Billabong Limited Financial Health: Detailed Ratio Analysis Report

This report provides a comprehensive financial ratio analysis of Billabong Limited, focusing on profitability and liquidity. It examines key ratios such as profit margin, return on assets, current ratio, and quick ratio, comparing the company's performance in 2015 and 2016. The analysis reveals a decline in profitability and return on assets in 2016, attributed to the absence of extraordinary profits from discontinued operations and income tax benefits. Despite this, the company has reduced its losses, indicating improved cost control and sales strategies. The liquidity ratios, including current and quick ratios, suggest that Billabong Limited is capable of meeting its short-term obligations, with a slightly improved current ratio in 2016. The report references Billabong Limited's financial report and other sources to support its findings.

Billabong’s Ratio Analysis

Table of Contents
BACKGROUND OF BILLABONG LIMITED (Limited, 2016).............................................................................3
PROFITABILITY RATIOS (Liquidity Ratios).....................................................................................................3
PROFIT MARGIN RATIO (Return on Net Assets (RONA))..........................................................................3
Analyses:..............................................................................................................................................3
RETURN ON ASSETS RATIO (Return on Net Assets (RONA))....................................................................4
Analyze:...............................................................................................................................................4
LIQUIDITY RATIO (Liquidity Ratios)..............................................................................................................4
CURRENT RATIO......................................................................................................................................4
Analyze:...............................................................................................................................................5
QUICK RATIO (Quick Ratio)......................................................................................................................5
Analyze:...............................................................................................................................................5
Bibliography................................................................................................................................................5

BACKGROUND OF BILLABONG LIMITED (Limited, 2016)
Billabong Limited main business consist of wholesaling and retailing of surf, skate, snow and sports
apparel, accessories and hardware comprising of multiple brands like Billabong, Element, RVCA, Kustom,
Palmers, Honolua, Xcel, Tigerlily and Von Zipper.
The Company operates 407 retail stores in countries across the world with presence in North America,
Europe, Australia, New Zealand, Japan and South Africa. Stores trade under a variety of banners like
Billabong, Element, Surf dive n Ski (SDS), Rush, Amazon, Honolua, etc.
PROFITABILITY RATIOS (Liquidity Ratios)
Profitability ratios are used to analyze a business ability to generate earnings compared to its expenses
and other relevant costs incurred during the specific Period. Profitability Ratio are the most powerful
tool used in financial analysis. Few examples of Profitability Ratios are Profit margin, Return on assets
and Return on equity.
PROFIT MARGIN RATIO (Return on Net Assets (RONA))
Profit margin ratio can be simply calculated by dividing net income by net sales.
Profit margin ratio = Net income/Net sales
Particulars 2016
($’000)
2015 ($’000)
Net income (23739) 2552
Net sales 1,096,903 1,048,357
Profit Margin Ratio (2.16) 0.24
Extra Ordinary Items and Income Taxes (7,844) 22,747
Net income excluding above (15,895) (20,195)
Profit Margin Ratio on above net income (0.014) (0.019)
Analyses:
The Profit margin ratio directly measures what percentage of sales is made up of net Income. In other
words it analyses how much profits are produced at a certain level of sales. This also show how much a
company well manage revenue as compare to its expenses, So company works hard to achieve a higher
ratio through increasing their sales keeping expenses constant or decreasing there expenses keeping
sales constant.
In case of Billabong limited the Profit margin ratio stands 0.24 at 2015 in comparison to Year 2016 which
stands to negative (2.16) which indicate that the company is not able to meet his expenses through the
revenue earned and is not in a position to decrease their expenses. If one sees the major reason for
company’s lower income is because last year it had extraordinary profit from discontinued operation
($10,516,000) and there was a benefit in Income tax of $12,231,000 too, excluding this if we see the
company has reduced its losses from $20,195 k to $15,895k in the current year which shows the

company is getting conscious in terms of increasing the sales as well as controlling cost. On excluding
such extra ordinary impact, the net profit margin has not changed much.
RETURN ON ASSETS RATIO (Return on Net Assets (RONA))
For every manufacturing company fixed assets are a big investment and hence it is useful to understand
how much income are these investments in business producing, return of asset serve the same purpose.
Return on assets often called as return on total assets or a net asset shows the net income produced by
total assets. This ratio helps the management analyze how easily company converts its investment in
assets into profit.
Return on Assets Ratio = Net Income/Average Total Assets
Particulars 2016 ($’000) 2015 ($’000)
Net Income (23739) 2552
Average total Assets (including accumulated depreciation) 1,110,498 1,135,025
ROA (2.13) 0.23
Net income as computed above (15,895) (20,195)
ROA on above net income (0.014) (0.017)
Analyze:
In case of Billabong ltd the Return on Assets Ratio stands 0.23 at 2015 in comparison to Year 2016 which
stands to negative (2.13) which indicates that the company is not effectively utilizing its assets and
cannot reap benefit out of its investment in assets. If we exclude the extraordinary items then it is
almost at par with last year.
LIQUIDITY RATIO (Liquidity Ratios)
Liquidity Ratio analyses a company’s ability to pay off its debt obligation and its margin of safety. Liquid
ratio includes Current ratio, Quick ratio, and operating cash flow ratio.
CURRENT RATIO
Current Ratio measures the ability of the Company to pay its debt in short term. It measures the short
term liquidity of the business.
Current Ratio=Current Assets/Current Liability
Particulars 2016 2015
Current Assets 464,454 523,753
Current Liability 197,932 236,768
Current Ratio 2.3:1 2.2:1
Analyze:
In case of Billabong ltd the Current Ratio stands 2.3 at 2015 in comparison to 2.2 in year 2016 which
indicates that the company is capable of paying of its liabilities as it has a larger proportion of assets

relative to the amount of liabilities. With a higher current ratio, Billabong will be able to pay off the
creditors and negotiate better deals with them in future and can also increase the profit margin.
QUICK RATIO (Quick Ratio)
Quick Ratio also known as acid test ratio, this ratio indicates how well a company can meet its financial
obligations. Since current ratio has certain limitation, this ratio is a very strong indicator of whether the
company has sufficient ultra short term assets to cover its immediate liabilities.
Quick Ratio= Cash+Marketable Securities+Receivables/Current Liabilities
Particulars 2016 ($’000) 2015 ($’000)
Cash and Cash equivalents 89,171 153,334
Receivables 171,644 164,504
Marketable Securities 440 3879
Current Liabilities 197,932 236,768
Quick Ratio 1.32:1 1.36:1
Analyze:
Companies with quick ratio less than 1 would mean that they do not have enough liquid and easily
convertible assets to pay their current liabilities.
In case of Billabong ltd the Quick Ratio stands 1.36 at 2015 in comparison to Year 2016 which stands to
1.32:1 which indicates that the company is efficient to pay off its short term obligation in a crunch
situation and is very efficient in both the year.
Bibliography
Limited, B. I. (2016, August 25). Financial report ended 30 June 2016 . Retrieved June 6, 2018, from
https://www.asx.com.au: https://www.asx.com.au/asxpdf/20160825/pdf/439m1tgqdj814v.pdf
Liquidity Ratios. (n.d.). Retrieved june 8, 2018, from www.investopedia.com:
https://www.investopedia.com/terms/l/liquidityratios.asp
Quick Ratio. (n.d.). Retrieved june 8, 2018, from accountingexplained.com:
https://accountingexplained.com/financial/ratios/quick-ratio
Return on Net Assets (RONA). (n.d.). Retrieved june 8, 2018, from /www.myaccountingcourse.com:
https://www.myaccountingcourse.com/financial-ratios/return-on-net-assets