Financial Performance Analysis of BHP Billiton

Executive summary
Potential as well as existing investors of any entity is mainly concerned regarding the
ability of the entity to continue its business, paying dividends, earning fair return and provide the
capital growth. The report will therefore, analyse the ASX listed company, BHP Billiton in
context of its financial performance based on which it can be concluded whether the entity is
good one for investment or not. BHP Billiton is 1 of the biggest resource and mining companies
that conducts its business in more than 25 nations.
Entity’s core business and its geographic location
It falls under the largest producers of manganese, aluminium, nickel, uranium, iron ore,
titanium minerals and silver. Further the entity deals with coal assets as well as petroleum. Min
business of the entity are scattered over different locations including Singapore, Malaysia, Chile,
Canada, UK, US. The company is located in London, England and main office of the entity is
located in Australia (BHP 2019).
Financial result
Ratio Analysis of BHP Billiton
2018 2017
Net Profit Margin 17.75% 18.52%
Return on equity 12.76% 10.67%
Current Ratio 2.51 1.85
Quick Ratio 2.25 1.52
Price to Earnings Ratio 46.62 24.18
Cash flow margin 0.40 0.44
Short-term debt coverage 1.26 1.40
From the above, the financial performances of the entity can be interpreted as follows –
 Profitability ratio – it determines the company’s ability to earn profit from its revenues.
Net profit ratio that determines the percentage of profit generated from the revenue
earned by it is signifying that the same is dropped from 18.52% to 17.75% during the
period from 2017 to 2018. Considering the return on equity that is the return provided by
the entity on shareholder’s investment went up from 10.67% to 12.76% over the period
from 2017 to 2018. Hence, the entity is able to generate sufficient profit from its revenues
(Robinson et al. 2015).
 Liquidity ratio – liquidity ratios measure the entity’s short term assets against its short
term liabilities. Current ratio that measures the entity’s sufficiency of current assets to
make payment for short term obligation for the entity went up from 1.85 to 2.51 (Dokas,
Giokas and Tsamis 2014). On the other hand, the quick ratio that does not consider the
short term assets those are time taking in terms of converting into cash against the short
term obligations went up from 1.52 to 2.25. Hence, the liquidity position of the entity
over the years from 2017 to 2018 has been enhanced (Seay 2014).
 Market ratio – though the EPS of the entity is reduced from $ 1.1 to $ 0.69, owing to
increase in the stock price the PE ratio of the entity went up from 24.18 to 46.62. It