Accounting & Business Decisions: Billabong Limited Financial Analysis

Executive Summary

The company’s financial position is in jeopardy given that it has failed to strike a balance between equities and the debt funds. This means that it is unlikely for the company to secure additional loans. This also goes for its profitability ratios as they reflect poor performance over the years.

Both the investment and gearing ratios of the firm are unfavorable and they depict poor way of conducting operations and thus, it is not safe for potential investors to put more finds with the company at any given moment in time.

Accounting & Business Decisions: Billabong Limited Financial Analysis

Company Overview

Billabong Limited, founded in 1973, is involved in the activities of both wholesaling and retailing of such items as skates, surf-ware, customized sports apparel, accessories as well as the hardware part of the aforementioned items. Also, the company is engaged in the licensing of its trademarks to a number of specified sections of the globe. Some of the notable company’s product-brands include; Billabong, Element, DaKine and Sector 9. It is important to state that the company also operates an online retail store that provides trading services to the company’s customers across the global market (Reuters, 2010).

It is headquartered in Gold Coast, Queensland-Australia and started trading in the Australian Securities Exchange in the year of 2000. The company enjoys a wider global market that is well-represented in Austrasia, Europe and some section of Africa like South Africa. Presently, the company employees about 6000 people and enjoys about A $1.34 billion in net revenues (Yahoo Finance, 2012).

Profitability Ratio Analysis

The company’s net profit margin decreases considerably from a -0.19 to -0.64 in the periods between 2012 and 2013 respectively. This decrease in the ratio postulates that the company is not posting enough sales to affect an s resultant increase in the level of income for the company. This might be due to lack of effective discount strategies or most probably poor pricing mechanisms for the company’s products.

The return on total assets ratio sinks deeper in the two-year financial period from -0.13 to -0.85 between 2012 and 2013 respectively. The inconsiderable decrease in the ratio value is a clear indication that the firm’s is not optimizing the size of its assets base to effect considerable income within the two periods. This might be due to the deployment of unskilled personnel that do not comprehend the effective ways of affecting optimal equipment utilization (Kootanaee, 2012).

The company’s return on equity ratio is also on a considerable downward trend for the two financial periods. The ratio decreases significantly from -0.27 to -3.23 in the years between 2012 and 2013 respectively. This decrease in the level of the ratio is an indication that the company is not utilizing the level of its stockholder’s equity deployed to increase the level of income. This is a negative phenomenon given that it limits the firm from attaining its core objective of minimizing costs while maximizing the shareholders’ wealth (Graham and Campbell, 2001).

The firm’s earnings per share also reduce significantly in the period between 2012 and 2013 from -0.67 to -1.80. This is a negative phenomenon since it stipulates that the company is not utilizing its capital base to trigger enough resources that should be enjoyed by the owners of this capital base. The reduction in the ratio might affect the securities of the company within the stock markets by way of under-valuing the company’s net worth.

Asset Efficiency Analysis

The asset turnover ratio increases considerably from 1.41 to 5.04 in the period between 2012 and 2013 respectively. This increase is a significant indication that the company’s level of productivity has increased appreciably over the two-year financial periods. It basically means that the company’s level of assets deployed over the years have been able to generate sufficient levels of revenues due to their optimal use.

The company’s stock turnover ratio reduces insignificantly from 2.61 to 2.56 in the period between 2012 and 2013 respectively. The reduction is an indication that Billabong Limited has not been able to devise ways for which to increase the number of times the inventories are sold to generate revenues within a 12-month period.

The company’s days debtors decreases considerably from 64 days to 57 days losing an entire week period in the period between 2012 and 2013 financial years respectively. The reduction is a clear indication that the company has devised effective debt collection systems in the year ending 2013 as opposed to the previous year of 2012. It is also an indication that the company has adopted a different market strategy that does not allow customers to stay long before they can pay for their respective debt.

  1. Liquidity Ratios Analysis

The firm’s current ratio decreases considerably in the financial period between 2012 and 2013 from 1.47 to 1.02 respectively. This is not a good phenomenon for the company given that it postulates it cannot meet its short-based commitments on time. In essence, a formidable current ratio should stand at 2:1 at any given moment, however; the company’s ratio indicates that there are more assets as there are liabilities and, in turn, there is the likelihood that the company might not be able to contain the situation in the long-term of its operations.

Also, the cash ratio of the company posits a downward trend in the period between 2012 and 2013 from 0.52 to 0.19 respectively. The decrease postulates a lower-level of credit ratings for the company given that it cannot meet its short-based commitments. Given the lower ratio value, the company is not positioned well to increase its chances of being awarded debt.

Gearing Ratio Analysis

The company’s times interest ratio increases considerably between the two financial periods from a figure value of 11.75 to 30.03 in the years 2012 and 2013 respectively. This higher ratio is an indication that the company is likely in a position to repay the amount of interest payable within the stipulated timeframe.

The company’s debt-to-equity ratio increases considerably in the two year financial periods from 0.47 to 1.2 between 2012 and 2013 respectively. This is a negative indication since it means that the company’s debt capacity has increased at the expense of the owner’s equity. This means that there is no balance struck between the two forms of debt. Suppliers of loans are not in a position to pump additional funds into the company.

The company’s debt-to-asset ratio increases considerably from 0.51 to 0.74 in the financial year periods between 2012 and 2013 respectively. This is a negative phenomenon since it postulates that the level of liabilities has increased visa-vie its asset-base. This increase in the value of the ratio indicates that the company is not placed in a fair position to secure long-term debts due to the instability on its asset base.

Investment Ratio Analysis

The company’s price/earnings ratio increases slightly in the period between 2012 and 2013 from -1.12 to -0.28 respectively. Though there is an increase, still the ratios remain below the positive side hence it means that potential investors are not going to enjoy any form of returns from the sale of the stocks.


In regards to an existing investor, the company is not financially healthy to conduct its normal operations and thus, there is no need to put more investments with the company given that there are few returns for investment made as perceived by the low investment ratios. Furthermore, the potential investor should not embark on putting investments with the form given that additional stockholder’s equity will be mostly used for repaying debt rather for investing in new projects.


Graham, J, R. and Campbell R. H. (2001) “The theory and practice of corporate Finance: evidence from the field”. Journal of Financial Economics, vol.60, 187-243.

Kootanaee, A, J. (2012). A comparison of performance measures for finding the Best measure of business entity performance. Journal of Finance and Investment Analysis, 1(4), 27-35.

Reuters. (2010). Billabong International Ltd (BBG.AX). Retrieved on June 7, 2014 from

Yahoo Finance (2012). Company profile: Billabong International Limited. Retrieved on June 7, 2014 from


  1. Profitability Ratios

Net profit margin= net income/sales

2012: (276,681)/ 1,444,079= -0.19

2013: (863,002)/1,345,210= -0.64

Return on total Assets= net income/total assets

2012: (276,681)/ 2,079,869= -0.13

2013: (863,002)/ 1,012,742= -0.85

ROE=net income/total stockholder’s equity

2012: (276,681)/1,027,265= -0.27

2013: (863,002)/267,071= -3.23

EPS= net income/no. of shares

2012: (276,681,000)/410,969,573= -0.67

2013: (863,002,000)/ 478,944,292=-1.80

  1. Asset Efficiency Ratios

Asset turnover ratio= sales revenue/net assets

2012: 1,444,079/1,027,265= 1.41

2013: 1,345,210/ 267,071=5.04

Stock turnover ratio= cost of goods sold/stock

2012: 765,313/293,201=2.61

2013: 682,378/266,806= 2.56

Days debtors= (debtors/sales)*365

2012: (256,595/1,444,079)*365= 64 days

2013: (212,951/1,345,210)* 365= 57 days

  1. Liquidity Ratios

Current ratio=current assets/ current liabilities

2012: 898,921/611,443=1.47

2013: 622,368/612,495= 1.02

Cash ratio = cash and cash equivalents/ current liabilities


2013: 113,837/612,495=0.19

  1. Gearing Ratios

Times-interest ratio= EBIT/Interest Payable

2012: 481,692/40,973= 11.75

2013: 801,130/26,672=30.03

Debt-to equity ratio= debt/stockholders’ equity

2012: (229,088+249,069=478,157)/ 1,027,265=0.47

2013: (314,556+5,916=320,472)/267,071=1.2

Debt-to asset ratio= total liabilities/ total assets



  1. Investment Ratios

Price/Earnings ratio = stock price per share/ Earnings per share

2012: 0.75/-0.67=-1.12

2013: 0.51/-1.80= — 0.28