Case Study Of Billabong International Limited

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 …show more content…
Also a steady increase in the cash and cash equivalents has been beneficial towards improving liquidity. Since both ratios for the years of 2011, 2013, 2014 and 2015 are above 1 this means that the company is in a solid position of short-term liquidity. But this was not the case for financial year 2012 which had a quick ratio of 0.92. This is a favorable absolute liquidity position and the trend over time in ratios is absolutely important to debt …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