Billabong Essay Example | Topics and Well Written Essays - 1750 words

Billabong - Essay Example Lastly, investor’s return on capital investment was closely taken into account. The report also provides sufficient grounds for investing in Billabong International Limited, and reasons for its dampened growth from prior years. Company Overview Billabong International Limited (BBG) was founded in 1973 in Queensland by Gordon Merchant. Billabong is known to produce surf wear, sport apparels and accessories for surfing, skate and snowboard. BBG has expanded its operations to more than 60 countries. It has expanded its distribution to states like Japan, United States of America and Europe. It has positioned itself for people with extreme love for sports like surfing and skating. BBG is used by people who desire to be identified with its image. It has been a leader in promoting its brand through sponsoring athletes and events. BBG has given stiff competition to its competitors like Quicksilver and Nike. In terms of geographic spread, BBG has a high advantage over Quicksilver as it is centered in USA in comparison to BBG which has spread its operations to Japan and Europe as well. Moreover, diversity due to huge geographic spread has been a basis of competitive advantage over Quicksilver. Quick’s earning has been seasonal but BBG has overcome this weakness by diversifying its operations to different geographic regions. BBG’s products are sold to around 2,600 surf and extreme sport shops worldwide. This is the prime source of revenue as a major chunk of revenue comes from wholesalers and independent retailers. Name of Ratio Expression 2010 2009 2008 2010 result 2009 2008 result ROE 12.2 15.45 22.7 Gross Profit margin 54.58% 53.3% 55.1% Net Profit Margin / 9.8% 9.1% 13% Current Ratio 2.47 3.3 3.07 Acid Test 1.8 2.48 2.1 Inventory Turn over ratio 2.73 3.368 3.18 Inventory Turnover Period 133days 108days 114.5days Payables’ turnover period 103 days 80days 84.2days Gearing Ratio 0.33 0.47 0.59 P/E Ratio 14.3 11.15 10.46 Debt to Equity Ratio 81 .5% 88.67% 104.4% Note: Average= (Current year+previous year)/2 Analysis: Profitability ratios measure the income or operating success of an enterprise for a given period of time. BBG has had a decline in their profitability mainly because of bad economic conditions. They have faced losses from their customers who haven’t paid their bills in stipulated time and have, in effect, defaulted. BBG almost doubled their common equity in 2009 but couldn’t accelerate their earnings with the same pace hence, causing a sharp decline in the ROE. Moreover, poor economic conditions and exchange rate risks have played their part in generating a plummet for BBG. Considering company’s return on equity, the trend has been downward. ROE was 22.7% in 2008, and then it dropped to 15.45% in 2009 and a further dip down to 12.2% in 2010. Gross profit Margin for the year 2010 was 54.58% compared to 52.55% in 2009 and 53% in 2008. The gross profit margin has been steady as the proportion al change in sales and cost of goods sold has been constant. Sales have declined from previous year due to poor economic conditions. Some customers have delayed their shipments hence causing BBG to be cautious. Net profit Margin has been in the range of 9-13%. In 2010, company showed 9.8% profit margin compared to previous year of 9%. In 2008 13% net profit margin was recorded. In 2010 several factors have contributed to the increase from 2009 namely exchange rate which has caused $ 6 million benefit to BBG. Liquidity Analysis: BBG is a high leveraged firm and