# Billabong Financial Review

Better Essays
Billabong Financial Review over 2012 & 2013

A. Current Ratio
Part 1:

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Current ratio = Current assets
Current liabilities
2012 Current ratio = 898.92
611.44
= \$1.47
2013 Current ratio = 622.37
612.50
= \$1.02

Part 2:
The current ratio is a measure of a business’ liquidity, calculated by taking total current assets and dividing by total current liabilities. The 2013 current ratio for Billabong has dropped \$0.45 since 2012. It is generally unwise for a business to allow their current ratio to fall below 1.5:1 in order to ensure there are sufficient assets to pay current liabilities or commitments. In 2013, Billabong’s current ratio was a low 1.02, suggesting a deteriorating liquidity position of the business - meaning the business is not well placed to pay its debts and may be required to raise extra finance or extend the time it takes to pay creditors. Comparing 2013 to 2012, the business’ current assets have decreased while the current liabilities have increased. If this pattern continues, a current ratio below 1:0 would indicate a negative working capital. Billabong may have to sell non-current or unproductive assets to cover liabilities - reducing its capacity to earn profits, or, borrow finances in the short term and face high interest repayments. If they choose to borrow finances, lenders may look at the current ratio as a measure of the ability of the business to service the debt. Billabong’s current ratio would be looked upon unfavourably in this scenario. The business should view improving their liquidity as a task of high importance if they wish to continue operating.

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B. Debt to Equity Ratio
Part 1:
Debt to equity ratio = Total liabilities
Owner’s equity

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2012 Debt to equity ratio = 1051.30
1028.57
= \$1.02
= 102.21%
2013 Debt to equity ratio = 702.46
316.83
= \$2.22
= 221.72%

Part 2:
The debt to equity ratio measures what proportion

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