Financial Management Analysis of BHP Billiton and Rio Tinto Limited

Running head: FINANCIAL MANAGEMENT
Financial management
Name of the university
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Authors note

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FINANCIAL MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Evaluation of liquidity position of firms:........................................................................................3
Evaluation of profitability position of firms:...................................................................................4
Evaluation of capital structure position of firms:............................................................................5
Evaluation of market performance of firms:...................................................................................7
Calculation of share price of BHP Billiton using assumed values:.................................................8
Calculated of bond price traded in the market:................................................................................9
References list:...............................................................................................................................11
Introduction:

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FINANCIAL MANAGEMENT
The report is prepared to analyze the liquidity, profitability, market performance and
capital structure of two mining companies in Australia. Analysis of financial position is done in
terms of ratios computation. Interpretations of ratios have been done with references to
theoretical concepts that have assisted in the evaluation of operation and performance of
companies. Two companies that are selected are BHP Billiton Limited and Rio Tinto Limited
being the peer. BHP Billiton is one o the top listed public company that derives majority of its
income from its division of metal ore mining (Bhp.com 2018). Operations of company are done
through its divisions such as coal, iron ore and potash and petroleum. Rio Tinto is one of the
largest mining and metal corporations operating in Australia. Main business of Rio Tinto is the
production of several minerals such as diamonds, bauxite, iron ore, gypsum, uranium and
borates.
Discussion:
Ratio analysis and ratio figures of BHP Billiton and Rio Tinto limited:
BHP Billiton Rio Tinto Limited
2016 2015 2016 2015
Current ratio 1.435 1.274 1.611 1.548
Return on equity
ratio
-0.114 0.042 0.118 -0.023
Debt ratio 0.495 0.434 0.560 0.592
Price earnings
ratio
-28.625 6.808 14.218 -112.617

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FINANCIAL MANAGEMENT
Evaluation of liquidity position of firms:
Liquidity positions of both the companies are analyzed by the computation of current
ratio for two financial year period. Current ratio enables business to analyze their level of risks
and requirement of working capital. Current ratio depicts the ability of organizations to clear
their short-term obligations. This particular ratio for BHP Billiton limited stood at 1.435 and
1.274 in financial year 2016 and 2015 respectively. It is indicative of the fact that liquidity
position of company has increased in recent years. Increase in current ratio of BH Billiton
indicates the employment of more conservative approach to working capital management and
improvement in liquidity position of company (Agosto et al. 2016). On other hand, ratio for Rio
Tinto Limited stood at 1.611 and 1.548 for year 2016 and 2015 indicating increase liquidity
position. Therefore, there has been improvement in the liquidity position of both the companies.
However, ratios for both the companies have improved but current ratios for Rio Tinto is
comparatively higher than that of BHP Billiton Limited. Since, the companies operating in
mining industry, is required to maintain a standard current ratio of 2
(Ibisworld.com.au.aib.idm.oclc.org 2018). Therefore, from the perspective of industry standard,
liquidity position of Rio Tinto is favorable compared to BHP Billiton limited.