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Billabong International Limited Case Study

Autor:   •  May 15, 2016  •  Case Study  •  4,176 Words (17 Pages)  •  803 Views

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BILLABONG

INTERNATIONAL LIMITED

Audit working paper

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Worked by:

Yunchen Guo        420094397

Anhua Wu          420091569

Jin Chen              420038287

Yan Yang             420138406

Meixin Zheng        420119612

Date of auditing:    11 May 2014

Content        page

SWOT ANALYSIS OF BILLABONG AND

EFFECT ON PLANNING                                                         3

APPLICABLE LAWS/REGULATIONS                                                  5

ASSESSING BUSINESS RISKS IN RELATION TO FRAUD                                     6

EVALUATION OF CONTROL ENVIRNMENT                                             6

ASSESSING MATERIALITY                                                          8

ASSESSING SIGNIFICANT ACCOUNT RISK AND                                            

RELATED AUDIT PROCEDURES AND RECOMMENDATIONS                                 9

SWOT analysis

Potential Internal strength

Potential internal weaknesses

  • Broad product portfolio
  • Wide geographic coverage
  • Sustainable products
  • Good control environment
  • Weak operational performance
  • Excessive debt
  • Litigation

Referring to Financial Report (2013), Billabong is basically a wholesaling and retailing clothing entity, and it also covers other business products of apparel, accessories, eyewear, wetsuits and boardsports hardgoods This broad production portfolio feature offer customers with more choices available and also differentiate products with different brands, qualities and designs. Wide geographic coverage is another strength showing its successive expansions, of which products are licensed and distributed in over 100 countries mainly operates in Australia, North America, Europe, Japan, New Zealand, South Africa and Brazil. There is increased possibility of raising revenue because of Billabong can achieve economies of scale by increasing in production, as well as relaxing economic cycle, than means when unsold product in south hemisphere can be sold a few months later in north hemisphere.

Billabong concerns about environmental issues and it provides sustainable products which would potentially lure more buyers who advocate environmental-friendly and modern lifestyle, which would help Billabong to improve brand popularity and sales revenue.

Billabong’s Group Code of Conduct which restrict executive directors’ or employees’ actions and have a positive effect on improving the ethic awareness of staff.

Billabong’s performance is very weak because it made losses continuously since 2012. Based on the half year results of Billabong, total current asset of consolidated corporate is $ 664,754,000 and the total current liabilities is $ 293,675,000. The current ratio is 2.61 and the quick ratio is 1.81. It looks like that the half year results ratios are a little high, which indicates the company’s ability of liquidity, however, it may also infer the inefficient use of cash and the company may have overstocked products or much account receivable.   From the interim report 2013, it is found that Billabong have many borrowings in order to compensate for their loss and continue in its normal business functions, Billabong may unable to meet its debt obligations when fall due. However, this is not an issue yet as the maturity date on the contract is few years later. But, because the shares are diluted by these excessive debt holders, if the other equity holders’ interests not align with the debt holders, company’s decisions may be altered. In addition, there is a risk that interest going up in the future thus will cause increase of interest expense.  Following the sudden loss occurred in 2012, Billabong might face a lawsuit from investors because of deceptive conduct and misleading information (Kailee 2014). In addition, as Billabong is under international base, there is other litigation problems if not comply laws and regulations from other countries.

Potential external opportunities

Potential external threats

  • Emerging Asian Markets
  • Growth of E-commerce

  • Currency risk
  • Highly competitive market
  • Depressed economic conditions
  • Risk associated with suppliers

According to a research report by Global Industry Analysts, Inc., the global demand for extreme sports is surging and more and more people want to participate in the extreme sports, especially in China (2012). As the number of people who have an interest in extreme sports increasing, meanwhile the demand for clothing and accessories will be definitely increasing. The booming extreme markets bring new opportunities to Billabong to attract further customers and gain more market shares, particular the extreme sporters in China.

Considering the development of digital devices and the trend of digital commerce, the customers’ preference of online-shopping is on-going. According to a recent report by Walker Sands more than half (62%) of US consumers with Internet access now shop online at least once a month, and just 1% say they never shop online (Nanji 2013). Billabong should seize the opportunity to develop online-shopping website which would reduce the labour costs, rental costs or other operation costs.

There is a currency transaction risk if Billabong operates internationally as the functional currency of Billabong is Australian currency. Billabong should transfer the revenue or assets from other currencies into Australian currency. For example, the revenue earned from USA is less if US dollar is devaluated compared to AUD.

Billabong is competed actively with some other surf industries, the top competitors include Quicksilver, Rip curl, this threat will adversely affect Billabong’s sales, forcing downward pressure on prices and causing possibility of inventory valuation. Nevertheless, it is found that Quicksilver and Rip Curl both incur decreases in revenue. Actually, even though it has been six years after Global Financial Crisis (GFC), the economic condition of several European has weakened further, Germany’s output has also slowed significantly and France’s economy is stagnating (2012). Consequently, the uncertain and depressed economic environment would have an adverse impact on improving the sales revenue of Billabong.

Billabong outsources manufacturing in countries with cheaper labour advantages such as China. There is a potential margin risk if outsourcing expenses increase. Also, possibilities of risk arise if Chinese manufactures does not comply with laws such as health and safety act.

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