Financial Analysis of BHP Billiton and Rio Tinto

This report analyses the financial condition of BHP Billiton and Rio Tinto using horizontal and vertical analysis of balance sheet and income statement, and ratio analysis. It also provides a summary of the financial condition of the companies.

Financial Analysis
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FINANCIAL ANALYSIS 1
Overview of the organisation
In this report, BHP Billiton has been taken into consideration to analyse the financial
condition of the company. The ratio of Rio Tinto will also be evaluated to analyse the
position of the company in the industry. BHP Billiton is an Australian multinational mining,
metal and petroleum dual-listed public company. Rio Tinto is also a mining company under
the Australia stock exchange. It is ranked as the world largest mining company which is
based on market capitalisation. As per the review of the Chairman of the company, the
numbers of asset are founded around the world in different locations. The Chairman Tone is
optimistic as he is confident that the company is well placed to deliver the shareholder value
and returns due to which it attains the success in future.
Balance sheet
Horizontal analysis of Balance Sheet
2017 2018
Varianc
e
Cash 14184 15871 1687
Accounts
receivable 2836 3096 260
Total assets 117006
11199
3 5013
Vertical Analysis of balance sheet

FINANCIAL ANALYSIS 2
Cash 14.17%
Accounts
receivable 2.76%
Total assets 100%
As per the horizontal analysis, it is observed that the total asset of the company is
increases with the amount of 5013. The total asset of the company is increases due to
receiving the debt amount from debtors (2836 to 3096). The cash in hand is also increases
(14184 to 15871) due to which the total asset is increases (BHP Billiton, 2018). According to
vertical analysis, it has been evaluated at the total asset of the company is 100%. The account
receivable of the company is decreases 2.76% as which is very less percentage that is why;
the total asset of the company is less. Although, the total asset of the company have effective
amount but it is require to increases the percentage of receivable and cash.
Income statement
Horizontal analysis of income statement
2017 2018
Varianc
e
Sales 38285 43638 5353
Cost of Goods sold 17016 17204 98
Gross margin 21269 26434 5165
Vertical Analysis

FINANCIAL ANALYSIS 3
Sales 100%
Cost of Goods sold 39.40%
Gross margin 60.50%
According to horizontal analysis, a sale of the company is increases with the amount
of 5353 as it is increases (38285 to 43638). The production expenses of the goods are
constant as the employees are highly qualified that is why; they utilise the raw material with
the high extent. The cost of good sales is constant but the sales are increases due to which the
net profit is also increases with the high margin (21269 to 26434). As per the vertical analysis
of income statement account, the sale of the company is assumed as 100% (Accounting
Tools, 2018). The percentage of Cost of Goods sold is 39.40% which is almost 40% that
indicates the high profit margin with the percentage of 60%.
Ratio Analysis
Financial Ratio
Analysis
BH
P
Rio
Tint
o
201
7
201
8 2017 2018
Profitability
Ratio
Gross Profit
Margin Gross Profit
212
69
264
34
2422
3
2396
3
Net Sales
382
85
0.5
6
436
38
0.6
1
4003
0
0.6
1
4052
2
0.5
9
Profit Margin Net Profit
589
0
370
5 8762
1363
8
Net Sales
382
85
0.1
5
436
38
0.0
8
4003
0
0.2
2
4052
2
0.3
4

FINANCIAL ANALYSIS 4
Return on Assets Net income
589
0
370
5 8762
1363
8
Total assets
117
006
0.0
5
1,11
,993
0.0
3
9572
6
0.0
9
90,94
9.00
0.1
5
Return on
Equity
Net icome after
preference dividends
589
0
370
5 8762
1363
8
Average common
stock holder's equity
224
3
2.6
3
224
3
1.6
5 4362
2.0
1 4024
3.3
9
Liquidity Ratio
Current Ratio Current assets
210
56
35,1
30
1867
8
1818
5
Current liabilities
113
66
1.8
5
13,9
89
2.5
1
1134
9
1.6
5
1086
5
1.6
7
Quick Ratio Quick assets
170
20
189
85
9365.
0
1337
7
Current liabilities
113
66
1.5
0
13,9
89
1.3
6
1134
9
0.8
3
1086
5
1.2
3
Average
Receivable days Receivables
283
6
309
6 3443 1585
sales *365
382
85
27.
04
436
38
25.
90
4003
0
31.
39
4052
2
14.
28
Cash Flow
Ratio
Operating Cash
Flow Margin
Cash Flow from
operating activities
168
04
184
61
1388
4
1182
1
Sales
382
85
0.4
4
436
38
0.4
2
4003
0
0.3
5
4052
2
0.2
9
Cash Return on
owners equity Operating cash flow
168
04
184
61
1388
4
1182
1
Equity
224
3
7.4
9
224
3
8.2
3
4471
1
0.3
1 3688
3.2
1
Financial Ratio
Debt Ratio Total Liabilities
597
48
56,4
01
5101
5
47,26
3
Total Assets
117
006
0.5
1
1,11
,993
0.5
0
9572
6.00
0.5
3
90,94
9.00
0.5
2
Market
Performance
Ratio

FINANCIAL ANALYSIS 5
Earning Per
share
Net icome after
preference dividends
589
0
375
0 8762
1363
8
Total common stock
224
3
2.6
3
224
3
1.6
7
4471
1.00
0.2
0 3688
3.7
0

FINANCIAL ANALYSIS 6
As per the evaluation of ratio, it has been evaluated that the liquidity ratio of the
company is effective. Current ratio of the company is 2.51 which are increases to 1.85 from
the last year of 2017. It indicates that the organisation the capability to pay its all debts is
decreases with the decreasing amount of asset from the last year. As compare to the Rio
Tinto, it has been seen that the current ratio of the company is 1.65 and it is increases by 1.67.
The company’s ratio states that the liability of Rio Tinto is reduce and it is getting more
capable but it is less than BHP. However, the company current ratio is a decrease which is
not effective for the company. It states that the chances of stability for long time of BHP
Billiton is high as compare to Rio Tinto as the current assets amount is large as compare to
Current liabilities. The debt ratio of the company is decreases with the 0.51 to 0.50 as its pay
off all the debts. Although, the both year ratios are effective as the total asset is more than
total liabilities that helps to pay all the debts. The company also raise the shares as it has the
large amount of total asset over its total liabilities. Rio Tinto also has the capability to pay the
liabilities but the total asset of BHP is more as compare to Rio Tinto (Rio Tinto, 2018). As
per the profitability ratio, it is observed the Rio Tinto has high profit as compare to BHP
Billiton in Perth. The Net sales of BHP is high and it is also increases from the last year such
as 0.56 in 2017 to 0.61 in 2018 but as compare to Rio Tinto the profit ratio is less due to high
sales prices. The profit margin ratio of Rio Tinto is more effective as compare to BHP as it is
0.34 and 0.08. Rio Tinto is top competitors of BHP Billiton in terms of profit. The cash flow
ratio’s of the companies reflect the operating activities, the current ratio of BHP in Perth has
0.42 which is decreases from 0.44 in 2017. In the year 2017, the ratio of Rio Tinto is 0.35 and
it decreases to 0.29. It states that the company in Perth have more capable in earning money
as compare to the Rio Tinto.

FINANCIAL ANALYSIS 7
Summary of Ratio Analysis
Profitability of the company reflects the net profit is increases continuously. It is observed
that the organisation operating cost is an increase which is a biggest financial concern.
Increasing of cost affects the profitability and investment. The total asset of the company is
increases year by year that is a biggest strength. The company is able to manage its all
liabilities as it have large amount of asset to recover it. The financial condition of the
company is strong as they have large amount of asset and it is observed that its net sales is
also increases. The sales price is a financial concern for the company as its sales increases but
net revenue is nit increases so high. At the end, it can be said that the company is able to pay
all debts and capable for investing in asset.
1 2 3 4 5 6
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Stock Price
Stock Price

FINANCIAL ANALYSIS 8

FINANCIAL ANALYSIS 9
References
Accounting Tools. (2018). Vertical analysis. Retrieved from:
https://www.accountingtools.com/articles/2017/5/17/vertical-analysis
BHP Billiton. (2018). Annual Report 2018. Retrieved from:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf?la=en
Rio Tinto. (2018). 2018 Annual Report.
http://www.riotinto.com/documents/RT_2018_annual_report.pdf