Financial and Economic Interpretation and Communication

Running head: FINANCIAL AND ECONOMIC INTERPRETATION AND
COMMUNICATION
Financial and economic interpretation and communication
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1FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
Table of Contents
Executive summary....................................................................................................................2
Profitability................................................................................................................................2
Liquidity.....................................................................................................................................2
Market value analysis.................................................................................................................3
Conclusion and recommendation...............................................................................................3
Reference....................................................................................................................................4
Appendix....................................................................................................................................5

2FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
Executive summary
Purpose of the report is to interpret the ASX listed entity BHP Billiton’s financial
performance for the year ended 2018. The report will focus on the company’s profitability,
liquidity, cash management and market performance through investigating the additional
information regarding the entity. BHP Billiton is engaged in exploration, production,
processing and development oil, gas and mineral. The firm operates through various
segments including potash, petroleum, coal, iron ore and copper. The entity was formed
through merger of Billiton PLC and BHP Ltd. Headquarter of the entity is located in
Melbourne, Australia.
Profitability
Profitability analysis of the company measured through using the operating profit
margin and net profit margin. It evaluates the ability of the entity to generate the earnings
against the expenses and different other costs associated with the generation of earning
during the period under consideration. Operating profit determines the profit left with the
entity after paying all the expenses related to operation of the business. It is noticed that the
performance of the entity for the year closed on 30th June 2018 was satisfactory as the
revenue as been increased to $ 43,638 million from $ 28,567 million in 2016. It led to
increase in the operating profit margin from 9.82% in 2016 to 36.66% in 2018 (Ehrhardt and
Brigham 2016). On the other hand, the net profit margin measures the earnings available with
the firma after paying all the expenses related to business including the financing expenses
and tax related expenses. Looking into the net profit margin of the entity it can be stated that
the net profit has been increased from net loss amounting to $ 312 million in 2016 to $ 7744
million in 2018 (BHP 2019). It led to increase in net profit margin from -0.52% to 12.76%
over the years from 2016 to 2018. Hence, the overall profitability position of the entity over
the years from 2016 to 2018 was in increasing trend (Bakker and Shepherd 2017).
Liquidity
Liquidity analyses determine the ability of the entity to pay off its short term
obligation as and when they become due for payment with the short term assets. Short term
liquidity position of the company is the year 2018 is good and improved as compared to the
year 2016 as well as 2017. If the current ratio is considered it can be determined that the
company’s current ratio has been enhances from 1.44 in 2016 to 2.51 in 2018 (Sari, Nurlaela
and Titisari 2018). Current assets of the company increased in 2018 as compared to 2016 and
2017. If the quick ratio is considered that does not consider the assets those takes some times
in getting converted into cash like inventories is reduced in 2018 as compared to 2017. The
reason behind that is for 2017 the company’s current asset does not include any such asset
that may take time to get converted into cash (Islam and Khandaker 2015). Hence, whereas
the current ratio of the company over the years from 2016 to 2018 is in enhancing trend the
quick ratio did not have any specific trend as it increased in 2017 as compared to 2016 and
dropped in 2018. However, overall liquidity position of the entity is indicating that it is able
to meet it short term obligations efficiently (BHP 2019).
Cash management
Cash management ratios of the entity indicate the ability of the entity to convert the
sales into cash and meet its financial obligation with available cash. Both cash flow margin as