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Blackmores is a pioneer in the health brand company that has its existence in Australia, as well as New Zealand for over 80 years. The company has a humongous experience when it comes to vitamins, herbs, minerals and hence it influences them to produce more of such natural ways to health and wellness. Being concerned about reading the natural health and care, it influences the consumers to take a stand in terms of personal health, as well as goodness. The company was formed under the visionary leadership of Maurice Blackmore, whose ideas about health were much ahead of time. Today the company has its headquarters in Sydney and employs over 800 employees. It got listed publicly in 1985.
For over eight decades of successful establishment in Australian continent, Blackmores is witnessing a change in the consumer mindset from the routine pharmaceutical drugs to the traditional recovery methods that are expected to revive health without many side effects. As the Chinese population is increasing in Australia and Chinese have also purchased a major Vitamin rival named Swisse, it was necessary that Blackmores does not lose the race. Hence Blackmores has targeted the Asian market and sees a huge market potential of almost $US40 billion in this area. The market growth rate is expected to be 10% per year and it is likely to even cross Australian revenue in a few years. This entry and expansion in Asian markets is an excellent strategy that will yield profitable results (Blackmores Limited, 2015). Also this has been a welcome initiative as the Asian markets view Blackmores with huge respect. In Thailand, Blackmore’s products are almost 30% more expensive than the local products still people prefer the same due to the trust on its quality.
Apart from the Asian strategy, Blackmores is more preferred in comparison to Woolworths and Coles due to its consultation strategy. Anybody can walk into a pharmacy store and buy a medicine, but if consumers are given a chance to talk to a consultant and take the recommended medicines, then it is an added advantage and this strategy has helped Blackmores to remain on the top (Blackmores Limited, 2015).
Thus Blackmores has evolved with the shifting times and has changed its strategies with the change in consumer mindset from time to time. For instance, today as people grow older, they want to appear that they are looking younger. Hence, gone are the days when consumers would rely on the traditional British or English medicine. Various forms of naturopathy medications are increasingly becoming popular due to its evident advantages over the allopathic medicines and this is the key strategy of Blackmores.
Blackmores has embarked on the digital marketing arena which has won millions of users under online consultation.
With reference to the future prospects, it is looking good for Blackmores as it has achieved huge success in the Chinese market in terms of revenue numbers and this is only going to get better due to the strategic techniques of Blackmores and also as it penetrates into other Asian countries. Thus turning Asian has worked well on Blackmores (Penman, 2013).
Financial Statements are the most relied upon whether by shareholders or revenue authorities or bankers for that matter. There are very many methods of conducting financial statement analysis, but every method comes with its own set of limitations. So it is often advised to do the analysis using a combination of two or more methods (Horngren, 2013).
The Group Sales have increased by 36% in the year 2015 and 6.2% in the year 2014. This indicates that the company has performed in a wise manner. Strong increment in sales is a potent indicator that the business has flourished and the company has met the expectations. The Net Profit after Tax has increased by 83% in the year 2015 and 1.8% for 2014. The net profit is indicating that the company has mad commendable profits. This is owing to the strong performance of the company. Moreover, it has launched 170 new products during the year 2015 proving that the company is strong on the R&D side. It has introduced new items which is a pure indicator of strong performance.
The Net Debt has decreased by 87% in the year 2015. This implies that the company has lessened the burden of debt and relies more on equity thereby proving the strength. Further the Operating Cash Flow has almost doubled in the year 2015 and has increased 70% in the year 2014. The Net Assets per share has increased by 38% in 2015 and 9.8% in 2014. Earnings per Share have increased by 81.4% for the year 2015.
The financial performance of the company is tested by the amount of profits it makes. Profitability ratios compare the revenue of the company with various levels of profits. The commonly used ratios are Gross Profit Margin, Operating Profit Margin and Net Profit Margin.
Gross Profit is arrived by reducing the direct costs (commonly known as Cost of Goods Sold) from the revenue. From the figures calculated, the Gross Margin for the year 2015 has almost doubled which is achieved due to the remarkable increase in sales (Gibson, 2012).
Operating expenses are the amounts spent in running the business and it includes such costs that have a direct relation with achieving the revenue or sales. The Operating Margin has increased from 11% to 15% which is a good sign (Gibson, 2012).
Net Profit is arrived at after deduction of the non-operating expenses like interest, depreciation and amortization costs, taxes, etc. The Net Profit Margin has also increased from 7% to 10%.
Efficiency Ratios are also known as Activity Ratios or Turnover Ratios as it measures how effectively the various functions are carried out in the company and whether the assets and inventory have been efficiently utilized to generate the revenue (Horngren, 2013).
The commonly used efficiency ratios are Debtors Turnover Ratio, Creditors Turnover Ratio, Inventory Turnover Ratio, Fixed Assets Turnover Ratio and Total Assets Turnover Ratio. The calculation of these ratios is as under:
The Debtors Turnover Ratio indicates how many times the sundry debtors have been turned around in a year, higher the ratio, better is the credit management in the company. The company has maintained a constant debtor’s turnover ratio of 5 days which indicates the stability of the company (Melville, 2013).
Creditors Turnover Ratio measures the number of days it takes to clear off the dues to the creditors. This ratio has significantly increased in 2015 which needs to be monitored.
Inventory Turnover Ratio indicates how fast the inventory and stocks is getting converted into sales and revenue. This ratio has improved a lot in 2015 which shows that the company is gearing up (Libby et. al, 2011).
Fixed Assets Turnover Ratio measures how efficiently the fixed assets are put to use. As this ratio has improved year by year, it indicates the rapid growth of the company (Libby et. al, 2011).
Total Assets Turnover measures how efficiently all the assets are put to use. This ratio is also increasing marginally every year.
Being a listed company, the market performance of the company becomes a significant measure.
Earnings per share are a significant indicator as the investors would be interested in knowing the same. Dividends are another such area. Hence the key figures for the three years are as provided.
It is evident that most of the figures have either doubled or increased significantly in 2015. This clearly embarks the growth of the company. Another significant ratio in this area is Price Earnings Ratio arrived at by (Market Price / Earnings Per Share). Based on the Current Market Price of AUD 164.80, the P/E Ratio works out as 30.80 which is pretty high and a strong indicator of the superior performance by the company (Petrsen & Plenborg, 2012).
Key Limitations of Ratio Analysis
It is a known fact that Ratio Analysis helps in understanding the trends in the financial figures; it would still be pertinent to note that all the figures used for analysis are historical figures. There is no certainty that the same results will get repeated in the future. It can only be used as a starting point to get a fair degree of expectation about future results.
The Inflation rate is varying from year to year, but ratio analysis does not take this into account. The comparison of figures over years might not be really apt due to the varying inflation rates over years.
Different companies have the choice of adopting different accounting policies and hence the figures on the financial statements also vary accordingly. Comparing these ratios of different companies might sound like the comparison of apples and oranges.
The ratios over three different years also have to be tested in the light of the general economic conditions. For instance in a booming economy, the debtors turnaround period of 30 days is considered to be good but in a depression state of economy, the same ratio might work out to 60 days and can still be held good.
A single ratio looked at in isolation might be misleading. For instance, a current ratio of 2:1 typically sounds good, until it is figured out that the company recently sold a huge portion of its stock to have a good balance, but this has ultimately led to the erosion of capital.
Across the same industry, two competitors might have different strategies, for instance one company might have low cost strategy and another might have quality customer service strategy. So when the first company might be satisfied with a low gross margin, the second company’s results can be never on par with that of the first.
Thus ratio analysis has its limitations and cannot be relied on completely.
Financial Statements present in a summarized form the monetary operating level of the company. As this is a yearly exercise, comparison of the financial statements is a regular activity. There is an assumption that the past trends will get carried forward to the future but again this is a critical assumption for many reasons. This might not be true in all the cases. There could be cases where the management has changed and so have the accounting policies, which do not lead to meaningful comparisons. Apart from this, window dressing of the financial statements is another method by which the true face of figures is hidden by grouping or regrouping them and it all depends on the joint decision of the management and auditors. Due to this ability, it might not be wrong to say that an investor sees the financial statements that the management and auditor are willing to show them. Though all the figures might not be manipulated due to the strict compliance with laws and regulations, but still there could be cases where the profits are growing but the company is actually falling and vice versa. Thus there are a few limitations of the financial statements and an investor is expected to be aware of the same. An awareness can lead to better understating and can provide rational judgement.
Based on all the analysis it can be said that the fundamentals of the company are strong and with the penetration into Asian markets, the company has seen remarkable progress. The performance of the financial statements is a clear indicator that 2015 had been a year of achievement for Blackmores. Not only there has been increment in sales but also mad strong level of profit. The continuous evolvement and innovations made by the company helps it to stay on the top. There are no threatening factors for the company currently and the same growth is likely to continue. Hence, this company can be used for investment purpose by the investors as the fundamentals are strong and the company can show a rapid progress. Overall, the ratio looks good and there is no potent danger.
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Blackmores Limited. (2015). Blackmores Limited annual report 2015, Retrieved August 20, 2016, http://www.annualreports.com/Company/Blackmores-Limited
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