Financial Analysis of Billabong Limited: Liquidity and Efficiency Ratios

ACC100 Principles of Accounting

PART B
Company’s Background
Billabong Limited is the clothing retailer that produces the products such as watches,
snowboards, backpacks and skateboards (Billabong Limited, 2018). It was founded in 1973 by
Gordon and Rena merchant and was the first organisation to trade in the Australian stock
exchange in 11 August 2000. More than 6000 of employees are serving the customers in Asia
Pacific, Europe and internationally so that the quality of services can be provided to the
customers (Billabong Limited, 2018).
Analysis
The liquidity ratio of the organization is calculated so that the liquid position of the Billabong
Limited can be determined in the external market. It can be seen that in year 2015 the current
ratio was 2.2 but in the year 2016 it increased to 2.3 (Billabong Limited, 2018). Though it
showed the slight difference but it seems that the company has decreased its liabilities by
increasing the assets though which the liabilities can easily be paid through assets (Peavler,
2017). The quick ratio is also calculated which will determine the ability of the company to back
its liabilities from assets (Accounting Tools, 2017). The quick ratio is consistent which shows
that the liabilities can easily be met through assets. But when these are compared with the ideal
ratios they show the negative results (Billabong Limited, 2018).
The efficiency ratios will help in determining that how efficient the Billabong Limited is to
manage its assets so that the debts can be controlled (Vale, 2018). The inventory turnover ratio in
the year 2015 was 2.70 but increased to 2.91 in 2016 which showed that the organisation has not
maintained its inventory levels. The accounts payable turnover ratio also showed increase from
2015 to 2016. In 2015 it was 2.52 and in 2016 it became 3.06 (Billabong Limited, 2018). This
showed the negative results that the company does not have sufficient resources so as to pay the
bills immediately (Vale, 2018).