Financial Accounting: Analysis of BHP Group Ltd's Financial Statements

Financial Accounting

Contents
REFERENCES..............................................................................................................................12
Books & Journals.................................................................................................................12

Task - (I)
a) Accounting equation can be defined as the fundamental equation that shows the
relationship between total assets, total liabilities and owner's equity fund of a business
organization(Flower and Ebbers 2018). For the present study, BHP Group Ltd has been
considered. The accounting equation in terms of $ is mentioned below:
Accounting Equation ( 2020)
Total Assets (in $ millions) Total Liabilities+Owner's Fund (in $millions)
1399.76 736.42+663.34
1399.76 1399.76
b) The two largest sources of revenue for the company were 'Iron ore and Copper' with the
revenue of $20,797 millions and $10,666 millions respectively. The company is primarily
focussing on both of these segments because they are yielding more revenues and profits for
BHP Group Ltd.
c) The revenue mentioned in above mentioned answer of BHP Group Ltd is recognized in
the financial year 2020.
d) Yes, the company made profit in the year 2020. The amount of profit of BHP Group Ltd
was stated at $8736 millions.
e) A profit margin can be defined as measuring the profitability of the business. It shows
the calculation of net income generated as a percentage of revenue received.
Particulars (in $ million) (Year-2020)
Net income 8736
Revenue 42931
Calculation 8736/42931*100
Profit margin 20.35%

The profit margin of BHP Group Ltd in the year 2020 was 20.35%.
f) In the income statement of the year 2020, it is clearly visible in income statement that
there is a increase in operating expenses from 2019 to 2020. BHP Group Ltd faced lower
volumes at few operated assets as well as major shutdowns at different unit
locations(Saeidmoghadam, Javid and HEMATFAR,2018). This directly increased the
attributable costs including all the expenses incurred to maintain provisions for health and
hygiene along with social distancing. Therefore, all these reasons resulted into reducing the
operations revenue for the year 2020(Liu, 2019). The implications for the business in the year
2021 can be taken as opportunity to resolve the issues of previous year and increase the
operational revenue for the financial year 2021.
g) The two biggest single expense items of BHP Group Ltd are 'Depreciation and
amortisation expense' and 'Raw materials and consumables used'. Both of these items were
biggest single expense for the company. The respective amounts of both the expenses are
mentioned below:
Expense Amount (in $ millions)
Depreciation and amortisation expense 6112
Raw materials and consumables used 5509
h) In the financial statements of BHP Group Ltd, the largest expense in the percentage of
sales revenue is 'Raw materials and consumables used' with an amount stated as $ 5,509 millions
in the year 2020. in comparison to the year 2019, the amount was $ 4591 millions. This shows
that there was a considerable hike in the total amount of raw materials and consumables used.
The reason behind that is because of the global pandemic coronavirus. The company bought the
raw material and consumables items but it remained difficult for it to improve the sales resulting
into bearing higher costs of raw material(Harper and Dunn, 2018). Yes, the cost is considerably
high and in accordance with that effective measures can be taken in order to manage this cost to
prevent upcoming losses. The company should procure less raw materials and consumables in
the upcoming year 2021 by using the existing ones. This will help BHP Group Ltd to save huge
costs. Also, in order to avoid the obsolescence costs, the company can sell them in the market at