Harshawardhana – 00267226T FIN600

Assignment – Blackmores Ltd.

Financial Management of Blackmores Ltd.

FIN600

NAME:HARSHAWARDHANA

STUDENT ID:00267226T

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Assignment – Blackmores Ltd.

Executive Summary

The report covers the financial analysis of Blackmores which is the supplier of

healthy products to the people at various locations. The current financial position of

the company is analysed for recognising the performance of the company in the

current market scenario. The four ratios which are profitability, efficiency, gearing

and liquidity are used for comparing the company’s performance in 2018 as compared

to the year 2017. The profitability is used for analysing the earning of the company in

a year, the efficiency is analysed for the company’s ability for cash generation, and

the liquidity shows the short term solvency position while gearing shows long term

solvency. The recommendations are offered to the company on the basis of ratio

analysis by also discussing other relevant matters which must be considered by the

company for the future growth potential.

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Assignment – Blackmores Ltd.

Table of Contents

Introduction

Blackmores Ltd. Analysis

Ratio Analysis of Blackmores Ltd.

Profitability Ratios

Efficiency Ratios

Liquidity Ratios

Gearing Ratios

Recommendations and Overall Assessment

References

Appendices

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Introduction

Blackmores was established in 1930s for the purpose of offering the quality

health services to the citizens in Australia. The company has been delivering the

quality products such as minerals, vitamins, nutritional supplements and herbals from

the last 85 years. The company is committed to deliver the quality products and for

this the company has been awarded as the Australia’s most trusted brand for the

helath supplements in the year 2018. The company also offers the educational

services to more than 35000 people and the services are offered through the

company’s website (Blackmores3, 2019).

Blackmores Ltd. Analysis

Measures 2018 ($ ‘000)

Revenue 601,136

Profit After Tax 69,223

Expenses 500,242

Interest- Bearing Liabilities 86,000

Equity 193,330

Reserves 5,925

Cash Flow from Operating Activity 58,030

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Cash Flow from Investing Activity (14,784)

Cash Flow from Financing Activity (42,546)

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Cash and Cash Equivalents 36,468

Table 1

The current analysis shows that the company has earned a good amount of

revenue in the year 2018, but the expenses incurred by the company is very high

which decreases the profitability position of the company. The liabilities of the

company which are bearing interest (debts) are also not higher as compared to the

maintenance of the equity by the company which shows the lower risky position of

the company. The analysis shows that the reserves are maintained at a very low

amount which can be improved by the company in the future. The cash flow position

of the company indicates that the cash flow by the operating activity is higher while

by the financing and investing activity is lower. Therefore, this has resulted in

maintaining the lower cash equivalents by the company at the end of the year 2018

(Blackmores2, 2019). The financial statement is presented in the balance sheet in a

consolidated way, but the profit and loss account does not include the operating

expenses and incomes separately which makes it difficult to analyse the operating

margin of the company. It has been analysed that a large amount of revenues are

generated from the business operations at ANZ and the second is from China. The

share price of the company has also increased in the year 2018 as compared to 2017

(Blackmores2, 2019).

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Ratio Analysis of Blackmores Ltd.

Profitability Ratios

(see appendix 1 for 2017 2018 Industry average

calculations)

Return on assets 6.78% 7.89% 16.74%

Return on equity 16.15% 16.60% 44.93%

Net profit margin 10.51% 11.52% 66.28%

Gross profit margin 57.09% 61.38% 51.88%

Expense ratio/Cost 84.48% 83.22%

to Income ratio

Cash return on sales 8.26% 9.65%

Earnings per share $342.6 per share $406.4

Price-earnings ratio 24 Times 42 Times 29.52 Times

Earnings Yield 357.47% 285.19% 227%

Dividends per share $2.70 per share $3.05

Table 2

A profitability ratio is used for showing the performance of the company by

carrying out its operations, and this also shows the ability of the company to generate
6
the revenues (Nikolai, Bazley and Jones, 2009). The analysis shows that the net and

gross profit margin of the company has increased which indicates a favourable

position of the company in the market. This indicates that the company has earned
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Assignment – Blackmores Ltd.

more profit in the year 2018 as compared to the year 2017 and this indicates that the

company would be able to offer more to shareholders. This has been noted in the

dividend offering as the dividend per share has increased to $3.05 in 2018 from $2.70

in 2017. The return on the assets of the company has increased while the return on

equity is being maintained at the same rate in the year 2018. This shows that the

company is trying to improve its profitability by increasing the return on many things

by performing business operations. The expenses ratio shows the contribution of the

expenses in the revenue generation of the company (Bragg, 2010). The analysis shows

that the company has a large amount of expense ratio which states that the expenses

of the company contribute to generating higher profits for the company.

The cash return on sales is at a moderate level as the result of higher expenses

being incurred by the company in the year 2017 and 2018. The cash return shows that

the operating cash contribution in the company's sales is lower than 10% which is

very low as the higher ratio shows a better profitability position. The Earning Per

Share (EPS) of the company has increased to $406.4 in the year 2018 from $ 342.6 in

the year 2017. This shows a better profitability position as this shows that the

company is earning more from each share it is selling in the market in the current

scenario. The price-earnings ratio shows the relationship between the current market

price and the EPS of the company (Penner, 2013).

The analysis shows that the ratio of the company has increased in the year 2018

in a large amount as the result of an increase in the share price of the company which

was noted at $142.50 on 30th June 2018. The earning yield analysis shows that the

company has earned less in the year 2018 which is noted

7 at 285.19% as compared to

357.47% in the year 2017. However, it has decreased as compared to last year, but the

profitability position of the company is still strong in the market. The contribution of
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Assignment – Blackmores Ltd.

the company in the industry average is also higher in every category, which shows the

better performance of the company in the market scenario.

Efficiency Ratios

(see appendix 2 for 2017 2018 Industry average

calculations)

Asset turnover 0.64 times 0.68 times 0.85 times

Cash return on assets 0.05 times 0.066 times 1.98 times

Fixed Asset turnover 3.60 times 3.70 times

Table 3

The efficiency ratio is the one which shows the activities of the company to

utilise the assets for generating the profits in the way of incomes. It shows the

efficiency of the company to convert the assets into the cash for the purpose of some

business operations (Nelson, 2014). The analysis shows that the company has

performed well in the year 2018 as every ratio increased in 2018 as compared to 2017.

The analysis shows that the company has the capacity to generate sales from the

assets is 68% of the company. The return on sales by cash analysis shows the ability

to generate the operating cash from the sales of the company which is noted at 6.6% a

bit lower but also better than last year. The turnover of the fixed assets shows the

capacity to generate the sales from the fixed assets only, and it is noted at 3.70 times.
8

The analysis shows that the company is increasing its efficiency and which is a

beneficial thing in the long term growth of the company. The ratio is used as a
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Assignment – Blackmores Ltd.

measure to indicate the expenses of the company in relation to the profit generation,

and the ratio must be maintained at the minimum times (Nelson, 2014). Therefore, the

analysis shows that the company is doing extremely well in maintaining it at a lower

rate. The industry average is a bit lower as the competition is higher in the industry.

Liquidity Ratios

(see appendix 3 for 2017 2018 Industry average

calculations)

Current ratio 1.81:1 1.74:1 3.57:1

Quick ratio 1.22:1 1.09:1 1.84:1

Receivables turnover 4.5 Days 4 Days 6 Days

Average collection 294 Days 312 Days

period

Table 4

Liquidity ratio shows the ability of the company to use their current assets to pay

off their current liabilities and the ideal ratio in this term is considered as 2:1 which

must be maintained by the company (Baker and Powell, 2009). The analysis shows

that the current ratio is maintained at 1.74 in the year 2018 which decreased from the

year 2017 and therefore, the ratio must be maintained near to 2:1. The analysis shows

the decreasing position of the current ratio, quick ratio and receivables turnover.

However, the decreasing of the quick ratio also shows9 a problematic position and

therefore, must be maintained close to 2:1. The receivables turnover ratio indicates

that the decreasing ratio is beneficial as the company would be able to cover the
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Assignment – Blackmores Ltd.

money from the debtors in the minimum required time. The collection period of the

company on an average has increased which also shows a very bad position as the

collection period must be maintained at the minimum level. The minimum period

improves the solvency position of the company as the company must try to recover

the money on credit sales in the minimum time duration.

The liquidity ratio shows the capability of the company to convert the assets

easily into the cash for paying the short term liabilities arising in the company within

one year (Leach, 2010). Therefore, the analysis shows that the company would be

able to pay the liabilities efficiently as the ratio above than one show that the current

assets are higher than the current liabilities. Therefore, the analysis shows that the

liquidity position of the company is stable as the ratio is generally higher than one and

the coverage of the sales on credit is not very high.

Gearing Ratios

(see appendix 4 for 2017 2018 Industry Average

calculations)

Debt to equity ratio 44.16 % 44.48 % 97.90 %

Debt ratio 19.16 % 18.50 %

Equity ratio 43.38 % 41.59%

Cash debt coverage 9.20 % 11.49 %

Interest cover ratio 18.89 times 23.38 times

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Table 5
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Gearing Ratio shows the solvency position of the company in the current market

scenario, as the company capital structure contains both the long and short term debt

which affects the performance of the company (Pijper, 2018). The analysis shows that

the debt to equity ratio of the company has been maintained at a stable rate while the

debt and equity ratio have decreased in the year 2018. However, the cash debt and

interest coverage ratio have increased in the year 2018 in a large ratio. The ratio must

be maintained at below 100% as the above 100% shows the not beneficial solvency

position of the company. The company has maintained a ratio lower than 50% which

shows the favourable solvency position, as it shows the less risky position but, the

higher profit generation also. Gearing ratio is used as a measure for analysing the long

term growing position of the company, and the ratio higher than 50% is considered

very risky for the company. The ratio between 25%-50% is regarded as a better ratio

for the well-established company in the industry while lower than 25% shows the

lower risky position. Therefore, the analysis shows that the company has been

maintaining a moderate solvency position in the competitive market as higher

solvency would result in the situation of taking more loans.

Recommendations and Overall Assessment

The analysis shows that the year 2018 profitability of the company is better than

the year 2017 as the relevant profitability ratios and the share price of the company

has increased. The liquidity position of the company is stable, but the year 2017

position was better as the company was maintaining the ratios close to the ideal ratio

and the average collection period was lower. The efficiency position of the company
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is maintained at a very close level as compared to the year 2017 which shows a better

improvement and more stable position of the company. The gearing ratio indicates
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Assignment – Blackmores Ltd.

that the company has tried to reduce the risky position in the market, as the ratio

lower than 50% is considered favourable. The analysis shows that the company holds

good potential for success in the future, as the company is trying to improve its

position in the market every year.

The merger and acquisition disturb the internal operations of the company but

sometimes improves the profitability of the company in the future. The merger and

acquisition can improve the profitability position as the expenses of the company

might decrease as the result of the potential merger. The acquisition might increase

the expenses as the training and handling of internal environment would become

difficult. Therefore, the merger can be considered by analysing the current market

scenario and the position of the potential merger for the higher profitability of the

company (Bruner, 2016).

It is recommended that the company must try to decrease the expenses in the

operations they are affecting the profitability position of the company. The expenses

hold the 80-85% in the revenue which shows that the company is only generating the

remaining 20-25% as the share of the income which needed to be improved. The

company must also decrease the gearing ratio below 40%, as it would make the

company in a better solvency position as it would show the lesser risky position. The

relevant ethical considerations which must be considered in the case of insolvency by

the organisation are integrity, confidentiality, professionalism, competency and

objectivity. The integrity would help the company in showing the appropriate

financial accounts, and all the relationship must be dealt with an integrated approach.

The confidentiality must be maintained of the important

12 suppliers/clients and their

operations by following the specific professional boundaries. The professionalism is

to comply with all the laws relevant to the insolvency procedure to carry out the
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Assignment – Blackmores Ltd.

remaining operations smoothly. The competency must be considered, as it would

assist in integrating and presenting the professional duty and the objectivity would

assist in being unbiased (ICAEW, 2019).

The company faced major challenges in the year 2018 such as the supply

constraints have made it difficult for the company to sell the product across many

regions. The major impact was because of the change in the manufacturing sector

contract of Australia which resulted in increasing the time for the production of the

healthcare products. The company was also able to maintain the higher standards as

per the new rules of the stock requirements needed to be kept, as this made it difficult

for the company to respond effectively to the generating demands. The company tried

to minimise these challenges by implementing effective strategies such as the

introduction of efficient technology and the acquisition (Blackmores2, 2019).

The analysis shows the increasing earning on the company’s share and also the

increasing share price of the company which makes the company a favourable option

for the purpose of investing.

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References

Baker, H. K. and Powell, G. (2009). Understanding financial management: A

practical guide. Hoboken, United States: John Wiley & Sons.

Blackmores1. (2018). Annual Report 2017. Retrieved from:

http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BKL_20

17.pdf

Blackmores2. (2019). Annual Report 2018. Retrieved from:

https://www.blackmores.com.au/-/media/files/investor-centre/annual-and-half-

yearly-reports/blackmores-annual-report-2018_web-final.pdf?

la=en&hash=D0C9F6CC732CA4F557FE8E92A24AF04B64FEABEF

Blackmores3. (2019). About Us. Retrieved from:

https://www.blackmores.com.au/about-us/company-information

Bragg, S.M. (2012). Business ratios and formulas: a comprehensive guide. Hoboken,

United States: John Wiley & Sons.

Bruner, R.F. (2016). Applied mergers and acquisitions. Hoboken, United States: John

Wiley & Sons.

ICAEW. (2019). Insolvency Code of Ethics. Retrieved from:

https://www.icaew.com/-/media/corporate/files/technical/insolvency/regulations

-and-standards/insolvency-licensing-regulations-and-guidance/overview-of-the-
14
insolvency-code-of-ethics.ashx
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Assignment – Blackmores Ltd.

Investing. (2019). Blackmores Lab Ratios. Retrieved from:

https://www.investing.com/equities/blackmores-lab-ratios

Leach, R. (2010). Ratios Made Simple: A beginner's guide to the key financial ratios.

Petersfield, UK: Harriman House Limited.

Nelson, S. L. (2014). QuickBooks 2015 All-in-One For Dummies. Hoboken, United

States: John Wiley & Sons.

Nikolai, L.A., Bazley, J.D. and Jones, J.P. (2009). Intermediate Accounting (Book

Only). Boston, United States: Cengage Learning.

Penner, S.J. (2016). Economics and financial management for nurses and nurse

leaders. Berlin, Germany: Springer Publishing Company.

Pijper, T. (2016). Creative accounting: The effectiveness of financial reporting in the

UK. Berlin, Germany: Springer.

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Appendices

Appendix 1

Profitability and Market Ratios - Blackmores

Average

for

2017 2018 Industry

Profit

/Average of

Year 1 and

Return on (Profit / Average total Year 2 Total Profit /Year

Assets assets) A 2 Total A

0.067826485 0.078929425

6.78% 7.89% 16.74%

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Profit / ((Year

Return on 1 OE + Year Profit /Year

Equity (Profit / Average equity) 2 OE)/2) 2 OE

0.161452595 0.18600883

16.15% 18.60% 44.93%

Net Profit Net profit / Sales or

Margin revenue NP/ Revenue NP/ Revenue

0.105092727 0.115153642

10.51% 11.52% 66.28%

Gross

Profit Gross profit / Sales or

Margin revenue GP/ Sales GP/ Sales

0.57086714 0.6138378

57.09% 61.38% 51.88%

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Expense Expenses (excluding tax) / Exp / Exp /

ratio Net sales Revenue Revenue

(using operating

expenses/operating

income) 0.84481672 0.832161108

84.48% 83.22% 34.19%

Cash Net cash flow from $ op

return on operating activity / Sales or $ op activities activities /

sales Revenue / REV REV

0.082646334 0.096533896
18

8.26% 9.65%
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Earnings Profit for shareholders / $342.6 per $406.4 per

per share Number of ordinary shares share share

EPS taken from annual

report

Price

earnings Current market price /

ratio Earnings per share $XX / EPS $XX / EPS

share price taken from

annual report 0.2358 0.415936953

29.52

24 times 42 times times

Earnings

yield EPS / Share price EPS / $XX EPS / $XX

19
share price taken from

annual report 3.574707846 2.851929825 2.27

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357.47% 285.19% 227.00%

Dividends Dividends - Special $2.70 per $3.05 per

per share dividends/ No of shares share share

(determine DPS taken from annual

d) report

Appendix 2

Efficiency Ratios - Blackmores

Average

for

2017 2018 Industry

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revenue /

((Year 1 Total revenue /

Asset A + Year 2 Year 2

turnover Sales / Average total assets Total A)/2) Total A

0.6854270

0.64539657 81

0.64 times 0.68 times 0.85 times

Cashflow Net cash from op $ op

return on activities / Average total $ op activities/ activities/

assets assets A A

0.0661669

0.053339661 46

0.066

0.05 times times 1.98 times

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Fixed-

Asset

Turnover Sales / Total non current revenue / revenue /

Ratio assets Total NCA Total NCA

3.7028760

3.596852363 09

3.60 times 3.70 times

Appendix 3

Liquidity Ratios - Blackmores

Average

for

2017 2018 Industry

Current Total current assets / Total

Ratio current liabilities CA / CL CA / CL

1.81445887
22

1.814458879 9
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1.81:1 1.74:1 3.57:1

(Total current assets -

Quick Inventory) / Total current (CA - INV) / (CA - INV)

Ratio liabilities CL / CL

1.08516653

1.219647016 1

1.22:1 1.09:1 1.84:1

(Credit sales

rev/ ((Year 1 (Credit

Acc rec + sales

Year 2 Acc rev/Acc

Receiveabl Credit sales rev / Avg rec)/2)/100) rec)/100*3

es turnover receivables *365 66

4.28560498

4.532653627 2

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4.5 days 4 days 6 Days
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Average

collection Average receiveables x 365 (Acc rec (Acc rec

period / Net credit sales rev *365) / Rev *365) / Rev

311.717950

293.9227458 1

294 days 312 days

Appendix 4

Gearing Ratios - Blackmores

Average

for

2017 2018 Industry

Debt to Total debt/Total equity or Debt /

24
Equity Total liabilities/Total equity Debt / Equity Equity
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(use debt figures only) - 0.4448352

DEBT or BORROWINGS 0.441608554 56

44.16 44.48 97.90%

Debt /

Debt / Total Total

Debt ratio Total debt / Total assets Assets Assets

0.1850059

0.191588989 16

19.16% 18.50%

Equity

Ratio Total equity / Total assets OE / A OE / A

0.4158976

0.433843474 01

43.38% 41.59%

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$ operating

activities / $ operating

((Year 1 Total activities /

Cash debt $$ from op activities / Avg L + Year 2 Year 2

coverage total liabilities Total L)/2) Total L

0.1149393

0.091981037 41

9.20% 11.49%

Interest EBIT /

coverage EBIT / Interest Interest

ratio EBIT / Interest expense Exp Exp

23.380579

18.89373357 84

23.38

18.89 times times

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