BILLABONG INTERNATIONAL LIMITED

BILLABONGINTERNATIONAL LIMITED

InstitutionAffiliated:

Dateof submission:

Question1:

BillabongInternational Limited is a company in Australia that is publiclylisted on the Australian Securities Exchange. Its registered officeis in Burleigh Heads, Queensland Australia. The company was foundedin 1973 by Rena Merchant and Gordon and was later floated in theAustralian Securities Exchange in 2000 after its continuous goodperformance in the industry and its product brands.

Inan aim of expanding its operations and increasing both its salesvolume and sales revenue, the company acquired several brands such asVon Zipper, Element, Honolua Surf Company, Kustom, Tigerly, Xcel,Sector 9, RVCA and Palmers Surf[ CITATION Dan11 l 1033 ].

Question2:

Thecompany started off by sponsoring events in an aim of creatingawareness about their products mostly surf shorts. Ears later, theshorts were the most preferred surfing attires in Australia provingtheir product difference and brand. Their brand expanded in terms ofdemand and the company was able to get orders and sales from NewZealand, South Africa, and Japan. After their incorporating and goingpublic through the Australian Securities Exchange, the companyconcentrated more on channeling the funds obtained in expansivemeasures through the acquisition of other brands and companies.

Thecompany’s core operations are in mainly wholesale, marketing,distribution and retailing services of skate, sports, snow and surfaccessories, eyewear and wetsuits. Due to its expansive operationsall over the world in about 100 countries, the company has employedapproximately 6,000 employees. The employees were numerous due toBillabong International Limited acquisition of brands and companiesall over the world.

In2001, it acquired an eyewear company called Von Zipper, as well asskateboarding and hard goods product line from Element. Eachpurchased company was signifying a brand possession by BillabongInternational Limited. Kustom deals with shoe brand in 2004, NixonInc for watch brand specifically targeting those used in sports in2004 and Xcel dealt with wetsuits and accessories for watersports in2007. Tigerly was a surprise purchase as its niche was concentratedon ladies market mainly dealing with sports products for girls.Others were retail stores in US like Quiet Flight and Kirra Surf fromthe Gold Coast. Sector 9 dealt with skateboard truck while boardsportbrands from DaKine. The above symbolize the strategy BillabongInternational Limited had in the aim of expanding its operations,creating brand awareness and increasing its sales revenue as a groupcompany[ CITATION Dan11 l 1033 ].

Continuousdebt, however, depleted the company’s revenue and diminished thecompany’s strategy of expansion through acquisition after thecompany was taken over by TPG Capital in 2012. After the takeover,the company underwent restructuring which resulted in numerous retailstores being closed, over 400 employees losing their jobs and certainbrands like watch brands by Nixon being sold to Trilantic CapitalPartners (TCP).

BillabongInternational Limited has diversified its operations to cover severalindustries in the market so as to maximize its profits and provideits quality products. The industries it has ventured in includewholesaling in footware, textile product, clothing and toy andsporting goods, as well as retailing industries of footware, clothingand sports and camping equipment.

Question3:

BillabongInternational Limited financial reports are audited byPricewaterhouse Coopers, which act as the company’s watchdog onfinancial performances and advisory services. The partner involved inthe audit process is Steven Bosiljevac [CITATION Bil14 p 164-166 l 1033 ]whilethe internally appointed audit committee was comprised of HowardMowlem (Chairperson), Sally Pitkin, Jason Mozingo, Ian Pollard andMatthew Wilson[CITATION Bil14 p 52 l 1033 ].

Question4:

ConsolidatedReport Data

BillabongInternational Limited had to cover the cost of sales of $555,758,000(page 60) for the year ended 2014 while experienced a loss before taxof $135,236,000 (page 60). It is considered to be a betterperformance than the loss generated in the year ended December 2013as it was $ 653,871,000 (page 60) [ CITATION Bil14 l 1033 ].The high loss was attributed from the high finance costs incurred inthe year resulting in reduction of profit and increment of lossobtained in the year. The company incurred the income tax expense of$74,576,000 (page 60).

Tradeand other receivables for the financial period ending 2014 was at$153,850,000 (page 62). The Trade and other receivables consist ofimpaired trade receivables, past receivables that are not impaired,other receivables that arise from transactions outside the operatingactivities, fair value and credit risk as well as foreign exchangeand interest rate risk elements. The company ensures that it setsaside a provision for impairment of the accounts receivables which isexpected to act as a buffer for those retailers who encounterdifficulties in payments. In evaluating the provisions set aside in2013 and 2014 relating them to the receivable values in therespective years, there is a constant percentage of 17.5% allocated[ CITATION Bil14 l 1033 ].

Thecompany has experienced a reduction in the property, plant, andequipment value as it had $118,551 (page 62) in 2013 which reduced to$94,305 (page 62) in 2014. It is notable that there has been acontinuous decrease in the property, plants and equipment from 2012[CITATION Bil14 p 62 l 1033 ].In the respective notes to the financial statements, there is anindication of continuous disposal of the property each financialperiod. The constituents of the property, plant and equipment entryare land and buildings, furniture, fittings and equipment and leasedplant and equipment. Below are the historical costs relating to eachconstituent and its depreciation element[CITATION Bil14 p 111 l 1033 ].

Details

Land and Buildings

($ ‘000’)

Furniture, fittings and equipment

($ ‘000’)

Leased plant and equipment

($ ‘000’)

Historical costs

52,128

278,755

16,457

Accumulated Depreciation

23,795

203,629

9,316

Inventoriesof the company have been reducing from $293,201 in 2012 to $180,222in 2014[CITATION Bil14 p 62 l 1033 ].Inventories recognized in the statement of financialposition is constituted of raw materials at $2,179,000 in 2014 havingreduced from $3,640,000 in 2013, work-in-progress of $6,589,000 andfinished goods both at cost and at net realizable value[CITATION Bil14 p 108 l 1033 ].Below is the table indicating the constituents of inventories andtheir values from 2012.The raw materials are recognized using the First-In-Fist-Out methodof cost determination and at their standard costs. Work-in-process isapproximated using standard costs with the inclusion of directlabour, materials and fixed, and variable costs being allocated tothe value. The purchased inventory are recognized at their costs lessthe rebates and discounts associated with them[CITATION Bil14 p 71 l 1033 ].

LIQUIDITYFINANCIAL RATIOS:

Itis a financial analysis technique that is used to ascertain andevaluate how ‘healthy’ a company is and if it will be able tosustain its operations in both short and long run. It evaluates howliquid, in terms of cash, a company is in the financial period.

Thecurrent ratio evaluates the liquidity of a company in terms of payingoff its short-term obligations as and when they fall due. Currentassets are divided with the current liability, resulting to 1.02 (1)and 2.20 (2)in 2013 and 2014 respectively. There is an increasing trendsignifying that the corporation can easily offset its short-termliabilities as and when they fall due[CITATION Abr10 l 1033 ].

Theacid test ratio neglects the inventories in the category of currentassets so as to evaluate the position of the company in financingshort-term obligations without the reliance on inventories. Theratios 0.56 (3)and1.21 (4)for the years 2013 and 2014 respectively. It shows the company isbecoming more efficient as it can offset the short-term obligationwithout dependency on the inventories.

Accountsreceivable turnover ratio evaluates the ability of a corporation toextend credit and still ensure that it collects the debtsefficiently. The decision criterion is that the collection ofaccounts receivables is efficient if the ratio is high. It isobtained by the division of net sales divided by the accountsreceivables[CITATION Bey10 l 1033 ].The ratios are 5.42 (5)and7.32 (6)in 2013 and 2014 indicating an increasing trend. It shows the companyhas inefficient credit policies as it operates with a low ratiothough they are improving with time.

Inventoryturnover is a financial ratio that evaluates the way a companymanages the inventory. The ratio is obtained through the division ofthe cost of sales with the average inventory of the year. They are asfollows 1.93 (6)and 2.49 (7)for 2013 and 2014 respectively

References

Billabong International Limited. (2014). Financial Report ended 30 June 2014. Queensland: Billabong International Limited.

Brown, D. (2011, September 02). Billabong International Limited. Retrieved from Knowledge.org: http://www.knowmore.org/wiki/index.php?title=Billabong_International_Ltd.

S, B. (2010). International Corporate Finance- Impact of Financial Ratios. Australia: John Wiley &amp Sons.

W, A. J. (2010). Principles of Financial Accounting. Australia: John Wiley &amp Sons.

Liquidity and Other Financial Ratios

2014

2013

Current Ratio

(1 &amp 2)

= 2.20

= 1.02

Acid ratio

(3 &amp 4)

= 1.21

= 0.56

Accounts Receivable Turnover

(5 &amp 6)

= 7.32

= 5.42

Inventory Turnover

(6 &amp 7)

= 2.49

= 1.93