Billabong Operating Cycle 2011-2013
Operating Cycle:
Over the last five years data has shown the rate of inventory turnover has been increasing. That is, it has gradually taken longer and longer for purchased inventory to be sold. An analysis of the financial data shows that current inventory turnover is at 150 days (2012: 153 days), which is significantly higher than 107 days in 2007.
The formula used was taken from financial data retrieved from the financial statements and was calculated as:
365/ (Cost of Goods Sold/Average Inventories)
The increase in the length of time that inventory is on hand coupled with an increase in the percentage of cost of goods sold (since 2010) could be the result of a weakened economy making it necessary to reduce the price of the product. Despite the reduced pricing, inventory still builds up indicating declining consumer demand for the products. This evaluation is further exemplified by the steady rise of the gross operating cycle from 2007 to 2011 (2007:185 days, 2011: 252 days). The gross operating cycle has shown a slight decrease in 2012 and 2013 which may be a good sign that the recent restructuring is working, however revenues have declined over the past two years and the company has incurred significant costs associated with restructuring as well impairments of inventory.
Between 2009 and 2010 there was a rather large decrease in cost of goods sold coupled with an increase in the number of days inventory was held (2009: 108 days, 2010: 133 days). Considering the slightly higher revenues reported in 2009, this appears to be the result of raised prices coupled with slower sales of inventory.
Accounts payable turnover had been decreasing from 2007 to 2009 (2007: 85 days, 2009: 77 days) which is likely a result of increasing revenues in those years. This number jumped to 130 days in 2010 and has been steadily rising since with 2013 showing that payables remained outstanding for 185 days. This data represents the amount of time taken to pay off
Over the last five years data has shown the rate of inventory turnover has been increasing. That is, it has gradually taken longer and longer for purchased inventory to be sold. An analysis of the financial data shows that current inventory turnover is at 150 days (2012: 153 days), which is significantly higher than 107 days in 2007.
The formula used was taken from financial data retrieved from the financial statements and was calculated as:
365/ (Cost of Goods Sold/Average Inventories)
The increase in the length of time that inventory is on hand coupled with an increase in the percentage of cost of goods sold (since 2010) could be the result of a weakened economy making it necessary to reduce the price of the product. Despite the reduced pricing, inventory still builds up indicating declining consumer demand for the products. This evaluation is further exemplified by the steady rise of the gross operating cycle from 2007 to 2011 (2007:185 days, 2011: 252 days). The gross operating cycle has shown a slight decrease in 2012 and 2013 which may be a good sign that the recent restructuring is working, however revenues have declined over the past two years and the company has incurred significant costs associated with restructuring as well impairments of inventory.
Between 2009 and 2010 there was a rather large decrease in cost of goods sold coupled with an increase in the number of days inventory was held (2009: 108 days, 2010: 133 days). Considering the slightly higher revenues reported in 2009, this appears to be the result of raised prices coupled with slower sales of inventory.
Accounts payable turnover had been decreasing from 2007 to 2009 (2007: 85 days, 2009: 77 days) which is likely a result of increasing revenues in those years. This number jumped to 130 days in 2010 and has been steadily rising since with 2013 showing that payables remained outstanding for 185 days. This data represents the amount of time taken to pay off