Analysing Financials of the BHP Billiton

Financial Analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
1. BUSINESS AND STRATEGIC ANALYSIS.............................................................................1
Macro economic factors impaction the performance of business..........................................1
Place of Company in mining industry....................................................................................2
Competitors of BHP Billiton limited......................................................................................3
Porter five forces to analyse current profitability...................................................................4
Growth potential of an organisation.......................................................................................5
Competitive strategy, key success factors and risk drivers....................................................6
Corporate strategy used by BHP Billiton limited...................................................................7
2. ACCOUNTING ANALYSIS......................................................................................................7
3. FINANCIAL ANALYSIS...........................................................................................................8
4. PROSPECTIVE ANALYSIS....................................................................................................16
5. RECOMMENDATION.............................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19
APPENDIX....................................................................................................................................21
BHP Billiton’s ratio analysis................................................................................................21
Common-size/vertical income statement: BHP Billiton......................................................22
Horizontal income statement: BHP Billiton.........................................................................22
Vertical balance sheet: BHP Billiton....................................................................................23
Horizontal Balance sheet: BHP Billiton...............................................................................24
Rio Tinto’s ratio analysis......................................................................................................26
Common size/vertical income statement: Rio Tinto............................................................27
Horizontal income statement: Rio Tinto..............................................................................27
Vertical balance sheet: Rio Tinto.........................................................................................28
Horizontal balance sheet: Rio Tinto.....................................................................................29

INTRODUCTION
Financial analysis is of great importance for the firm as it helps in making strategies
according to growth and development of business. Analysing financials of the BHP Billiton
assists the management in establishing reliability, viability, stability and profitability of business.
BHP Billiton is the second largest chain in mining industry. The report will outline the various
business strategies used by the business to analysis its strength and strategies which assist the
enterprise in dealing with fluctuations. Moreover, it will evaluate competition and corporate
strategies used by BHP to attain competitive advantage. Further, the report will outline annual
report data of BHP and its competitors which helps the company to make stability in the mining
industry.
1. BUSINESS AND STRATEGIC ANALYSIS
Macro economic factors impaction the performance of business.
In order to analyse competitive performance the company first focus on analysing in
macro economic factors with the use of PEST analysis which is as follows: Political: BHP Billiton is a leading mining organisation which is adapts changes as per
the political risk and fluctuations. Whereas there are few factors which are impacting the
growth and development of business in the industry. The major impact is caused by
changing government policies, rent agreements, terrorism, liberal leaders and many more.
For instance, the mandatory compliance of Mineral and petroleum resources development
act 2002 led to a major financial loss to firm. Economical: The fluctuation in expense, material, cost, labour can impact the growth and
development plans of enterprise. BHP Billiton is juggling to maintain stability with
changing economic factors but the loopholes in global economic factors are affecting net
turnover and demand and supply of products and services. Socio cultural: The company follows all the possible policies and procedures which can
affect the socio culture (Mauree and Geneletti 2017). Theses factors are depended on the
support provided by enterprise to neighbouring communities therefore BHP Billiton has
taken steps to maintaining appropriate working conditions, quality of life to most
neighbouring cities. For instance, currently the company is focusing on supporting its
neighbour Antofagasta.
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 Technological: The growth of mining industry is completely depended on advancement
of technology therefore the enterprise is focusing on exploring and adapting changes
which can help the business in serving customer satisfaction and maintain its profitability
(Pike, Spennemann and Watson 2017). Moreover, the management of firm believes that
investment in appropriate technological resources can assist BHP Billiton in adapting
fluctuations quickly. For instance, the major technological up-gradation in mining
industry are, machinery, refiners, cranes and lorry. The advanced technology used by
BHP Billiton are Advanced shaft and tunnel boring stems, 3D laser scanning and
automated drilling.\
Industry Analysis
Place of Company in mining industry.
Market position: BHP Billiton is striving hard to maintain is leading position in the
mining industry but still it holds the second position after Rio Tinto Besides the prices of iron ore
is falling but still the company is focusing on increasing its production level to meet the demand
of the consumers. The business operations are, extracting resources, and manufacturing products.
Market Share: There are 4 competitors which are, Rio Tinto, Arconic Inc. and Vale S/A
form which BHP Billiton is competing for the high market share according to its commodities
like for copper its holds 7%, for seaborne thermal coal it holds 5% and for seaborne coking coal
it holds 19% that is highest amongst all the rivalries of mining industry (James K. and et.al.,
2014). Thus, the management is focusing on grabbing the market share for all of its metal and
materials therefore the enterprise is slowly drifting towards oligopoly like potash market. Beside,
the data represents that the mining industry is under the control of BHP. The data demonstrate
that, the maximum market share is for its iron ore production which is 29% and least is for
diamonds which is 2 percent. Despite of highest and lowest the company holds the strong control
over its base metals, energy coals and petroleum
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Source: (Alex R. 2015).
Competitors of BHP Billiton limited.
The biggest rivalry of BHP Billiton in mining industry is Rio Tinto Limited. It is the
world largest metal and material multinational organisation. Moreover, the enterprise has more
than 30 operating sites across the globe producing various types of metals and materials like,
aluminium, uranium, coal bauxite, salts, diamonds and many more. Beside, in order to maintain
the stability of growth and development the company focus on producing and delivering
environmental friendly products (Pike, Spennemann and Watson 2017).
Market position: The business holds the first position in mining industry and to
maintaining the stability and sustainability the organisation is continuously improving its
production according to market fluctuation and its stake holders(Alex R. 2015).
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Illustration 1: Market share of BHP Billiton

Market Share: The market share of Rio Tinto is divided according to its commodities in
which it represents that Sea borne cooking coal golds 6% of market, copper holds 7% and
Seaborne of thermal coal holds 2% of market share which is low according to its market position
(James K. and et.al., 2014). Moreover, from pie chart it can be evaluated that 80% of revenue of
Rio is depended upon its iron ore production which holds the market share of 43%.
Source: (Alex R. 2015).
Porter five forces to analyse current profitability.
It is the best strategy used by BHP Billiton to measure its profitability and market
competition (Hill, Jones and Schilling 2014). It provides the company access over its resource
production, strengths, goals and objectives. The porter five forces of enterprise are as follows: Bargaining power of Buyers: The bargaining power of buyers in this industry is average
and even low because the metals and materials have high demand but restricted supply
which do not provide control to buyers over bargaining. Moreover, for these types of
resources substitute products are not available therefore BHP Billiton have advantage to
maintain its profitability. Beside, the current environmental factors are stable for mining
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Illustration 2: Market Share of Rio Tinto

industry which are enabling the enterprise to have control over its position and
profitability. Bargaining power of Suppliers: The bargaining power of suppliers is very high which
results in declining control of Billiton over its profits. Suppliers have high bargaining
power in this industry because it holds control over, material, energy, labour cost,
transportation, shipping and many more. Further, in this there are many substitutes
available which enables the power to Suppliers. Threat to new entrants: BHP can focus on maximizing its profitability as the threat of
new entrant is relatively low in this industry, because of limited supply, high capital
requirement and capacity across the global market. Moreover, decline in the prices of
products, the demand will turn slow which creates a barrier of new entries. Further, BHP
is among the largest company of mining industry having advanced technology,
techniques, strategies market image and quality products therefore it will take time for
new entrants to attain that positions which again is beneficial for the stabilising
profitability (Yang, Ji and O’Leary 2017). Threat of Substitute: Due to limited capacity and demand the threat of substitute is low
for BHP because of rising cost of labour shipping, suppliers etc.
 Intensity of existing rivalry: The competition is very strong among all industry rivalries
Because the resources are limited and everyone is engaged in extracting resources and
selling services across the globe. The competition is heading tough because the
enterprises needs qualified staff, perfect strategies and transportation and the
development projects which can assist the company in maximizing profits. Therefore, to
attain the competitive advantage and to maximize profits BHP Billiton took over the
WMC resources of Australia which assisted in business in securing profits by
establishing the largest Uranium reserves.
Growth potential of an organisation
Growth potential of an organisation can be determined through two internal factors that is
Strength and Opportunities which are as follows:
Strength: The major strength of Billiton is that, it is the most famous natural resource
firm serving various types of products like, copper, silver, aluminium, Uranium and lead. The
major market share is grabbed through its iron ore production. Moreover, the company is selling
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its services in every possible international market like, south America, South Africa etc. Further,
according to its past data the entity has gained profits which assist the business in credit rating,
and raising capital in international market (Prato 2017).
Opportunities: The company have more than 25 projects which are lined up and can help
the BHP in its growth and development. Beside, the resources under projects are specified in cost
effective manner in which the firm do not need to invest much. However, the entity can also
increase its profitability by enhancing the existing products with little of innovation. Marketing
of products and services is the strategy which can be fruitful of organisation in reaching to
targeted markets and customers (Sun Gregor and Keating 2014). Thus, the BHP Billiton has also
planned a project in which the enterprise will focus on reducing the emission of green house
gases so if the project will be implemented successfully it can assist the business in attaining
advantage over profits, growth and its competitors. Moreover, merger and acquisition and
adaption of advancement in technology can help the business in increasing its operations. .
Competitive and corporate strategy
Competitive strategy, key success factors and risk drivers.
Competitive strategy: In order to maintaining the stability in growth according to
competitors the company focus on 3 major steps which are:
1. Measurement of financial risk which are related to profits and revenue with the use of
marketing techniques.
2. Implementation of excellent functional standards to strengthen the group activities of the
organisation.
3. Establishing innovation and quality of life through extraction of various resources and
development.
There are 3 steps in strategies which assist BHP Billiton in resisting into competition of mining
industry. Moreover, these factors helps the firm in maintaining short term and long term
sustainability and enhancing value for its shareholders (Pearce, Robinson and Subramanian
2017).
Success factors of BHP are as follows:
1. The individual related to firm start work with the motive to accomplishing organisational
goals.
2. The business always focuses on providing value for its all shareholders.
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