Review of Billabong Financial information for 2005-2008
Note: tables are shown in $’000s (excluding $ values expressed with decimal places) Note: revenue is expressed and revenue from the sale of goods.
Question 1 – Revenue and Revenue Margin
Total Revenue $ (From the sale of goods)$840,701$1,018,227$1,222,911$1,347,618 % Change from previous year24.60%21.12%20.10%10.20%
% Change from base year (2004)24.60%50.91%81.24%99.73%
Change in $$165,972$177,526$204,684$124,707
It is important to note the $ value increases as it is not the biggest % increase. Showing strong growth until 2007, the 2008 smaller growth can be attributed to the GFC or that business expansion has slowed. This can be noticed in the Financial reports list of businesses owned by billabong increasing, from; “Billabong”, “Von Zipper”, “Element” and “Honolua Surf Co” in 2004 to the addition of; “Kustom”, “Palmers”, “Nixon”, “XCEL”, “Tigerlily”, “Sector 9” and Dakine up to 2008, this gives Billabong International a larger stake at market share, with their brands dominating surf shop shelves.
Also with the addition of Billabong owned store fronts becoming more and more common, apposed to being a wholesale provider, the businesses expansion into new countries around the world and the growth of the brand within these countries has allowed Billabong to add to their ever-expanding global brand and an increasing revenue of 1422% over the past ten years, with now average growth of around 19% pa, a growth at perhaps a more manageable level, this shows a steep growth period that is and has for a few years been slowing down suggesting it may have reached its maximum profit potential. With all this in mind, we can see a company with a strong growth period that is now consolidating its position as one of the leading brands in this industry.
Question 2 – Gross Profit margin & Net Profit Margin
GPM = GP (Revenue from sale of goods – Cost of Sales) / Sales * 100
Total Revenue (from sale of goods) $1,222,911$1,347,618
Minus Cost Of Sales$570,979$608,040
Equals GP $$651,932$739,578
GPM (GP$/Total Revenue*100)53.31%54.88%
Gross profit margin shows us the percentage difference between sales and the cost of those sales. The result of the margin can help determine what the level of profitability is for the goods being produced. These results show a business that is more than doubling their money invested on the production of goods. Also, the figures show an increase in gross profit margin suggesting the business is becoming more efficient at production or sale of goods produced. These are both strong percentages that show the money invested into the production of goods is money well spent.
NPM = NP (before tax & interest) / Sales * 100
Net Profit (Before tax & Interest)$189,555$222,014$241,300$270,548 Over Total Revenue$840,701$1,018,227$1,222,911$1,347,618 Equals Net Profit Margin22.55%21.80%19.73%20.08%
Net profit margin shows the margin of profit after expenses (however before tax & interest). These percentages are reducing due to increased expenses, notably from increases in selling, general and administrative expenses and from cost of goods sold. Also expenses in depreciation are increasing; however this would be expected from a business at the tail end of a sharp growth period. The net profit margin is reducing to 2007 but showing some regain in 2008, perhaps the GFC and its effect on the cost, efficiency and ability of stimulating sales has had some impact on the 2007 decline but the business is still showing a strong financial position with reasonably steady profit margins.
Question 3 – Return on Assets & Return on Shareholder Equity ROA =NP (before tax & Interest) / Average Total Assets * 100
Net Profit (before Tax & Interest)$189,555$222,014$241,300$270,548 Over Average Total Assets...