Masters in Finance: Blackmores Limited Financial Report and Analysis

This report provides a comprehensive financial analysis of Blackmores Limited, an Australian health company. It examines the company's organizational structure, including its board and committees, and analyzes key financial ratios such as Return on Assets (ROA), Return on Equity (ROE), and the ...Read More

Running head: FINANCE FOR BUSINESS
Finance for Business – Masters
Name of the Student
Name of the University
Authors Note
Course ID

1FINANCE FOR BUSINESS
Table of Contents
Description of the organization:.................................................................................................2
Ownership and governance structure of the organization:.........................................................2
Computation of performance ratios:..........................................................................................3
Graphical representation in the description of the result:..........................................................4
Significant factor influencing the prices of share Blackmores Limited:....................................5
Computation of the Beta for the Blackmores Limited:..............................................................6
Determination of the Weighted Average Cost of Capital:.........................................................7
Debt ratio over the last few years:..............................................................................................8
Dividend policy of the firm:.......................................................................................................8
Letter of recommendation:.........................................................................................................8
Reference List:.........................................................................................................................10

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Description of the organization:
Blackmores limited is regarded as the Australian health company dealing in
supplement. The company was founded in the year 1930 in Brisbane Australia. Blackmores is
regarded as the Australia’s one of the leading natural health company having wide quality of
vitamin, minerals, nutritional and herbal supplements (Blackmores.com.au 2018). The
company gains the support of the community and environment which have eventually made
the company one of the trusted natural health.
The company is committed in delivering natural healthcare products and services
which helps the firm in meeting the highest quality standards. The naturopathic heritage of
Blackmore has the strongest influence on the way they approach wellbeing and health
situations by drawing on the traditional use of herbs.
The company has focussed on being committed to the research and innovation by
reducing the impact on environment and alternatively lending support to the community
(Blackmores.com.au 2018). A wide range of 250 vitamins, minerals, herbal and nutritional
supplements is developed by the experts through the highest quality ingredients across the
world with standards of good manufacturing.
Ownership and governance structure of the organization:
The board of the Blackmores limited is accountable for the governance framework
that operates under the approved policies of the board, charter and principles. The board
committees assist the board of Blackmores limited in completing the governance role. The
board of Blackmores limited committee constantly reviews the organizations governance
framework and associated practices to make sure that the company keep pace with the
regulatory change. The board and the committee constantly reviews the charter every year.
The structure of board for Blackmores limited comprises of the chairman, independent

3FINANCE FOR BUSINESS
director, executive director, managing director and independent director. Blackmores limited
has the nomination committee which consists of the full board and committee of the board.
The proceeds and the meeting of the nomination committee is governed under the
provision of the constitution. The board constantly reviews the composition and determine
the nominations for the new appointments in order to make sure that the right balance of skill
and experience is met (Haltiwanger et al. 2016). Blackmores limited has created policies in
order to ensure that the disclosure of all the materials matters regarding of the organization in
a timely manner, truthful and stable way in order to assure that all the investors have equal
access to the material data along with the position, performance, ownership and governance.
Computation of performance ratios:
Trend
Particulars` 2014 2015 2016 2017 2014 2015 2016 2017
Net Profit/(Loss) after Tax
(NPAT) A 25429 46556
10002
0 58028
100.0
% 183.1% 393.3% 228.2%
Total Assets (TA) B
23659
4
29340
7
44336
2
41217
4
100.0
% 124.0% 187.4% 174.2%
Ordinary Equity (OE) C
10422
6
13291
5
18059
3
17881
9
100.0
% 127.5% 173.3% 171.6%
Total Liabilities D
13236
8
16049
2
26276
9
23335
5
100.0
% 121.2% 198.5% 176.3%
Return on Assets (ROA)
E=
A/B
10.75
%
15.87
%
22.56
%
14.08
%
100.0
%
147.63
%
209.90
%
130.99
%
Return on Equity (ROE) F=A/C
24.40
%
35.03
%
55.38
%
32.45
%
100.0
%
143.56
%
227.00
%
133.01
%
Debt Ratio
G=D/
B 0.559 0.547 0.593 0.566
100.0
% 97.77%
105.93
%
101.19
%
The above stated variable is referred as the total assets while the other variable is
known as ordinary equity. The variable total assets and ordinary equity is connected with the
return on equity and return on asset. An increase in the value of total assets the net income
amount would simultaneously remain identical (Leon 2016). As a result of this there might
result in decline in the amount of the return on asset because the assets is used sufficiently in

4FINANCE FOR BUSINESS
generating the deriving the income. increase in the amount of the asset and simultaneously
income remaining the same might lead to the lower value of the debt ratio. The lower amount
of debt ratio might indicate the greater value of the return on equity. Therefore, the amount of
return on equity and the return on asset is determined with the help of total value of the asset
and equity.
An important assertion in respect to the table of ratio can be determined by stating
that the return on equity for the Blackmores Limited is been on the higher side than the return
on asset all through the four-year span. The model is helpful in reflecting the proficiency of
the organization with the value of the total asset generally remaining on the higher side in
comparison to the total equity (Flannery 2016). This because the amount of assets that is
reported will result the asset on the higher side than the amount of equity on the
circumstances when the reportable assets of the organization is greater than the amount of the
equity. This generally happens when the liabilities of the firm have declined.
Graphical representation in the description of the result:
Taking into the consideration the stock price movement of the Blackmores Limited an
important assertion can be drawn by stating that the stock price of the Blackmores Limited

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has been highly volatile. The stock prices have been witnessed to have declined below the all
ordinary index. There have been circumstances when the stock prices of the Blackmores have
declined to as low as -20.00% but have gained grounds in the following months (Habibi,
Habibi and Habibi 2016). The evidences from the graphical representation suggest that the
stock prices have increased sharply representing the uneven movement of the stock price.
Opposing to the greater stock price reported by Blackmores Limited there are certain state of
affairs where the stock price has declined below the ordinary index.
Significant factor influencing the prices of share Blackmores Limited:
The share prices of Blackmores Limited have been on the rollercoaster over the last
few years. The share prices have increased to as high as $218 but have declined to lower of
$170. Blackmores Limited is regarded as the vitamin supplement business whose business
have grown impressively (Shah 2015). There could be arguments regarding the effectiveness
but it results in good recurring revenue once the consumer has taken the daily supplement.
The significant factor concerning the influence in the share price of Blackmores Limited are
as follows;
Diverse base of consumer: Blackmore has wide variety of different customer located in
different nations. Though Blackmore is regarded as one of the biggest players in Australia but
it is always anticipating to expand its geographical footprint. The wider is the market base for
Blackmore the wider will be the customer base of the company that would influence the share
prices of the company.
Increasing profit and sales: The primary reason for the turnaround in the price of share for
Blackmores Limited is the positive sales and higher net profit after tax following the first
three months of September 2017 (Boyer, Lim and Lyons 2017).

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Expanding base of product: A good business is characterised as the one that can provide
wide range of products to the different areas of the market. The company has been regularly
adding more products to the different areas in the market. The company has greater than 1300
products across all the brands and market. As a result of this, it results fluctuation in the share
prices.
Taking account of the above stated significant factor Blackmores Limited is presently
trading at the rate of 41x and it is estimated that the earnings of the company in the financial
year of 2018 would gross up the dividend yield of 2.27%. An evidence has been obtained
from the analysis that can be stated that the total asset of the firm has been on the higher side
in comparison to the total equity (Sattar 2017). This signifies that Blackmores Limited is
making a large use of its capital on the assets. The beta of the firm additionally stood 0.61
which represents that the stock price would remain moderate. With exclusively lower amount
of beta the proportion of asset is higher on the balance sheet. The factor is reliable with the
beta signified in comparison to the volatile stock reported by the firm.
Computation of the Beta for the Blackmores Limited:
Particulars Amount
Beta of the company A 0.61
Risk Free Rate B 4%
Market Risk Premium C 6%
Required Rate of Return D=B+[AxC] 7.66%
The required rate of return for Blackmore Limited stood 7.66% while the beta of the
firm stood 0.61.
Trend
Particulars` 2014 2015 2016 2017 2014 2015 2016 2017

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EBIT A 39789 72264
14522
1 86231
100.0
%
181.6
%
365.0
%
216.7
%
Total Assets B
23659
4
29340
7
44336
2
41217
4
100.0
%
124.0
%
187.4
%
174.2
%
Net Profit/(Loss) after Tax
(NPAT) C 25429 46556
10002
0 58028
100.0
%
183.1
%
393.3
%
228.2
%
Owner's Equity D
10422
6
13291
5
18059
3
17881
9
100.0
%
127.5
%
173.3
%
171.6
%
Return on Equity
E=(A/
B)x(C/A)x
(B/D)
24.40
%
35.03
%
55.38
%
32.45
%
100.0
%
143.56
%
227.00
%
133.01
%
Rationale for Conservative Investment:
The rationale for the conservative investment on Blackmores Limited is based on the
required rate of return obtained for the organization stood 7.66% whereas the market risk
premium for the firm stood 6%. On the other hand, the risk free rate for making an
investment in the Australian bond stood that stood 4%. Due to the existence of the relatively
lower amount of differences prevailing in the required rate of return the investors may opt to
make a moderate investment in the shares of the Blackmores Limited (Mazzola and Gerace
2015). An important consideration in regard to this is that the lower amount of beta that is
reported by the company is seem that the prospect of investment involves moderate amount
of risk. Though of late it is having been noticed that the stock prices for Blackmores Limited
has been moderate but the making an investment could be a good option for the investors.
Determination of the Weighted Average Cost of Capital:
Particulars Amount
Weightag
e Cost
Return
Rate
Tax
Rate WACC
Total Long Term Debt 78968 30.63% 4564 5.78%
30.00
% 1.24%
Total Equity 178819 69.37% 7.66% 5.31%
TOTAL 257787 100% 6.55%
The greater quantity of weighted average cost of capital evidently provides helps in
indicating that the greater amount of risk is associated with the operations of the organization.

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Investors is required to gain an additional amount of return in order to determine the overall
cost of financing the resources of the organization. Consequently, this results in the payments
which is made to the debt or alternatively the cost that is related to the debt financing and the
rate of return demanded with the help of financing cost of equity.
Debt ratio over the last few years:
The computation that has been performed states that the debt ratio for the organization
stood on the higher side (Jagric et al. 2015). During the year 2015 the debt ratio for
Blackmore Limited stood 97.77% which subsequently increased to 105.93% in 2016.
However, the in the subsequent year of 2017 the debt for the marginally felled to 101.93%.
Though there has been a marginal decline in the debt ratio for the organization but it can be
stated that the organization has undertaken a positive initiative in lowering their debt.
Dividend policy of the firm:
The dividend policy of the Blackmores Ltd defines that the board has declared the
final dividend of 140 cents each share which ultimately makes the total dividend for financial
year ended 2017 to 270 cents. An assertion can be bought forward by stating that Blackmore
has been consistent with the profit generated during the year with strong financial position
and sureness in future.
Letter of recommendation:
Dear ABC,
Queensland
Australia
Respected Sir,

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In response to the above stated analysis I would like to bring forward your attention to
the recommendation which would further help you in undertaking the wise decision relating
to your investment in Blackmore Limited. As evident the share prices of Blackmores have
increased to as high as $218 but have declined to lower of $170. Of late it is having been
noticed that the stock prices for Blackmores Limited has been moderate but the making an
investment could be a good option for the investors. With the existence of the relatively lower
amount of differences prevailing in the required rate of return the investors may opt to make a
moderate investment in the shares of the Blackmores Limited.
I hope the recommendations provided would help in taking a wise investment decision.
Thanking you,
ABC
Investment Company

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Reference List:
Blackmores.com.au. (2018). About Blackmores. [online] Available at:
https://www.blackmores.com.au/about-us/company-information/about-blackmores [Accessed
4 Feb. 2018].
Boyer, B., Lim, R. and Lyons, B., 2017. Estimating the Cost of Equity in Emerging Markets:
A Case Study. American Journal of Management, 17(2), p.58.
De Leon, A.L., 2016. A Preference for Preferred Shares. Philippine Management
Review, 1(1).
Flannery, M.J., 2016. Stabilizing large financial institutions with contingent capital
certificates. Quarterly Journal of Finance, 6(02), p.1650006.
Habibi, H., Habibi, R. and Habibi, H., 2016. Derivation of Kalman Filter Estimates Using
Bayesian Theory: Application in Time Varying Beta CAPM Model. Journal of Statistical
and Econometric Methods, 5(2), pp.1-16.
Haltiwanger, J., Jarmin, R.S., Kulick, R.B. and Miranda, J., 2016. High growth young firms:
Contribution to job, output and productivity growth.
Jagric, T., Podobnik, B., Strasek, S. and Jagric, V., 2015. Risk-adjusted performance of
mutual funds: some tests. South-eastern Europe journal of Economics, 5(2).
Mazzola, P. and Gerace, D., 2015. A Comparison Between a Dynamic and Static Approach
to Asset Management Using CAPM Models on the Australian Securities
Market. Australasian Accounting Business & Finance Journal, 9(2), p.43.
Sattar, M., 2017. CAPM Vs Fama-French Three-Factor Model: An Evaluation of
Effectiveness in Explaining Excess Return in Dhaka Stock Exchange. International Journal
of Business and Management, 12(5), p.119.

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Shah, C.A., 2015. Construction of optimal portfolio using Sharpe index model & CAPM for
BSE top 15 securities. International Journal of Research and Analytical Reviews, 2(2),
pp.168-178.