
from https://www.equitymaster.com/glossary/earnings-yield/
Bonyhady, N. (2019). Blackmores shares tank after disappointing sales to China. Retrieved from
https://www.smh.com.au/business/companies/blackmores-reports-dip-in-china-sales-net-profit-
inches-higher-20190219-p50yop.html
Bragg, S., & Bragg, S. (2019). Net profit margin. Retrieved from
https://www.accountingtools.com/articles/what-is-net-profit-margin.html
Company information. (2019). Retrieved from https://www.blackmores.com.au/about-us/company-
information
Definition of Expense Ratio | What is Expense Ratio ? Expense Ratio Meaning - The Economic
Times. (2019). Retrieved from https://economictimes.indiatimes.com/definition/expense-ratio
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Student name – ID FIN600 TX YYYY
Assignment – Company
Definition of Return On Equity | What is Return On Equity ? Return On Equity Meaning - The
Economic Times. (2019). Retrieved from
https://economictimes.indiatimes.com/definition/return-on-equity
Gross Profit Margin Ratio | Formula | Percentage | Example Calculation. (2019). Retrieved from
https://www.myaccountingcourse.com/financial-ratios/gross-profit-margin
Heritage & history. (2019). Retrieved from https://www.blackmores.com.au/about-us/company-
information/heritage-and-timeline
Return on Assets - ROA Formula, Calculation, and Examples. (2019). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/return-on-assets-roa-
formula/
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Student name – ID FIN600 TX YYYY
Assignment – Company
Appendices – attached Excel Spreadsheet
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