5 Year Trend Analysis

In conclusion the general trend seen in the five financial years is reflected by changes in various factors as explained above. The factors that have direct correlation to how the operating cycles moves or how long it takes for company to get money back from its investments or convert cash investment back into cash are generally the inventory and accounts receivables mainly. Other contributing reasons are also cost of goods sold, credit sales, accounts payables and purchases. The trend shown is that as these factors reduce the gross and net operating cycle also decreases meaning that fewer days are required to achieve return on investment. The decrease in sale results in an increase in the operating cycle thus it takes even longer than anticipated by the company strategy. The company strategy implemented reflects the decrease in operating cycles as shown in the table.

5.0 Liquidity and Solvency
5.1 Liquidity Risk
Liquidity of a company refers to the ability to satisfy the organization’s short-term obligations by applying assets most readily available to be converted into cash. The liquidity is measured using the liquidity ratios and the formulas are given below (Chapter 9: Financial Statement Analysis 12).
Current ratio = ( …show more content…
Examining Billabong’s capital structure from an absolute point of view, the considerable debt amount added in financial year 2013 could have an impact to the company’s ability to purchase long-term debt at favorable future rates. When funds will be required beyond the internally available cash, this means that the company has no choice but to result into the equity market. Increasing long-term debt may assist the free cash flow hypothesis, which states that bad decisions on investment are usually made when free cash flow is in large amounts (Collier, Grai, Haslitt, and McGowan