Evaluation of Investment in Billabong International limited.

Evaluation of Investment in
Billabong International Limited.

Introduction:
 Billabong International Limited is a renowned Australian Surf brand operating
for the last 40 years.
 The company was established in Australia by Gordon Merchant in 1973.
 The company indulges in businesses like selling of apparels, eye gears,
wetsuits and hard goods in sports sector.
 Some of the brands include Von Zipper, Honolua Surf Company, Kustom,
Palmers Surf, Xcel, Sector 9 and Tigerlily.
 The products of the company are readily available in America, Asia Pacific
and Europe.
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group.html

Operating Activities:
 Operational activities dominantly includes wholesale and
retail of sports good.
 From the company’s annual accounts, we see that it has
a strong presence in Australasia, America, Europe and
Rest of the world.
 Among all the nations, Australasia happens to produce
the maximum revenue of $14.593 and royalty receipt of
$2.842 for the company.
 American and European segment has produced a loss of
$48.988 and $20.754 respectively.
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Important Emerging Issues:
 The reason for financial crunch was the result of underperformance
by the company in both America and Europe.
 The financial constraint was easily recognized through the decision
of the group to sell DaKine Brand, lower interest in Nixon Group and
selling of Canadian retail chain West 49.
 It was stated in the reports by the directors that they have realized a
deferred tax liability of $45milllion in the present year but it should
have been amortized in 2012.
 Deferred Tax liability was an important issue for the company as it
did not face a financial crisis due to this in the previous years.
 Before taking any further decision by the company, it should analyse
the cause of the financial hitch and also come up with ways to
resolve it.
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Analyzing the Corporate
Governance Statement:
 The company has undertaken the needs given by ASX Corporate
Governance Principal and Recognitions 2nd edition for Corporate
Governance Statement.
 The company has abided with the requirements of Principle 1 by
revealing the functions of board and the functions that has been
assigned to the managers and executives.
 According to Principle 2, the company has retained a large number
of independent directors at the board and also various board
committees.
 According to Principle 3, the company has analysed a Global Code
of Conduct and Securities Trading Policy for directors and
management.
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Analyzing the Corporate
Governance Statement:
(continued...)
 An adequate audit committee was established with majority of
independent directors as per Principle 4.
 With accordance to Principle 5, Billabong International is having an
adequate continuous disclosure policy with company secretary and has
a stakeholder disclosure policy as per Principle 6.
 According to Principle 8, the company has established a remuneration
committee that would look into the remuneration policy of the company.
 Issues that need to be resolved are consideration of gender diversity on
board, need for risk management committee for risk management and
consideration of the needs of Principle 2 in respect to the measurement
of performance of directors, boards and committees.
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Analysis of Financial
Statements:
1. Profitability Analysis :
 The Return on Equity for the financial year 2014 was -
0.9022, while the financial year 2013 it was -2.7543.
 Return of asset on the financial year 2014 was -2.0257
and it was -8.6489 in 2013 financial year.
 Net Profit Margin was -20.77% in 2014 financial year and
it was -77.61% in the year 2013.
 Cash Flow Sales was -0.0681 in 2014 and it was 0.0108 in
2013 financial year.
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Analysis of Financial Statements:
(continued...)
2. Financial Position :
 Liquidity Ratios :
 Current ratio was 2.1970 in financial year 2014 and it was 1.0161 in the
year 2013.
 Acid test ratio was 1.3952 in the year 2014 and it was 0.5805 in the year
2013.
 Fast asset ratio was 0.6428 in the year 2014 and it was 0.1859 in the
year 2013.
 Capital Structure Ratios :
 Debt-Equity Ratio was 0.8185 in the financial year 2014 and it was
0.0190 in the year 2013.
 Debt to Total asset ratio was 0.2820 in the year 2014 and it was 0.0095
in the financial year 2013.
 Proprietary Ratio was 0.3445 in the financial year 2014 and it was 0.3062
in the financial year 2013.
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Ratio Analysis:
Ratio Analysis:
 The company ROE has improved from negative 2.75 to negative 0.9
,while ROA has improved from negative 8 figures to negative 2
figures.
 There was seen a stabilization of Net Profit Margin at negative 20.77
percent from 77.61 last year, 2013.
 The company has not improved in terms of Cash flow and Sales
ratio; rather it has fallen to negative 0.06 from positive 0.01 last year,
2013.
 To solve the slump in profitability, the company has increased the
level of debt and equity. As a result there was increase in debt-equity
ratio from 0.02 to 0.82, which was quite acceptable.
 The debt to total asset market ratio of 0.67 has helped the company
to increase debt to total asset ratio from 0.0095 to 0.2820. We have
seen that the Propriety ratio has also increased from 0. 3062 to
0.3445 last year, 2013.
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Evaluation and Recommendation:
 Due to the move by Billabong to turn from a wholesaler to
retailer, the company is not really making much profit.
 Revenue has declined for the company due to fall in customer’s
taste and it is definitely a sign that investors should know.
 With such low profitability, the company is likely that it would not
be able to provide dividends for a long time.
 There is also interest component that would not allow the
company to pay dividends.
 It was seen diversity is not being maintained and requirements of
ASXCGPR has also not been implemented properly.
 It is recommended that one should not invest in Billabong as
there are chances that it would not turn in favour of the investors.
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Evaluation of Investment in Billabong International limited.

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Evaluation of Investment in Billabong International limited.