ACC100 - Liquidity & Efficiency Ratio Analysis of Billabong

This report provides a financial analysis of Billabong Limited, a clothing retailer, focusing on liquidity and efficiency ratios using data from 2015 and 2016. The analysis reveals that while the current ratio showed a slight increase, the quick ratio remained consistent. However, both ratios indicate potential negative results when compared to ideal benchmarks. The efficiency ratios, including inventory turnover and accounts payable turnover, also showed negative trends, suggesting that the company may face challenges in managing its assets and liabilities effectively. The report recommends that Billabong Limited increase its current assets by raising funds, improve revenue generation, and shorten the collection period to enhance its working capital cycle. Desklib offers a range of solved assignments and past papers for students seeking further assistance.

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).

Findings
Liquidity Ratios
Particulars 2016
($)
2015
($
Total Current Assets 464,45
4
523,75
3
Quick Assets 278,89
8
336,62
8
Total Current Liabilities 197,93
2
236,76
8
Inventories 185,55
6
187,12
5
Current Ratio=Currents Assets/Current
Liabilities
2.3 2.2
Quick Ratio= Quick Assets/Current Liabilities 1.4 1.4
Efficiency Ratios
Particulars 2016
($)
2015 ($
Cost of sales -
542,373
-
495,30
8
Average inventory 186,341 183674
Average accounts payable 177061 196802
Inventory Turnover Ratio= Cost of Sales/Average Inventory -2.91 -2.70
Accounts Payable Turnover Ratio=Cost of Sales/Average Accounts
Payable
-3.06 -2.52
It was found that the company does not have enough funds so as to run its operations smoothly.
Both the ratio calculated above showed the negative results (Vale, 2018). This states that in case
of emergency the organisation will not have enough funds so that the obligations can be paid
(Accounting Tools, 2017).
Recommendations
 The value of the current assets can be increased by raising the funds through shareholders
which will improve the current ratio of Billabong Limited.

 The revenues should be increased by the organisation in the efficient way so that more of
the customers can be served with the available resources (Billabong Limited, 2018).
 The collection period should be improved so that the increase in the collection period will
improve the working capital cycle and hence the quick ratio will increase (Peavler, 2017).

References
 Billabong Limited, 2018. Annual Reports. [Online]. Billabong Limited. Available at:
https://www.asx.com.au/asxpdf/20160825/pdf/439m1tgqdj814v.pdf. [Accessed On 28
May 2018]
 Vale, H., 2018. Gross Efficiency Ratio. [Online]. Chron. Available at:
http://smallbusiness.chron.com/gross-efficiency-ratio-33489.html. [Accessed On 28 May
2018]
 Accounting Tools, 2017. Liquidity Ratios. [Online]. Accounting Tools. Available at:
https://www.accountingtools.com/articles/2017/5/13/liquidity-ratios. [Accessed On 28
May 2018]
 Peavler, R., 2017. Analysis of Liquidity Position Using Financial Ratios. [Online]. The
Balance. Available at: https://www.thebalancesmb.com/liquidity-position-analysis-with-
ratios-393233. [Accessed On 28 May 2018]