Business Finance Assignment - BHP Billiton Company
Added on 2020-10-23
16 Pages3997 Words171 Views
Business Finance
Table of ContentsINTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................31. Overview of Company.............................................................................................................32. Ratio Analysis of BHP Billiton................................................................................................43. Graphs and comparison of share price movement:..................................................................75. Calculation of Cost of Equity:.................................................................................................96. Capital Structure of Company:..............................................................................................10CONCLUSION..............................................................................................................................12RECOMMENDATION.................................................................................................................12REFERENCES..............................................................................................................................13APPENDIX....................................................................................................................................14
INTRODUCTIONMoney invested or money engaged in business refers to business finance. All activities ofbusiness is purely depends upon finance. Business finance includes acquisition and applicationof money or funds that assists business organisation to operate productively and efficiently.Business finance also includes forecasting and budgeting of funds (Bojadziev, 2007). It is relatedwith raising funds from various means along with investment of funds for various activities. Thisreport describes, in the context of BHP Billiton Company, a systematic analysis of performancethrough ratio analysis and an analysis to compare the movements in the companies’ share pricesalong with a deep discussion on capital structure of the company by calculating capital structureratios and weights of debts and equity structure capital. This report also providesrecommendation based on analysis. MAIN BODY1. Overview of CompanyBHP Billiton Limited is world's largest mining company with respect to the market-cap.Company is producer of various commodities, including iron ore, metallurgical coal, copper anduranium. Company has four major segments: Coal, Iron ore, Petroleum and Copper. Companythrough Petroleum segment is pinned in production and exploration of oil and gas, under Copperand iron segment company conducting activities of mining of copper, silver, lead, zinc,molybdenum, uranium, iron ore and gold (Burns and Dewhurst, 2016). In Coal segment miningof coal is main activity and coal is mined in form of metallurgical coal and thermal coal.Company's major activities of extraction and mining are operating in Australia and the Americasand product distribution activities by its global logistics chain. So the core activities of companyincludes extraction, mining, development and production. Company is selling its producedproducts through direct supply agreements with its customers by using global commodityexchanges. Company's major businesses are Minerals Australia, Minerals Americas, Petroleumand Marketing. BHP Billiton is largest mining company and having limited but smallcompetitors so company is enjoying competitive advantages. BHP with wide resources andgreater capabilities has strong interference in economy and therefore it get advantages from othercompeting organisation due to wide range of resources. Due to operations on large scale BHP isable to attract financial big customers by providing delivery of produced product within
scheduled delivery time, more efficiently which is one of the major competitive advantages.There are some factors related with BHP's achievements, which are responsible for success ofcompany in global market. In BHP profits earned after deductions of tax are directly distributedamong its members which is key factor that build trust in shareholders and investors. Total returnto shareholders in a financial year indicates mix of dividends and share prices which has helpedBHP Billiton in enhancement in wealth. 2. Ratio Analysis of BHP BillitonRatio analysis is systematic tool used by business organisation to evaluate company'sefficiency, effectiveness of operations, profitability and liquidity position. Ratio analysis formore than one year provides a significant comparison of company's performance which helps indecision making activities of company (Drake and Fabozzi, 2010). Liquidity Ratio: - It is an financial ratio which indicate that current assets of the organisationsare sufficient or not to meet their obligations. Liquidity ratio also classified between two ratiossuch as current and quick ratio. 1.Current ratio: - This ratio is calculate to know about what are the position of currentassets in comparison to current liability. Because it represent that whether assets areenough to pay companies liabilities or not. Ideal ratio is 2:1 which means anyorganisation required double of assets in comparison to liabilities meet their obligations. 2.Quick ratio: - It is also know by acid test ratio and it consider those assets which one isquickly converted into cash. Stocks are excluded from this ratio because it will take timeto convert stock into finished goods and generate money from it. Profitability ratio: - It is generally used to check organisational ability to generate profit inrelation to expenses and cost of the production. It is include other ratio like gross profit and netprofit ratio.Gross profit ratio: - This ratio shows the relationship between net sales and gross profitand this profit is generated by the operational activity. It is an important tool whichidentify the accurate profit from operational activities. Net profit ratio: - This ratio is calculated by after deducting tax, it means this is thefinal profit earned by the organisation. It represent the relationship between net profit ornet sales.
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