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Financial Report 代寫

    Analysis

    Profitability

    Financial Report  代寫
    The profitability situation is disappointing. The net profit is $-275,649, a great drop from the last year and the first loss during the last five years. The profit from continuing operation is even worse, which is $-522,665.
    However, the net profit margin is -19%, reflecting huge loss from the operation. Although the net profit is positive in other four years during the last five years, the net profit declined continuously and the average net margin of 1.12% is far below the industry average of 4.60% (Reuters, 2013). The possible reason here is the sales has experienced depression and the brand has gone downhill, as the sales figures in Figure 1 hold almost at a level line, indicating the growth rate is close to zero compared to the industry average of about 10% (Reuters, 2013), and the goodwill has been impaired by $343.0 million, which is the main cause of the loss for 2012.
    According to the statement in Billabong’s 2012 Financial Report, “due to thedeterioration in trading conditions in the global retail sector, the Group has experienced significant declines in sales andprofitability across a number of regions and brands and as a result impairment charges were recognised.”(Billabong, 2013). The most severe brand and regions are its main brand Billabong, main sale regions Australia, South Africa and North America.
    However, there is still some advantage of Billabong to survive the chaos. The gross margin for 2012 is 47%, declining from 53% for 2011, above the industry average of 27.05% (Reuters, 2013). In addition, Billabong’s five year average gross margin is 53%, above the average level of 26.22% (Reuters, 2013). This indicates a sustainable advantage of Billabong in its price or cost strategy, as the gross profit margin is determined by the sales price and inventory cost. As the sales price has no reason to keep at an above average level as its sale is depressed according to Figure 1, the inventory management, regarding the purchase price and stock control, is effective enough to gain advantage of cost reduction for Billabong, thus increasing its gross profit.
     

    Figure 1History Sales and Profit Trend
    Furthermore, ROA and ROE for 2012 see a decline on 2011, from 0.05 to -0.22 and 0.10 to -0.25 due to the loss in 2012. According to DuPont analysis, the asset-equity ratio and asset turnover ratio almost are the same as in 2011.The 2011 ROA and ROE are worse than the industry average of 0.1052 and 0.1956 (Reuters, 2013), and 5 year average level could not be compared to the industry average. This might indicate the effective cost management.
    It could be summarized here that the profitability status is bad. The cost management should be sustained but the expense should be well handled to avoid the waste generally. In addition, the whole business strategy needs a change to raise the influence of the brand in major regions.

    Efficiency/Activity

    Financial Report  代寫
    There are three major turnover ratio to measure the efficiency of the business activity. The turnover rate indicates the speed that the asset could help the company realize relevant benefit. Thus, the greater the better. Billabong’s Inventory turnover is 2.38, a little down from 2.47 for 2011 and below the industry average of 9.68(Reuters, 2013). Accounts Receivable turnover is 5.24, greater than 4.27 for 2011, below the industry average of 12.22 (Reuters, 2013). Asset turnover is 0.64, slightly less than 0.67 for 2011, below the industry average of 1.00 (Reuters, 2013).
    The sales has experienced slowdown from 2011, thus dragging down the inventory and account receivables. As the cost of goods sold increase and the average inventory increase, the inventory turnover is lowered, indicating possible inventory pileup and the demand insufficiency. Similarly, the account receivable turnover rises, with the sales decreasing, the credit sales is also decreasing. Meanwhile, total assets are also impacted by the sales depression and intangible assets are greatly impaired in 2012. The degree of sales decline almost relates to the total assets decline, thus causing the total asset turnover to maintain almost at the same level.
    Furthermore, the clothing industry boasts high turnover as the profit gained from the product is low. As the turnover ratios are all below the industry average, the efficiency of the business management is doubted and would be greatly impacted in the future as the sales decline.

    Liquidity

    This part of analysis focus on two major ratio, Current ratio and Quick (Acid-Test) ratio, which are to measure the short-term solvency. The latter ratio is more conservative as it disregards inventory as the asset to repay the current debt timely as its liquidation ability is not so good. The current ratio declines by a great degree from 2.34 to 1.47, while the quick ratio from 1.33 to 0.92. The industry averages are 1.74 and 1.39 respectively (Reuters, 2013), which makes Billabong face the liquidity issue. Although the current value is enough to secure the company from falling short-term insolvent, the great decline should be fully aware of.The main reason that the short-term borrowing increases from $15,262 to $229,088 is that a portion of syndicated facility is transferred from non-current liabilities to current liabilities due to its rearrangement in June 2012.This amountshould be paid in the near future but is not recurrent, so short-term liquidity would not be seriously impacted.
    As the cash and cash equivalents jumps from $144,858 to $317,263, the whole level of current financial structure is still sustainable.

    Gearing

    Measured by total liabilities divided by total assets, the debt ratio remains at 0.51. Though total asset decreases from $2,419,965 to $2,079,869, total liability decreases to a similar extent from $1,196,839 to $1,028,571.The assets are impaired mainly by the goodwill devaluation. The liabilities’ decline contribute to the repayment of the borrowings as well as the decrease of deferred payments as the future payment forecast is adjusted. What’s worth mentioning is that the provision has been raised for possible loss from early terminating or trading stores due to their underperformance, which pulls up the amount of liabilities and could account for the future liabilities increase.
    The Debt to Equity ratio remains at 1.02, which is far lower than the industry average of 62.67(Reuters, 2013), indicating that Billabong has not good investment opportunity thus the leverage is low.
    Needless to say, that the times-interest earned ration is dragged from 4.58 straight down to -16.57 due to the negative net profit, where interest expense increases from $24,762 to $29,080. The industry average reaches 13.65 high (Reuters, 2013). So, the financial strength is not so strong even though the debt ratio is low. The main reason here is still Billabong’s terrible profitability status.

    Investment

    Thereis no doubt that the EPS and P/E of Billabong decrease to a negative figure for 2012, although the 2011 EPS is 0.39, almost the same as the industry average of 0.3849 and P/E ratio in 2011 is 15.41 compared to the industry average of 16.61 (Reuters, 2013). The market expectation seems normal for 2011.
    As it is difficult to analyse the future market expectation on the share based on the negative P/E and EPS, it is useful to compare share price, dividend and book value. The share price dropped from 6.01 to 1.08 during the financial year. P/B dropped from 1.52 to 0.32 compared to the industry average of 2.74 (Reuters, 2013). The book value per share decreases by $0.57. Dividend payment decreases from 86,140 to 40,670, which still makes sense though the distribution is highly linked to the operating performance. The holding of the share would result great loss regarding the capital gain, net profit distribution and claims on the company’s assets for the financial year. The future prospects are still bleak according to the analysis of the profitability. Therefore, the market does not have a good view on the investment of Billabong.

    Reference

    Bodie Zvi, Alex Kane & Alan J. Marcus (2011). Investment (9th edition). McGraw-Hill.
    Reuters. (2013). Billabong’s industry financialcomparison. Retrieved June. 6,2013 from http://www.reuters.com/finance/stocks/financialHighlights?symbol=Billabong.AX
    Yahoo!7 Pty Limited. (2013). Billabong International Limited (Billabong.AX)historical prices. Retrieved June. 6, 2013from
    Billabong International Limited. (2013). 2011-12 Full Financial Report. RetrievedJune. 6, 2013 from
     

    Appendix:Results and Calculation of Relevant Ratios

    Name of ratio Formula 2012 2011 2012 2011
    Profitability
    Gross profit margin Gross profit/Net sales (1444079-765313)/1444079 (1558459-728298)/1558459 0.47 0.53
    Rate of return on net sales Profit/Net sales (-276681)/1444079 118045/1558459 -0.19 0.08
    Rate of return on total assets Profit before tax+Interest expense/Average total assets (-522665+29080)/[(2079869+2419965)/2] (88684+24762)/[(2419965+2210319)/2] -0.22 0.05
    Rate of return on ordinary shareholders’ equity (Profit-Preference dividends)/Average ordinary shareholder’ equity (-276681)/[(1027265+1196839)/2] 118045/[1196839+1217579)/2] -0.25 0.10
    Efficiency/activity
    Financial Report  代寫
    Inventory turnover Cost of sales/Average Inventory 765313/[(293201+348738)/2] 728298/[(348738+240400)/2] 2.38 2.47
    Days of average inventory 365/Inventory turnover ratio 365/2.38 365/2.47 153.08 147.63
    Accounts receivable turnover net credit sales/Average net accounts receivable 1444079/[(209962+341360)/2] 1558459/[(341360+389028)/2] 5.24 4.27
    Average collection days in receivables 365/Accounts receivable turnover 365/5.24 365/4.27 69.68 85.53
    Asset turnover ratio Net sales/Average total assets 1444079//[(2079869+2419965)/2] 1558459/[(2419965+2210319)/2] 0.64 0.67
    Liquidity
    Current ratio Current assets/Current liabilities 898921/611443 908854/389208 1.47 2.34
    Acid-test ratio (Cash+Current receivables)/Current liabilities (317263+245035)/611443 (144858+374375)/389208 0.92 1.33
    Gearing
    Debt ratio Total liabilities/Total assets 1027265/2079869 1223126/2419965 0.51 0.51
    Debt to equity ratio Total liabilities/Total equity 1027265/1027265 1223126/1196839 1.02 1.02
    Assets to equity ratio Total assets/Total equity 2079869/1027265 2419965/1196839 2.02 2.02
    Times-interest earned ratio (Profit before tax+Interest expense)/Interest expense (P112) (-522665+29080)/29080 (88684+24762)/24762 -16.97 4.58
    Investment
    Earnings per ordinary share (Profit-Preference dividends)/Number of ordinary shares issued (-276681)/303498 118045/303291 -0.91 0.39
    Price/earnings ratio Market price per ordinary share/Earnings per share 1.08/-0.91 6.01/0.39 -1.19 15.41
    Dividend yield Dividend per ordinary share/Market price per ordinary share 40670/303498/1.08 86140/303291/6.01 0.12 0.05
    Dividend payout Dividend per ordinary share/Earnings per share 40670/303498/-0.91 86140/303291/0.39 -0.15 0.73
    Book value per ordinary share Total ordinary shareholders’ equity/Number of ordinary shares issued 1027265/303498 1196839/303291 3.38 3.95
    Price/Book Value Market price per ordinary share/Book value per ordinary share 1.08/3.38 6.01/3.95 0.32 1.52
     
     
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