Billabongs’ activities are exposed to a variety of financial risks, these include; market risk (including foreign exchange risk and cash flowinterest rate risk), credit risk and liquidity risk. To minimize potential adverse effects on the financial performance of Billabong, the overall risk management program focuses on theunpredictability of financial markets (Billabong Annual Report, 2011).
The framework is based around the following risk activities: * Risk Identification: Identify all significant foreseeable risks associated with business activities in a timely andconsistent manner; * Risk Evaluation: Evaluate risks using an agreed risk assessment criteria; * Risk Treatment/Mitigation: Develop mitigation plans for risk areas where the residual risk is greater than tolerablerisk levels; and * Risk Monitoring and Reporting: Report risk management activities and risk specific information to appropriate levelsof management in a timely manner.
Due to Billabong having several separate entities overseas, the company is exposed to currency riskdue to the fluctuations in exchange rate. Billabong has immense exposure to interest rate risk due to its borrowings and other debt obligations.
Billabong’s current ratio is also essential to asses if the firm is able to meet its short term debt obligations. The current ratio can be calculated by dividing the firm’s current assets by the current liabilities. Current assets are cash and items that are expected to be turned to cash within the next year, and the current liabilities are financial obligations that are anticipated to be resolved within one year.
Billabongs Current Ratio:
Current Assets = 908854 = 2.34
Current Liabilities 389208
The calculation of Billabongs current ratio of 2.34, demonstrates that Billabong is holding a large amount of liquid assets to cover any short term debt obligations. The analysis of the current ratio allows for no direct