Category: Billabong

Executive Summary of Financial Performance

A comparative review of the financial statements of Billabong International Ltd between the two financial years 2007/2008 and 2008/2009 reveal the following information:

Operating Profits

In the year 2007/2008, the consolidated profits attributable to shareholders of Billabong International Ltd were $ 176,380,000 out of which $ 28,685,000 was directly from the parent company and the rest from subsidiary segments. In the subsequent year, the consolidated profits decreased to $ 152,839,000 of which the contribution of the parent company was $ 117,873,000 (Billabong International Limited, 2008:5).

Dividends

A final dividend of 27.0 cents per share was approved for issue by the board of directors in the fiscal year 2007/2008 total dividend paid was $ 56,007,000. An interim fully franked ordinary dividend of 27.0 cents per share was also fully paid; the total interim dividend paid was also. $ 56,007,000.Conversely, a final ordinary and fully franked dividend of 28.5 cents per share was issued by the board for the financial year 2008/2009.This totaled $ 59,120,000. An interim dividend partially franked to 45% at 27.0 cents was issued; this totaled $ 56,667,000 (Billabong International Limited, 2010:10).

Earnings per Share

The year 2007/2008 saw the group record basic Earnings per Share (EPS) of 81.8 cents and a diluted EPS of 81.2 cents. In the year 2008/2009 the basic EPS was reduced to 69.2 cents, the diluted EPS was also reduced to 68.7 cents.

Total Assets

This was recorded at $ 1,625,461,000 for the year 2007/2008 and increased significantly in the subsequent year to stand at $ 2,220,512,000.

Total Equity & Liabilities

In the year 2007/2008 total liabilities were $ 795,103,000 and up $ 1,176,936,000 in the subsequent year. Total equity for 2007/2008 was $ 402,196,000 and up in 2008/2009 to $ 795,103,000.

Company Overview Profile

Located in Burleigh Heads Queensland Australia, Billabong International Ltd is engaged in the wholesaling and large-scale retailing of surf, skate, snow apparel and other accessories. It is also engaged in the key licensing of its products in regions around the world. The group was established in 1973 by Gordon and Rena Merchants.

The group has segments operating in Australasia, America and Europe and is audited by Price Waterhouse Coopers. It presents its statements in Australian currency. Its shares were listed on the Australian Stock Exchange in the year 2000.

Profitability Analysis

Profitability measures the capacity of a business enterprise to bring in revenues and sustain expansion and growth into the foreseeable future. An entitys level of profitability is essentially based on its statement of comprehensive income. Profitability ratios include Gross Profit Margin, Operating Margin/Return on Sales, Net profit margin and Return on assets. These were as shown below for the two comparative periods:

2007/2008 2008/2009

Gross Profit Margin 18, 13 % 12.30%

Operating Margin 25% 17%

Net profit Margin 13% 9%

Return on Assets 10.85% 6.88%

Solvency Analysis

Also referred to as liquidity analysis, this measures the capability of the business to cover its obligations in terms of debts to creditors as well as other related parties. Solvency ratios indicate the firms chances of staying afloat by ensuring that liabilities due to related parties are adequately covered in full and in time. A business that is considered solvent is capable of not only sustaining positive cash flows but also meeting its current transactional and operational obligations (Weygandt, Kieso & Kell, 1996:45). The most significant solvency ratios are the current ratio and the quick ratio/acid test ratio

2007/2008 2008/2009

Current Ratio 1.95 0.211

Acid Test Ratio 2.10 2.48

Efficiency Analysis

It measures the stability of the firm and the degree of effectiveness that will enable the firm to continue its operations in the long run while minimizing incurred wastages and losses. This analysis is more holistic as it considers the use of the entitys income statement, balance sheet as well as other external economic and noneconomic factors surrounding the business. The efficiency ratios include the average collection period, average payment period, stock turnover ratio and the receivables turnover ratio.

2007/2008 2008/2009

Average Collection Period 81.56 days 62.30 days

Average Payment Period 72.32 days 75.5d days

Stock Turn over Ratio 2.0 times 1.92 times

Receivables Turn Over ratio 5, 75 times 6.88 times

Investment ratios

Also known as marketing ratios, these ratios measure the actual response of investors, both potential and current, on the companies stocks and general profitability. The key ratio in this category is the Earnings per Share which has been comparatively disclosed in the executive summary of financial performance above. The EPS ratio is critical because it will influence the decisions of both current and potential investors. Potential investors will be attracted to a firm with high EPS.

Recommendations

Generally, the performance of Billabong International Ltd was better in the fiscal year 2007/2008 than in the year 2008/2009. This is because of the recorded profits which are superior in 2008/2009 and a better EPS in the same year (both basic and diluted). This poor performance in 2009 is attributed to the fact there was an increase in the cost of sales. Also, this inferior performance is a result of the debtors taking longer to repay their obligations to the entity (took an average of 82 days in 2009 compared to 62 days) in the previous year. The group should therefore invest more in more efficient debt collection strategies (Groppelli & Nikbakht, 2000:210).

From the revision of the financial statements, the amount of reported profit for the year was significantly affected by a reduction of transactions conditions at the levels of consumption. This was particularly evident in the United States market, the effects of which can only be stabilized by the diminution in value of the Australian dollar against both the US Dollar and the euro. Sales revenues which also constitute the sale of royalties to third parties was also seen to have increased significantly by about 23% this gains were however counseled out by increases in the cost of sales and operating expenses. There should therefore be deliberate efforts by the entity to reduce its cost of doing business in order to improve its profit margins.

The stability in the consolidated figure for gross margin in the two years comparatively can be attributed to a number of factors which include the strength of the purchase hedge rates which were sufficiently applied in the Australian and European markets. This was neutralized by increased product costing expenses. The other factor is the increased levels of promotional and marketing activities in the American market even within a challenging business environment. This boosted revenues more and hence should be encouraged in other markets where segments are operating. Finally, another reason that could have also caused reduced performance in the year 2008/2009 was the dilutionary effect that resulted from the acquisition of DaKine Company. The performance of this new company prior to the acquisition was not stable because of the comprehensive of distributors that were mainly third party (Birt, et al., 2008:105).

Limitations of Ratio Analysis

The reliance on the use of financial ratios to analyze the performance of a business is inadequate because of the fact that the information used is not absolute and can be subjected to computational errors as well as round-off errors. A round-up or a round down of a particular result estimate may fundamentally alter the results of a computation, especially when large figures are involved. This is however subject to the principle of materiality.

It is also likely that seasonal factors and fluctuations in the market dynamics beyond the control of the business may have a bearing on some of the computed ratios hence making the results of computation less representative. Another danger of absolute reliance on the use of financial ratios is posed by the fact that ratios are basically estimates; they are used as a means to an end rather than being considered as the ultimate end in themselves. Ratios should only be used to help give a trend and explain superficial facts but not used in any other analysis that requires precision and detail.

Ratios will not explain the effects of exogenous factors and other non-measurable (arbitrary) investor attributes like perceptions and attitudes of potential investors. It would be difficult, for instance, to employ the use of accounting ratios to bring out what the feelings of an enraged investor would be on the management and the board for failure to declare dividends or the attitudes of a manager towards a forceful take over bid of his company. Such human elements are unlikely to be clearly captured in the financial statements by the use of accounting ratios.

The use ratio analysis may also be subject to drastic changes like the changes in accounting policies or government tax regimes (Kieso, Weygandt & Warfield, and 2007:1320). The results obtained from a ratio analysis that attempts to compare two different companies operating within the same industry may be insufficient and inaccurate because of the use of different accounting policies in these firms. An example would be the firms using different terms of credit, this may bring variations in the results of ratios affecting creditors or debtors. An entity that offers a credit period of thirty days to its customers will definitely have a different result from another which offers a forty-five-day or a sixty-day credit period. A blanket comparison in the industry will however not point out these unique disparities and therefore may not give a perfect comparison in terms of performance and efficiency. It will therefore be unwise to use certain ratios as blanket comparisons across industries.

Reference list

Billabong International Limited 2010, 2007-2008 Full Financial Report, Learning Advisers and Librarians, Sidney.

Billabong International Limited, 2008 Full Financial Report, Learning Advisers and Librarians, Sidney.

Birt, J. et al. 2008, Accounting: Business Reporting for Decision Making, Wiley, Melbourne.

Groppelli, A & Nikbakht, E 2000, Finance, 4th ed. Barrons Educational Series, Inc., Sydney.

Kieso, D, Weygandt, J & Warfield, T 2007, Intermediate Accounting, Wiley & Sons, Hoboken, NJ.

Weygandt, J, Kieso, D & Kell, W 1996, Accounting Principles, John Wiley & Sons, Inc., Brisbane.

Introduction

Unlike earlier, Australias Textile, Clothing and Footwear (TCF) is today undergoing transition whereby there is increasing reduction in protection levels, impacts of increasing level of global competition and adoption of new business and organizational strategies. Central to these developments is the role of human resource (labor). Labor is the transformative unit that any organization uses to realize its goals. This paper will discuss the labour market in Australian textile industry with focus on Billabong Company.

Labor demand and supply in Australias textile industry

Labor market is seen to be influenced by key factors such as demographic, economic, levels of education and skill, environment, political, technological, and other social aspects (Buchanan and Callus, 1993). In analyzing supply and demand concepts concerning labor market, it is obvious that when a price is floored above the equilibrium wage, the presence of minimum wage laws results into unemployment.

Generally, Australias labor market in the past has been characterized by insensitive wage fixing system, restrictive nature of unions, and skewed decision of the industrial tribunals and the destructive role of industrial regulations. This is in addition to laws, which have largely limited the ability of employers to organize the means of production in the best way, and the net effect has been increase in unemployment (Buchanan and Callus, 1993). This trend has largely affected the textile industry.

Recommendation

Spurred by the realities of economy, the Australian labor regulation laws should be reviewed. The overall de-regulation of labor market will result in increased employer-employee bargaining power (Moore, 2008), with likelihood of accelerating employment opportunities in the sector since there will be much flexibility.

Predicted areas of organizational growth and downsizing and labor requirements

Billabong Company is presented with numerous growth opportunities both locally and internationally. For instance, the Europe market presents numerous opportunities for the company in terms of long-term strategies. At the same time, the overall global women market again presents the company with an opportunity to grow (TransWorld Business, n.d, p.1).

Evidently, the northern America and Europe are being seen as the viable markets in terms of women clothing and accessories (TransWorld Business, n.d, p.1). Further, the companys CEO Matthew Perrin notes that the skate-apparel market is underdeveloped and therefore Billabong has another opportunity to grow in the area (TransWorld Business, n.d, p.1); indeed, key to Billabong growth is an excellent employee group.

The prospects in the economy and recent acquisition of more outlets Billabong is destined for growth, which in turn will spur the need for more staff. Currently, the companys staff is non-unionized with only small fraction being members of Australian Textile, Clothing, and Footwear Union (Anon, n.d, p.1). At the same time, the companys employment relations have been influenced by government especially with introduction of new employment legislations, which are largely implemented by industrial tribunals (Anon, n.d, p.1).

Moreover, the company has a workforce of about 1,800; and government laws that have influenced employment opportunities at the company include workplace relations Act 1996, Racial Discrimination Act 1975, Affirmative Action Act 1986, and the safe workplace legislations (Anon, n.d, p.1).

Recommendation

Although no major downsizing has affected the company, in an event there is to be downsizing, it is prudent that the law be observed where the employee should be given notice in advance (60days), notify the relevant government agencies including the employee unions (Karake-Shalhoub and Karake 1999). This will ensure that the company avoids certain legal penalties.

Existing workforce of the organization and areas that shows excesses or shortages

By 2007, Billabongs Australia Company had 600 workers which represented an increase of about 50per cent (Russell 2007). Although the company was expanding, the companys human resource manager Jason Smith maintained that they were dedicated to maintaining a lean team (Russell 2007). During the 2009/10 financial release, the companys CEO, Derek ONeill observed that American market was picking up but they had no intention of increasing (upsizing) the workforce.

This statement can be translated to mean the company was confident American market was not in excess or shortage of workforce (Anon 2009). The domestic market of Australia the CEO noted had been diluted by the Asian players and such the business was yet to pick up. The current workforce in the country was seen to be okay to the current capacity.

Recommendation

Organizations prospects of growth and positive financial statements dictate the possibility of a company increasing or reducing its workforce. For now Billabong is recovering from financial downturn of the recession and its market is yet to pick up. Therefore in short-run the existing workforce may be enough for the workload of the company.

Current organizations workforce capacity and the predicted demand for the business

With more than 1500 employees, and being an international company, Billabong workforce transcends into third-party contractors and as a result, the company has constantly continued to review its workforce policy to comply with international standards. Further, the company has consistently continued to employ workers in accordance to the way they live a specific lifestyle in which the company wants to promote products.

Moreover, workforce capacity is the fundamental ability for an organization to ensure sufficient staffing in order to accomplish its work processes. For Billabong, the projected market growth and acquisition of new outlets spells that the company will need more workforces to accomplish its works.

Recommendations

Through an elaborative environmental scanning study, the company should be able to identify key areas where it can equip with new and talented workforce. Specifically in emerging markets and those regions that show great potentials, the company needs to recruit young, talented, and innovative employees who can be able to promote the companys products to the markets.

External labor supply and prediction for human resource supply

Currently, the labor market is experiencing numerous labor force dynamics being determined by past population reproduction and migration inflows (Ivanov, 2009). Capital and technology as factors of production have the tendency to command attention when demographics of labor force are steadily and satisfactory while when the population goes down, the decline tends to shift the focus towards labor.

In addition, demographic factors that affect supply of labor include natural reproduction of labor force and migration while economic factors affecting supply of labor include age and sex groups into labor force, actual employment of labor force and extent of use of available working time (Ivanov, 2009).

Recommendations

National structural adjustments in the economic, political, and social of various countries in which Billabong operates will affect future human resource supply. At the same time, it necessary for key institutions to put in place programs to train and sustain the current human resource whereby they can be equipped with key skills.

Organizations diversity in the workplace

Jason Smith, note that Billabong current strategic issue is to establish training and performance management frameworks that have the ability to give support to both personal and business recruitment where the emphasis is for the right mix of culture and business skills (Russell 2007). Further, in ensuring adherence to this the company constantly reviews the tax legislation changes and also implements a time and attendance systems. Billabong has internal recruitment structure which outsources most of its trainings.

Recommendations

The company has adopted the Social Accountability 8000, certification from the ILO with aim to ensure the rights of its diverse workforce are observed. What is necessary is for Billabong to seek services of external human resource auditors to ensure aspects of the Social Accountability 8000 are observed.

Conclusion

Workforce planning has become necessary assignment in most companies that have vision of growth. An effective workforce planning helps the company to accomplish its strategic objectives.

For an effective workforce planning to take place, an organization should provide answers to the following key questions: what critical workforce characteristics the organization needs in the future accomplish its strategic intent and what is the desired distribution of these characteristics, what is the distribution in todays workforce, and what characteristics should the future workforce possess (Emmerichs, Marcum, Robert and National Defense Research Institute-US, 2004).

References List

Anon. Billabong Case Study: Managing change. Web.

Anon. 2009. Billabong Intl CEO Derek ONeill Discusses Billabongs Full Year Results. Web.

Buchanan, J. and Callus, R., 1993. Efficiency and Equity at Work: The need for labor market regulation in Australia. Web.

Emmerichs, R. M., Marcum, C. Y., Robbert, A. A. and National Defense Research Institute-US. An operational process for workforce planning. CA, Rand Corporation. Web.

Ivanov, S., 2009. Demographic and economic factors of labor supply: Long-term projections and policy options for France, Germany, Italy and the United Kingdom. Vienna Yearbook of Population Research. Web.

Karake-Shalhoub, Z. and, Karake, Z.A., 1999. Organizational downsizing, discrimination and corporate social responsibility. CT, Greenwood Publishing Group. Web.

Moore, D., 2008. The Case for Minimal Regulation of the Labor Market. Journal of Economic Analysis and Policy. Australia, Institute for Private Enterprise. Web.

Russell, T., 2007. HR Down Under. Online Article by Personnel today. Web.

TransWorld Business. Billabong International CEO Matthew Perrin Explains His Strategy for Success. Web.

Victorian Government. 2002. Victorian Textile, Clothing, Footwear and Leather manufacturing industry. Web.

Critique of the method used in the analysis

Macroeconomic uncertainty

The analysis fails to take into consideration the fact that the macroeconomic environment is never perfect, but it changes in unpredictable ways. Such changes may in turn affect the interest rates positively or negatively, thereby having an effect on the economy overly. In essence, the values of the 13 companies are likely to be affected by the changes experienced in the macroeconomic environment (Oxelheim, 2003, p. 36).

Valuation

Billabong Asset Management, as an interested investor company, is required to perform an extensive valuation of the companies it wishes to invest in to be able to ascertain whether such a move with respect to the individual companies would pay off (Reilly, 2010, p. 60). The analysis conducted on the 13 companies that Billabong seeks to invest in is extensive and provides useful trends and information that can be relied upon in making investment decisions. The daily price data for each of the 13 companies run from 2005 to 2013, which is close to eight years of analysis on the performance of each of the companies. This is good for Billabong because it will provide it with adequate details on each of the 13 companies, especially details on their business performance.

Bias

Although the 13 companies that Billabong may wish to invest in have been identified, the analysis does not indicate the reason for selecting the said companies. This could be a result of bias on the part of the analysts who conducted the initial investigation. It could have been done with the intent of benefiting an individual or group of individuals and not necessarily taking Billabong’s interests into consideration. This could end up affecting the company’s finances, particularly where returns are minimal (Scott, Stumpp & Xu, 1999, p. 49).

The Portfolio construction is required to satisfy targeted annualized rates of return

Billabong must employ MVA over the seven years, beginning 2005 to 2013, of the compounded yearly information or return data to solve the stock weights. This will enable the company to construct the requisite portfolio for the coming one-year holding period. MVO can be used to ascertain the security weights contained in the little basket of stocks while basing on the historical income and covariance (Durr, Eaton & Broker, 2009, p. 57). While doing this, the weight contained in a single stock should be limited to 20% of the portfolio. This will see the average yearly excess returns range from 6% to 10%; that is, for the long-only smallest amount variance small-basket portfolios. The percentage index is relative to the comparatively bigger SRI funds. This is relative to the small-basket funds.

From these results, the calculations are likely to depict an enhanced portfolio performance to cover the entire period under analysis. The results, on the other hand, rest on the supposition that relationships from the past, touching on the individual assets along with the asset classes, will hold through into the future. The period under which the investment returns have been collected, will, in turn, affect the marks of comparative analyses to be performed in the future.

From past knowledge, it is obvious that limitations of this type of portfolio analysis are equally important with regard to its indications. It is worth suggesting that Billabong should consider using the LOMVSBP strategy in a section of the investment holdings of the company to construct various MVP small-basket portfolios from the various larger SRI funds (Durr, Eaton & Broker, 2009, p. 57).

List of References

Durr, D, Eaton, DH & Broker, T 2009, ‘Outracing the market: A NASCAR portfolio as a test case of returns and diversification’, Journal of Applied Economics & Policy, vol. 28, no. 1, pp. 57-68.

Oxelheim, L 2003, ‘Macroeconomic variables and corporate performance’, Financial Analysts Journal, vol. 59, no. 4, pp. 36-50.

Reilly, RF 2010, ‘Valuation Analyst Guidelines Related to Bankruptcy Expert Reports and Testimony’, American Bankruptcy Institute Journal, vol. 29, no. 8, pp. 60-63.

Scott, J, Stumpp, M & Xu, P 1999, ‘Behavioral bias, valuation, and active management’, Financial Analysts Journal, vol. 55, no. 4, pp. 49-57.

Executive Summary of Financial Performance

A comparative review of the financial statements of Billabong International Ltd between the two financial years 2007/2008 and 2008/2009 reveal the following information:

Operating Profits

In the year 2007/2008, the consolidated profits attributable to shareholders of Billabong International Ltd were $ 176,380,000 out of which $ 28,685,000 was directly from the parent company and the rest from subsidiary segments. In the subsequent year, the consolidated profits decreased to $ 152,839,000 of which the contribution of the parent company was $ 117,873,000 (Billabong International Limited, 2008:5).

Dividends

A final dividend of 27.0 cents per share was approved for issue by the board of directors in the fiscal year 2007/2008 total dividend paid was $ 56,007,000. An interim fully franked ordinary dividend of 27.0 cents per share was also fully paid; the total interim dividend paid was also. $ 56,007,000.Conversely, a final ordinary and fully franked dividend of 28.5 cents per share was issued by the board for the financial year 2008/2009.This totaled $ 59,120,000. An interim dividend partially franked to 45% at 27.0 cents was issued; this totaled $ 56,667,000 (Billabong International Limited, 2010:10).

Earnings per Share

The year 2007/2008 saw the group record basic Earnings per Share (EPS) of 81.8 cents and a diluted EPS of 81.2 cents. In the year 2008/2009 the basic EPS was reduced to 69.2 cents, the diluted EPS was also reduced to 68.7 cents.

Total Assets

This was recorded at $ 1,625,461,000 for the year 2007/2008 and increased significantly in the subsequent year to stand at $ 2,220,512,000.

Total Equity & Liabilities

In the year 2007/2008 total liabilities were $ 795,103,000 and up $ 1,176,936,000 in the subsequent year. Total equity for 2007/2008 was $ 402,196,000 and up in 2008/2009 to $ 795,103,000.

Company Overview Profile

Located in Burleigh Heads Queensland Australia, Billabong International Ltd is engaged in the wholesaling and large-scale retailing of surf, skate, snow apparel and other accessories. It is also engaged in the key licensing of its products in regions around the world. The group was established in 1973 by Gordon and Rena Merchants.

The group has segments operating in Australasia, America and Europe and is audited by Price Waterhouse Coopers. It presents its statements in Australian currency. Its shares were listed on the Australian Stock Exchange in the year 2000.

Profitability Analysis

Profitability measures the capacity of a business enterprise to bring in revenues and sustain expansion and growth into the foreseeable future. An entity’s level of profitability is essentially based on its statement of comprehensive income. Profitability ratios include Gross Profit Margin, Operating Margin/Return on Sales, Net profit margin and Return on assets. These were as shown below for the two comparative periods:

2007/2008 2008/2009

Gross Profit Margin 18, 13 % 12.30%

Operating Margin 25% 17%

Net profit Margin 13% 9%

Return on Assets 10.85% 6.88%

Solvency Analysis

Also referred to as liquidity analysis, this measures the capability of the business to cover its obligations in terms of debts to creditors as well as other related parties. Solvency ratios indicate the firm’s chances of staying afloat by ensuring that liabilities due to related parties are adequately covered in full and in time. A business that is considered solvent is capable of not only sustaining positive cash flows but also meeting its current transactional and operational obligations (Weygandt, Kieso & Kell, 1996:45). The most significant solvency ratios are the current ratio and the quick ratio/acid test ratio

2007/2008 2008/2009

Current Ratio 1.95 0.211

Acid Test Ratio 2.10 2.48

Efficiency Analysis

It measures the stability of the firm and the degree of effectiveness that will enable the firm to continue its operations in the long run while minimizing incurred wastages and losses. This analysis is more holistic as it considers the use of the entity’s income statement, balance sheet as well as other external economic and noneconomic factors surrounding the business. The efficiency ratios include the average collection period, average payment period, stock turnover ratio and the receivables turnover ratio.

2007/2008 2008/2009

Average Collection Period 81.56 days 62.30 days

Average Payment Period 72.32 days 75.5d days

Stock Turn over Ratio 2.0 times 1.92 times

Receivables Turn Over ratio 5, 75 times 6.88 times

Investment ratios

Also known as marketing ratios, these ratios measure the actual response of investors, both potential and current, on the companies stocks and general profitability. The key ratio in this category is the Earnings per Share which has been comparatively disclosed in the executive summary of financial performance above. The EPS ratio is critical because it will influence the decisions of both current and potential investors. Potential investors will be attracted to a firm with high EPS.

Recommendations

Generally, the performance of Billabong International Ltd was better in the fiscal year 2007/2008 than in the year 2008/2009. This is because of the recorded profits which are superior in 2008/2009 and a better EPS in the same year (both basic and diluted). This poor performance in 2009 is attributed to the fact there was an increase in the cost of sales. Also, this inferior performance is a result of the debtors taking longer to repay their obligations to the entity (took an average of 82 days in 2009 compared to 62 days) in the previous year. The group should therefore invest more in more efficient debt collection strategies (Groppelli & Nikbakht, 2000:210).

From the revision of the financial statements, the amount of reported profit for the year was significantly affected by a reduction of transactions conditions at the levels of consumption. This was particularly evident in the United States market, the effects of which can only be stabilized by the diminution in value of the Australian dollar against both the US Dollar and the euro. Sales revenues which also constitute the sale of royalties to third parties was also seen to have increased significantly by about 23% this gains were however counseled out by increases in the cost of sales and operating expenses. There should therefore be deliberate efforts by the entity to reduce its cost of doing business in order to improve its profit margins.

The stability in the consolidated figure for gross margin in the two years comparatively can be attributed to a number of factors which include the strength of the purchase hedge rates which were sufficiently applied in the Australian and European markets. This was neutralized by increased product costing expenses. The other factor is the increased levels of promotional and marketing activities in the American market even within a challenging business environment. This boosted revenues more and hence should be encouraged in other markets where segments are operating. Finally, another reason that could have also caused reduced performance in the year 2008/2009 was the dilutionary effect that resulted from the acquisition of DaKine Company. The performance of this new company prior to the acquisition was not stable because of the comprehensive of distributors that were mainly third party (Birt, et al., 2008:105).

Limitations of Ratio Analysis

The reliance on the use of financial ratios to analyze the performance of a business is inadequate because of the fact that the information used is not absolute and can be subjected to computational errors as well as round-off errors. A round-up or a round down of a particular result estimate may fundamentally alter the results of a computation, especially when large figures are involved. This is however subject to the principle of materiality.

It is also likely that seasonal factors and fluctuations in the market dynamics beyond the control of the business may have a bearing on some of the computed ratios hence making the results of computation less representative. Another danger of absolute reliance on the use of financial ratios is posed by the fact that ratios are basically estimates; they are used as a means to an end rather than being considered as the ultimate end in themselves. Ratios should only be used to help give a trend and explain superficial facts but not used in any other analysis that requires precision and detail.

Ratios will not explain the effects of exogenous factors and other non-measurable (arbitrary) investor attributes like perceptions and attitudes of potential investors. It would be difficult, for instance, to employ the use of accounting ratios to bring out what the feelings of an enraged investor would be on the management and the board for failure to declare dividends or the attitudes of a manager towards a forceful take over bid of his company. Such human elements are unlikely to be clearly captured in the financial statements by the use of accounting ratios.

The use ratio analysis may also be subject to drastic changes like the changes in accounting policies or government tax regimes (Kieso, Weygandt & Warfield, and 2007:1320). The results obtained from a ratio analysis that attempts to compare two different companies operating within the same industry may be insufficient and inaccurate because of the use of different accounting policies in these firms. An example would be the firms using different terms of credit, this may bring variations in the results of ratios affecting creditors or debtors. An entity that offers a credit period of thirty days to its customers will definitely have a different result from another which offers a forty-five-day or a sixty-day credit period. A blanket comparison in the industry will however not point out these unique disparities and therefore may not give a perfect comparison in terms of performance and efficiency. It will therefore be unwise to use certain ratios as blanket comparisons across industries.

Reference list

Billabong International Limited 2010, 2007-2008 Full Financial Report, Learning Advisers and Librarians, Sidney.

Billabong International Limited, 2008 Full Financial Report, Learning Advisers and Librarians, Sidney.

Birt, J. et al. 2008, Accounting: Business Reporting for Decision Making, Wiley, Melbourne.

Groppelli, A & Nikbakht, E 2000, Finance, 4th ed. Barron’s Educational Series, Inc., Sydney.

Kieso, D, Weygandt, J & Warfield, T 2007, Intermediate Accounting, Wiley & Sons, Hoboken, NJ.

Weygandt, J, Kieso, D & Kell, W 1996, Accounting Principles, John Wiley & Sons, Inc., Brisbane.

Introduction

Unlike earlier, Australia’s Textile, Clothing and Footwear (TCF) is today undergoing transition whereby there is increasing reduction in protection levels, impacts of increasing level of global competition and adoption of new business and organizational strategies. Central to these developments is the role of human resource (labor). Labor is the transformative unit that any organization uses to realize its goals. This paper will discuss the labour market in Australian textile industry with focus on Billabong Company.

Labor demand and supply in Australia’s textile industry

Labor market is seen to be influenced by key factors such as demographic, economic, levels of education and skill, environment, political, technological, and other social aspects (Buchanan and Callus, 1993). In analyzing supply and demand concepts concerning labor market, it is obvious that when a price is floored above the equilibrium wage, the presence of minimum wage laws results into unemployment.

Generally, Australia’s labor market in the past has been characterized by insensitive wage fixing system, restrictive nature of unions, and skewed decision of the industrial tribunals and the destructive role of industrial regulations. This is in addition to laws, which have largely limited the ability of employers to organize the means of production in the best way, and the net effect has been increase in unemployment (Buchanan and Callus, 1993). This trend has largely affected the textile industry.

Recommendation

Spurred by the realities of economy, the Australian labor regulation laws should be reviewed. The overall de-regulation of labor market will result in increased employer-employee bargaining power (Moore, 2008), with likelihood of accelerating employment opportunities in the sector since there will be much flexibility.

Predicted areas of organizational growth and downsizing and labor requirements

Billabong Company is presented with numerous growth opportunities both locally and internationally. For instance, the Europe market presents numerous opportunities for the company in terms of long-term strategies. At the same time, the overall global women market again presents the company with an opportunity to grow (TransWorld Business, n.d, p.1).

Evidently, the northern America and Europe are being seen as the viable markets in terms of women clothing and accessories (TransWorld Business, n.d, p.1). Further, the company’s CEO Matthew Perrin notes that the skate-apparel market is underdeveloped and therefore Billabong has another opportunity to grow in the area (TransWorld Business, n.d, p.1); indeed, key to Billabong growth is an excellent employee group.

The prospects in the economy and recent acquisition of more outlets Billabong is destined for growth, which in turn will spur the need for more staff. Currently, the company’s staff is non-unionized with only small fraction being members of Australian Textile, Clothing, and Footwear Union (Anon, n.d, p.1). At the same time, the company’s employment relations have been influenced by government especially with introduction of new employment legislations, which are largely implemented by industrial tribunals (Anon, n.d, p.1).

Moreover, the company has a workforce of about 1,800; and government laws that have influenced employment opportunities at the company include workplace relations Act 1996, Racial Discrimination Act 1975, Affirmative Action Act 1986, and the safe workplace legislations (Anon, n.d, p.1).

Recommendation

Although no major downsizing has affected the company, in an event there is to be downsizing, it is prudent that the law be observed where the employee should be given notice in advance (60days), notify the relevant government agencies including the employee unions (Karake-Shalhoub and Karake 1999). This will ensure that the company avoids certain legal penalties.

Existing workforce of the organization and areas that shows excesses or shortages

By 2007, Billabong’s Australia Company had 600 workers which represented an increase of about 50per cent (Russell 2007). Although the company was expanding, the company’s human resource manager Jason Smith maintained that they were dedicated to maintaining a lean team (Russell 2007). During the 2009/10 financial release, the company’s CEO, Derek O’Neill observed that American market was picking up but they had no intention of increasing (upsizing) the workforce.

This statement can be translated to mean the company was confident American market was not in excess or shortage of workforce (Anon 2009). The domestic market of Australia the CEO noted had been diluted by the Asian players and such the business was yet to pick up. The current workforce in the country was seen to be okay to the current capacity.

Recommendation

Organization’s prospects of growth and positive financial statements dictate the possibility of a company increasing or reducing its workforce. For now Billabong is recovering from financial downturn of the recession and its market is yet to pick up. Therefore in short-run the existing workforce may be enough for the workload of the company.

Current organization’s workforce capacity and the predicted demand for the business

With more than 1500 employees, and being an international company, Billabong workforce transcends into third-party contractors and as a result, the company has constantly continued to review its workforce policy to comply with international standards. Further, the company has consistently continued to employ workers in accordance to the way they live a specific lifestyle in which the company wants to promote products.

Moreover, workforce capacity is the fundamental ability for an organization to ensure sufficient staffing in order to accomplish its work processes. For Billabong, the projected market growth and acquisition of new outlets spells that the company will need more workforces to accomplish its works.

Recommendations

Through an elaborative environmental scanning study, the company should be able to identify key areas where it can equip with new and talented workforce. Specifically in emerging markets and those regions that show great potentials, the company needs to recruit young, talented, and innovative employees who can be able to promote the company’s products to the markets.

External labor supply and prediction for human resource supply

Currently, the labor market is experiencing numerous labor force dynamics being determined by past population reproduction and migration inflows (Ivanov, 2009). Capital and technology as factors of production have the tendency to command attention when demographics of labor force are steadily and satisfactory while when the population goes down, the decline tends to shift the focus towards labor.

In addition, demographic factors that affect supply of labor include natural reproduction of labor force and migration while economic factors affecting supply of labor include age and sex groups into labor force, actual employment of labor force and extent of use of available working time (Ivanov, 2009).

Recommendations

National structural adjustments in the economic, political, and social of various countries in which Billabong operates will affect future human resource supply. At the same time, it necessary for key institutions to put in place programs to train and sustain the current human resource whereby they can be equipped with key skills.

Organization’s diversity in the workplace

Jason Smith, note that Billabong current strategic issue is to establish training and performance management frameworks that have the ability to give support to both personal and business recruitment where the emphasis is for the right mix of culture and business skills (Russell 2007). Further, in ensuring adherence to this the company constantly reviews the tax legislation changes and also implements a time and attendance systems. Billabong has internal recruitment structure which outsources most of its trainings.

Recommendations

The company has adopted the Social Accountability 8000, certification from the ILO with aim to ensure the rights of its diverse workforce are observed. What is necessary is for Billabong to seek services of external human resource auditors to ensure aspects of the Social Accountability 8000 are observed.

Conclusion

Workforce planning has become necessary assignment in most companies that have vision of growth. An effective workforce planning helps the company to accomplish its strategic objectives.

For an effective workforce planning to take place, an organization should provide answers to the following key questions: “what critical workforce characteristics the organization needs in the future accomplish its strategic intent and what is the desired distribution of these characteristics, what is the distribution in today’s workforce, and what characteristics should the future workforce possess” (Emmerichs, Marcum, Robert and National Defense Research Institute-US, 2004).

References List

Anon. Billabong Case Study: Managing change. Web.

Anon. 2009. Billabong Int’l CEO Derek O’Neill Discusses Billabong’s Full Year Results. Web.

Buchanan, J. and Callus, R., 1993. Efficiency and Equity at Work: The need for labor market regulation in Australia. Web.

Emmerichs, R. M., Marcum, C. Y., Robbert, A. A. and National Defense Research Institute-US. An operational process for workforce planning. CA, Rand Corporation. Web.

Ivanov, S., 2009. Demographic and economic factors of labor supply: Long-term projections and policy options for France, Germany, Italy and the United Kingdom. Vienna Yearbook of Population Research. Web.

Karake-Shalhoub, Z. and, Karake, Z.A., 1999. Organizational downsizing, discrimination and corporate social responsibility. CT, Greenwood Publishing Group. Web.

Moore, D., 2008. The Case for Minimal Regulation of the Labor Market. Journal of Economic Analysis and Policy. Australia, Institute for Private Enterprise. Web.

Russell, T., 2007. HR Down Under. Online Article by Personnel today. Web.

TransWorld Business. Billabong International CEO Matthew Perrin Explains His Strategy for Success. Web.

Victorian Government. 2002. Victorian Textile, Clothing, Footwear and Leather manufacturing industry. Web.

This section of the report is aimed at discussing the treatment of intangible assets in Billabong International Limited. In particular, it is necessary to determine if this treatment complies with the existing Australian accounting standards. Overall, this enterprise recognizes three types of non-monetary and non-physical assets, namely goodwill, brands, and computer software (Billabong, 2011 p 66).

They are directly related to profit generation. However, one can single out some other intangible assets such as marketing rights, copyrights, patents, customer lists and so forth (Deegan, 2009). They are not quite applicable to this company, but they are of great importance to many modern businesses. On the whole, it is possible to say that the management of Billabong accurately identified each of its non-physical and non-monetary assets. In this respect, their financial reporting practices are quite appropriate.

The company treats these intangible assets in different ways. For instance, they do not amortize goodwill because it has an indefinite life. This means that one cannot determine when their commercial reputation, customer connections, or brand image will stop to bring revenues for the organization. Such practice is quite consistent with Australian as well as International Financial Reporting Standards.

This company allocates goodwill to cash-generating units in order to test impairment. It should be noted that they compare the fair value of a unit with its carrying or book value. Again, such methodology is compatible with the standards accounting adopted in Australia (Deegan, 2009).

Similarly, Billabong does not calculate the amortization of brands since their economic life can also be indefinite. It should be noted that this enterprise determines the recoverable amounts of cash-generation units or CGUs on the basis of value-in-use calculations (Billabong, 2011 p 78). Such calculations require the forecasts of the company’s future financial performance. This method of impairment testing fully conforms to Australian accounting standards (Australian Accounting Standard Board, 2009, p 76).

Yet, one needs to take into account that the company’s evaluation of intangible assets, especially brands, relies on sales forecasts. Thus, one has to determine the accuracy of these forecasts. According to their financial reports, they are based on previous experience, market trends, GDP growth or inflation (Billabong, 2011 p 90). Nevertheless, one requires more specific information to assess the feasibility of their forecasts.

The only intangible asset that Billabong does amortize is computer software; its amortization period ranges from 3 to 5 years depending on their contractual life. This practice is compatible with the requirements set by Accounting Standard Board (AASB, 2009 b, p 35). At this point, one has to note that there are two distinct terms such as contractual life and useful life.

The first notion can be defined as the period during which the company intends to utilize an asset whereas the second one can be explained as the period when an asset (computer software) is able to generate profit. Useful life can be much shorter than contractual life. Thus, these two notions are not interchangeable.

This is why AASB recommends the companies to calculate amortization of the basis of useful rather than contractual life of an asset (AASB, 2009, p 36). In this case, Billabong does not deviate from Australia accounting standards; more likely, they need to specify the duration of amortization period. The thing is that this slightly inaccurate formulation can be confusing to potential investors.

Another important issue to discuss is the recognition of expenses that are related to intangible assets. One can say that Billabong adopts different approaches to this task. For instance, the company capitalizes the costs related to the acquisition of software (Billabong, 2011 p 66).

This approach fully conforms to Australian and International Accounting Standards (IASB 2011, AASB, 2009). One should bear in mind that such method is appropriate only if the company purchases licensed software from third-party contractors. Provided that, the organization independently works on the development of software solutions, its expenditures must be expensed as they occur (IASB, 2011, unpaged).

Billabong capitalizes these expenses because such reduction minimizes their negative effect on profitability and overall financial performance of the enterprise. In turn, the costs that the organization occurs in order to develop or enhance their brands are expensed immediately. It should be noted that the costs of internally-developed brands can capitalized only if the company is able to demonstrate their economic feasibility (Benedict, 2001, p 209; IASB, 2011, unpaged).

In other words, the organization must demonstrate that the revenues generated by the intangible asset such as brand will fully cover the expenses. As a rule, it is impossible to do if the brand is unknown.

Overall, it is possible to say that financial reporting practices adopted by Billabong International Limited do not violate the existing Australian or international standards. This organization provides a complete and accurate representation of its intangible assets such as brands, goodwill, or computer software. It seems that they recognize each of their intangible assets and accurately describe their financial impacts. Their treatment of these assets appears to be quite satisfactory.

References

Australian Accounting Standard Board. (2009) “AASB 136: Impairment of Assets”. Web.

Australian Accounting Standard Board. (2009 b). “AASB 138: Intangible Assets”. Web.

Benedict A. 2001 Practical accounting. London: Pearson Education.

Billabong International Limited. (2011). Preliminary Financial Report. Web.

Deegan Craig. (2009). Australian Financial Accounting. Melbourne: McGraw-Hill Australia.

The International Accounting Standard Board. (2011) “IAS 38 INTANGIBLE ASSETS”. Web.

Introduction

Billabong international limited is a leading manufacturer, marketer, distributor, wholesaler and retailer of accessories, apparel, eyewear, hard goods and wetsuits in board sports. Billabong products are licensed in several countries worldwide and are distributed through the company’s privately branded retail outlets. Promotions and marketing are done with high-profile athletes, both amateur and professional.

Billabong produces and sells swimwear, t-shirts, jumpers, shorts, wet suits, bags, pants, jeans, and accessories to roughly 3,000 surfing and boarding shops across the world. Most of the Billabong products are sold in Australia while Europe and North America comes second and third respectively (Vallabhaneni, 2009).

By using BCG matrix, which is a tool developed by a US consulting group, one can determine the strategic business units, SBU, that play a role in maintaining the company accounts rolling (Doyle, 2008). Each SBU is a product line, division, or a profit gainer within the mother company. A strategic business unit can be considered a separate entity competing for the corporate resources of the parent company.

The main SBU’s are board shorts, caps or hats and lady bikinis. From this product line, arguably, sales and availability of product the caps or hats are the Dogs. They are in low-growth markets and have a low-market share. It is best to avoid them, get rid of them, or have minimised them (Doyle, 2008). The stars in this institution are the board shorts.

They are easily accessible in most markets and are in high-growth markets and have a high-market share (Stalk & Stern, 1998). They generate income in copious amounts and should be held on to at all costs. Lady bikinis are cash cows; they bring in more money than the currency that is pumped into them.

They command a high-market share in a slow-growth market (Stalk & Stern 1998). For the case of analysis, I choose to do a situational analysis of the board shorts as they are doing fairly well in the market.

A situational analysis is crucial in conducting an examination on a product before any given marketing strategy is conducted. The components whose consideration is of value include current product, target market, distributor network, current competitor, financial analysis and external forces.

Fig 1: Marketing Mix (4Ps)

Sources:http://www.netmba.com/marketing/mix/

Board shorts

Product

• Board short is chosen because it was the preliminary product line of the company. The product has received accolades for its elegant designs among pro-surfers also its durability and functionality in and out of water

Price

• The product enjoys subsidized pricing at the distributor level. Offered at affordable rates for retailers, and hence the buyers can afford to purchase as many as they may want.

Distribution

• The product was first produced in Queensland Australia and was sold in other nations like United States and Japan following license agreements established in the early 80’s.
• Most of the nations obtained their orders by shipping but currently most Billabong outlets are subsidiaries, for example, billabong USA, billabong Asia among others. Billabong board shorts are obtained or sold in particular outlets. This is the limited distribution strategy.
• Rather than, sell at any other sports store, they are sold at specialty shops creating a perception of exclusiveness and uniqueness. The demographic is wide spread catering to both genders, of whichever occupation (Behrer & Kerkstoel, 2011).

Promotion

• Billabong conducts rigorous campaigns for safe surfing in an effort to promote their brand. They had also sponsored athletes who may be seen wearing their shorts when they surf.
• The product can be said to be etched in the market as most surfers refer to their shorts and shirts as billabongs (Jarratt, 2010).
• The growth of sports such as snowboarding and its inclusion to the Olympic 2002 games also increased the popularity of the board shorts.

External environment

The current target market of billabongs board shorts is becoming the world’s leading manufacturer of surf shorts. Their age target of 12-20 years is fast expanding to include older age groups from the world over (Booth 2011). The brand of the products is mainly build by its strong quality of its products which makes them very competitive in the market.

Board shorts are particularly targeted at the young youth who are very active in sports such as board sports and snowboarding. Billabong has a target market that keeps changing with age group and fashion trends hence, a need to keep up lest their products become redundant in the market.

A preference for independence and individualism also pushes for changes in the market trends. It is not possible to measure the full growth of a sports market as it is relatively new (Jarratt, 2010). The expansion to other regions such as Asia has increased sales. Productivity will be enhanced by re-positioning their brand name and increasing service efficiency (Booth, 2011).

SWOT analysis

Conclusion

Billabong enjoys a good brand name, but needs to device more strategies to capture more market share. This can be done by bettering their distribution channel and in particular by marketing their products abroad. Undoubtedly, such strategies can make its products a market lead across the world (Anandan, 2004)

References

Anandan.T., 2004. Product Management. New York: McGraw-Hill EducationISBN0070153248.

Behrer, M., & Kerkstoel, G., 2011. How cool brands stay hot: branding to Generation.New York: Kogan Page Publishers

Billabong International Company., 2011.company reports. Web. Web.

Booth, D., 2011. Surfing: The ultimate guide Greenwood guide to extreme sports. Melbourne: ABC-CLIO Publisher.

Doyle, P., 2008.Value-based marketing: marketing strategies for corporate growth and shareholder value. Chichester: John Wiley &Sons.

Grant,T, 2004. International directory of company histories. vol. 60. Detroit, Michigan: St. James Press.

Jarratt, P., 2010.Salts and Suits Prahran, Vic. Hardie Grant Publishing.

Roth, M., 2010. Top stocks 2011: A sharebuyer’s guide to leading Australian companies.17^th Ed. Chichester. John Wiley and Sons.

Stalk, G., & Stern C. W., 1998. Perspectives on strategy. New York: Wiley Publishers.

Taylor, R., 2002. House inside the waves: domesticity, art, and the surfing life. Vancouver : Beach Holme Pub. Dundurn Press Ltd.

Trapp, R., Desai. S., & Buckley. G., 2010. What you need to know about business. Chichester,: John Wiley & Sons.

Vallabhaneni, D., 2009. What’s Your MBA IQ?: A Manager’s Career Development Tool. London: John Wiley and Sons.