Finance for Business Company Performance Analysis

This project analyzes the financial performance of BHP Billiton, a multinational mining and petroleum company. It examines key performance ratios, analyzes cash management practices, performs a sensitivity analysis, explores systematic and unsystematic risks, and examines the company's dividend payout ratio and dividend policy.

FINANCE FOR BUSINESS-
COMPANY
PERFORMANCE
ANALYSIS

TABLE OF CONTENTS
ABSTRACT.....................................................................................................................................3
I INTRODUCTION........................................................................................................................3
II FINANCIAL ANALYSIS OF SELECTED COMPANY...........................................................3
2.1 Description of the company..................................................................................................3
2.2 computing and analysing the company's performance ratios................................................4
2.3 Analysis of cash management...............................................................................................7
2.4 Performing sensitivity analysis with the provided data........................................................7
2.5 systematic and unsystematic risk which affect the performance of the organisation.........11
2.6 Identification of the dividend payout ratio and the dividend policy...................................12
III Recommendation......................................................................................................................14
IV Conclusion................................................................................................................................14
REFERENCES..............................................................................................................................16

ABSTRACT
Business performance analysis basically refers to techniques which is used to measure the
performance of the company over a period. BHP Billiton is the trading company dealing in
trading of mining, petroleum and metals multinationally The company dealing mining and
metal; and also the petroleum trading with 62000 and more number of employees of the
organisation. BHP has merged with the Billiton mining company in order to form BHP Billiton
The company's previous years’ operating income is equals $17.561 billion.
There are different types of ratios which helps to measure the company's financial health
and financial performance. Net profit margin is the percentage of profit generated by the
company from revenue. After deducting all expenses from sales the percentage of left over sales
revenue is net profit margin .ESOP is basically the employee benefit plan which helps to
offering the employees an ownership interest in the entire organisation.
BHP purchases the ESOP trust amount of (108)US$M in 2018. Employee share awards
are also exercised by the company to arrive at net of the employee contribution. Systematic risk
is basically the risk which is associated with the market returns. Unsystematic risk is the risk
which is associated with specific company or industry
I INTRODUCTION
Business performance analysis basically refers to techniques which is used to measure the
performance of the company over a period and Business finance means to the money and the
credit which is employed in the business.
BHP Billiton is the trading company dealing in trading of mining, petroleum and metals
multinationally .The present study is based on the introduction of the company's different ratios
which helps to measure the company's efficiency comparative with another.
Furthermore, the report will also help to make understand the different securities under
currents assets and also the systematic risk and unsystematic risk which company needs to face.
II FINANCIAL ANALYSIS OF SELECTED COMPANY
2.1 Description of the company

BHP Billiton is the company exist in the Mining and Metal sector and has expanded its
business in different locations of the world. The company dealing mining and metal; and also the
petroleum trading with 62000 and more number of employees of the organisation (ouppi and
et.al., 2017). The company has also diversified into the different products which includes iron
ore, natural gas, petrol, coal, uranium , nickel, copper in order to capture larger share of the
market.
BHP Billiton focused on their repositioning by being a down market and high volume
low cost retailer into the one who designed to attract different range of the social groups by
offering them the products which ranges from the low cost.
BHP has merged with the Billiton mining company in order to form BHP Billiton The
company's previous years’ operating income is equals $17.561 billion and net income is equals
to $4.823 billion which depicts good and efficient financial health of the organisation.
2.2 computing and analysing the company's performance ratios
There are different types of ratios which helps to measure the company's financial health
and financial performance and some ratios are explained below:
PROFITABILITY RATIOS
Gross profit margin is the ratio which is used to measure the company's, financial health
and it also helps in revealing the amount which is left with the company from total sales after
deducting the cost of goods sold from it ( Widhoyoko, 2018).
BHP Billiton Anglo American Capital PLC
Ratio: 2016 2017 2018 2016 2017 2018
gross profit
margin=Revenue-
cost of goods sold/
Revenue *100 39.44 55.55 60.58 27.96 45.20 42.58
From the above table it can be interpreted that BHP Billiton has increasing ratio of gross
profit margin which showing the company is continuously increasing their revenue and sales by
providing quality goods and services. whereas Anglo American PLC gross profit margin is also
showing the increasing trend from recent three year which also depicts that Anglo American

PLC revenue is also increasing year by year because of the effective supply of goods and
services
Net profit margin is the percentage of profit generated by the company from revenue.
After deducting all expenses from sales the percentage of left over sales revenue is net profit
margin(Hubbard and Moore, 2017).
BHP Billiton Anglo American PLC
Ratio: 2016 2017 2018 2016 2017 2018
Net profit
margin=Net
profit/ sales*100
-20.66 15.38 8.49 7.46 12.06 12.85
From above ratio it can be computed that BHP Billiton net profit margin get decreased
from 2017 and to the 2018 which is showing the fluctuating trend that is company is not able to
make profit percentage from revenue in the year 2016 whereas Anglo American PLC net profit
margin is increasing year by year showing increasing trend that its ratio rise from 7.46 to 12.06
and then to 12.85.82 which depicts that company's efficiency for generating net profit is quite
good or company is able to generate adequate amount of profits due to controlling of the cost.
Return on Equity is basically helps in measuring the profitability of the business in
relation to the equity of the organisation. It is also said to be net assets less liabilities. return on
equity is generally computed as by dividing net income by the shareholder's equity
BHP Billiton Anglo American PLC
Ratio: 2016 2017 2018 2016 2017 2018
return on Equity
=Net
income/Sharehold
er's equity
-10.73 10.56 6.57 8.96 15.08 15.24

From the above table it can be interpreted that BHP Billiton efficiency for generating the
income by suing its equity is fluctuating that is in year 2016 it shows completely inefficient that
is non optimum utilisation of the resources and in 2017 company used its equity resources more
effectively compared to previous years whereas Anglo American PLC return on equity is
showing increasing trend as its ratio is continuously increasing year by year which depicts that
company is appropriate in using it equity resources for generating more income.
EFFICIENCY RATIOS
Receivable turnover ratio is the ratio which measures the efficiency of the company that
how efficiently and effectively they are extending the credit and collecting their debts. It is
basically measures that how effectively company is using their assets(Lewellyn and Logsdon,
2016)
BHP Billiton Anglo American PLC
Ratio: 2016 2017 2018 2016 2017 2018
Receivable
Turnover=Sales/
Average account
receivables 10.07 12.78 14.71 14.62 17.94 21.71
From the above ratio it can be interpreted that BHP Billiton has not effectively using it's
assets in the way to collect their debts from the debtors year by year as in 2016 its average
receivables is 10.07 days and in the year 2018 it takes only 14.71 days which is showing
company's ineffectiveness for collecting their receivables. Whereas, in case of Anglo American
PLC as its average number of days has increased over the years from 14.62 to 21.71 which
shows that company is not efficiently using its resources to collect their debts on time.
Asset Turnover ratio is the ratio which helps to measure the company's effectiveness and
efficiency to use their assets for generating the sales revenue or sales income for the company
(Agarwal, Broutman and Chandrashekhara, 2017).
BHP Billiton Anglo American PLC
2016 2017 2018 2016 2017 2018
Asset turnover
ratio=Net sales/
.25 .32 .38 .42 .50 .52

Average total
From the above ratio it can be interpreted that BHP Billiton is showing increasing trend
in recent three years which depict that company is earning low profit margin as they are using
their assets efficiently in order to increase the sales revenue. Whereas, Anglo American PLC also
showing increasing trend that is it has lower profit margin and they are focusing towards
increasing sales revenue as they putting their efforts towards marketing their products that the
can generate higher profit margin mad can increase the sales..
2.3 Analysis of cash management
ESOP is basically the employee benefit plan which helps to offering the employees an
ownership interest in the entire organisation. BHP purchases the ESOP trust amount of
(108)US$M in 2018
Employee share awards are also exercised by the company to arrive at net of the
employee contribution is equals to the 110 by the BHP limited and 28 by BHP Billiton and also
in addition deduct retained earnings of 167. the company's accrued employment entitlement for
in exercises awards is equals to 106.dividend of 3472 is distributed among the shareholders by
the company.
.
2.4 Performing sensitivity analysis with the provided data

Sensitivity analysis
initial investment 9.542135
sales price 0.35
variable cost 0.64
fixed cost 7.7
Interpretation
Sensitivity analysis shows change in the profitability or net present value of the company
due if any of the factor of the business changes. From the above calculation of sensitivity
analysis, it can be interpret that if the unit of sales decreases by 10% it will affect the business by
0.41%. On the other hand, decrease in price of product by 10% will have 1.95% sensitive effect
over the business.
Further, if variable cost increases for the project, the profitability of the business would
have 4.33% effect. Whereas, the change in fixed cost will have 7.70% effect over the
profitability of the company.

2.5 systematic and unsystematic risk which affect the performance of the organisation
Systematic risk is basically the risk which is associated with the market returns. This is
not controllable by the organisation which means the risk which have to face by the company
and they cannot avoid this risk (Clucas and Davies, 2017). It is non- diversifiable and also it
considered to be the fluctuation
BHP Billiton have to face the risk as it is unavoidable but it the is also concluded that
higher risk may produce higher returns. (Ding, Xu and Zhu, 2016) . They should focus on
preventing and hedging their position from the risk in order to prevent the company from heavy
losses. The company include the main focus on the risk assessments for supporting the risk
management plans so to ensure that management plans towards the reputation of the business.
Systematic risk which company facing are :
 Risk of changing prices of overall portfolios
 New supply of petroleum and metals.
 Risk of change of foreign currency rates
Unsystematic risk is the risk which is associated with specific company or industry. This
risk is caused due to the factor and activities of the company itself and this risk is also considered
to be the controllable risk that is company can prevent themselves from unsystematic risk by
adapting effective strategies and policies in order to make investment in the projects and
performing such activities which helps them in presenting from the unsystematic risk (Elizondo
and et.al., 2016)
By investing in different range of companies and industries unsystematic risk can be
reduced more effectively through diversification as in one industry or company has reached up
the level of high risk than it can balance off by earning more profits from the industry or
company where there is no or less risk. it is the diversifiable and non systematic risk. company's
unsystematic risk are:
 Credit risk shows the doubtful debts amounted to $1 million
 business risks of losing of value from poor investment decision
 Impositioning of the adverse and change regulatory policies and conditions.
 Commercial objective is not getting achieved as according to the expectation

Risk of investing in the assets by BHP Billiton like bonds, shares, stock, real estate are
not able to reduce by the company and also cannot eliminate this risk by adding those assets to
the diversified portfolios (Glad, 2017). This systematic risk is classified in types of interest risk,
purchasing power risk and market risk whereas unsystematic risk is considered to as business
risk and financial risks which is caused by that particular industry or company factor. BHP
Billiton can avoid systematic risk to a bit level by allocating the assets efficiently in order to
hedge their position.
2.6 Identification of the dividend payout ratio and the dividend policy
Dividend payout ratio is the ratio of the total amount which is paid out as dividend to the
shareholders of the company and this dividend is paid out from the net income which company
earned (Jouppi and et.al., 2017).
For calculating the dividend payout BHP Billiton needs to figure of its net income and
also to determine the number of shares which are outstanding (JuRanhoti Pedige Himanthika
Sujani, , 2018). After this dividing the net income by outstanding number of shares will lead the
company to ascertain the company's payout ratio and after multiplying it with net income per
share will ultimately reach to find out the dividend per share which the company needs to pay to
its shareholders in order to retain the shareholders for their investments in the company for
longer run and also to motivate them by paying fair dividend effectively.
Dividend payout ratios which is between the 55 and 75% are generally considered to be
high as the company expecting to distribute more than half of their earnings as dividends to the
shareholders which simple indicating less retained earnings, a higher ratio can be considered
good from the view point of the investors or shareholders and also act as the indicator for
attracting more investors towards the company which may befit them in long run for their further
growth and success.
Ratio 2016 2017 2018
Dividend payout ratios - 65.1 93.6
BHP Billiton dividend payout ratio in the year 2017 is 65.1which is indicating as low
ratio whereas in the year 2016 the company has paid no dividend to the shareholders and which

is the reason for less investor attraction towards the company. Hence, this is the reason for
company's zero percent dividend payout ratio.
Dividend policy is basically the policies which used by the company to structure their
dividend payout to their shareholders. This is considered to be the one of the important decision
by the organisation. There are different dividend policies and implementation of dividend policy
among many is completely depended on the situation in which company is in and also according
to their requirements, policies are being decided by them. Some dividend policies are: Stable dividend policy- in this policy company aiming for steady dividend pay out each
year that is they do no change the dividend even when the earnings change every year. Residual dividend policies- in this company pays the dividend out of the left over funds
after fulfilling all the capital expenditure requirements (Allen, 2018).
 and constant dividend policies- a decided and specific percentage of the company's net
earnings is paid out s dividend each year
BHP Billiton is following the residual dividend policy in which they pay out the
dividends from the left over funds after financing the capital expenditures of that current period
and are deducted from the company's internal generated fund. BHP Billiton has also declared
that there dividend policy as increasing the dividends pay outs broadly with its earnings growth
rate.
From the above ratio it can be interpreted that all the money is utilised for their projects
and nothing is left over for paying as dividend to the shareholders in the year 2016(Widhoyoko,
2018).Comopany had paid good percentage as divident ratio to the shareholders in the year 2018
which is the reason for investor attraction towards the company.
III Recommendation
I would recommend for the Anglo American PLC company to involve this company in
the investment portfolio as Anglo American PLC is earning higher return in equity which
depicts that by investing in the particular county shareholders can able to generate higher
amount of dividend. In addition to this company needs to this its asset turnover ratio is also much
better than BHP Billiton and also increasing which showing the increasing capacity and
efficiency of the company to use their assets. Overall the company's net profit is also showing

that in recent years they did not make any loss whereas BHP Billiton does. Hence, Anglo
American PLC would be more preferable to involve in the portfolio as it will help to achieve the
individual goal more efficiently and effectively.
IV Conclusion
From the above report it can be conclude that BHP Billiton plc is company of the metal
nad mining sector and consider to be the great company as its having many branches at different
locations of the world. The company is facing different types of risk which is systematic risk and
unsystematic risk where systematic risk is not controllable by the company and later is
controllable. both the risk is faced by the company due to different aeons that is because of the
risk associated to their own specific company and industry or because of the macroeconomic
factors risk. Anglo American PLC is chosen to be the part of the investment portfolio as its
return on equity and dividend payout ratio is both are attractive and effective according the ratio
analysis done in the above report.
The report also conclude about the company's dividend policy and dividend payout ratio
is also discussed in the above report which helps to determine the company's payout structure
and also helps to generate the information for the users who wants to invest in the company to
ascertain their dividend and pay structure.

REFERENCES
Books and Journals
Agarwal, B. D., Broutman, L. J. and Chandrashekhara, K., 2017. Analysis and performance of
fiber composites. John Wiley & Sons.
Allen, M., 2018. Risky busines-The changing climate of disclosure. Energy News. 36(2). p.10.
Amershi, S and et.al., 2015, April. Modeltracker: Redesigning performance analysis tools for
machine learning. In Proceedings of the 33rd Annual ACM Conference on Human Factors
in Computing Systems. (pp. 337-346). ACM.
Boley, B.B., McGehee, N.G. and Hammett, A.T., 2017. Importance-performance analysis (IPA)
of sustainable tourism initiatives: The resident perspective. Tourism Management. 58.
pp.66-77.
Clucas, S. and Davies, R., 2017. Crown Finance and Reform: The Legacy of the ‘Addled
Parliament’. In The Crisis of 1614 and The Addled Parliament (pp. 49-60). Routledge.
Ding, F., Xu, L. and Zhu, Q., 2016. Performance analysis of the generalised projection
identification for time-varying systems. IET Control Theory & Applications. 10(18).
pp.2506-2514.
Elizondo, M. M and et.al., 2016. Linkage Betweem University And Busines: Evaluation Of
Economics And Social Impact, Sistema De Vinculacion Universidad Empresa: Validacion
De Su Impacto Economico Y Social. Revista Internacional Administracion &
Finanzas. 9(1). pp.81-93.
Glad, D., 2016. Developments in international banking and finance.
Hubbard, T. N. and Moore, M. J., 2017. Bhp billiton: Mining potash. Kellogg School of
Management Cases, pp.1-13.
Johnston, R. and Sidaway, J. D., 2015. Geography and geographers: Anglo-American human
geography since 1945. Routledge.
Jouppi, N. P and et.al., 2017, June. In-datacenter performance analysis of a tensor processing
unit. In 2017 ACM/IEEE 44th Annual International Symposium on Computer Architecture
(ISCA)(pp. 1-12). IEEE.