Project Report: Managing Finance

Running Head: Managing Finance
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Project Report: Managing Finance

Managing Finance
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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Capital structure................................................................................................................3
WACC..............................................................................................................................5
Tax influence on WACC..................................................................................................5
Valuation analysis.............................................................................................................6
Analysis on investment decision......................................................................................6
Other factors.....................................................................................................................7
Standard risk.....................................................................................................................7
References.........................................................................................................................9
Appendix.........................................................................................................................10

Managing Finance
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Introduction:
Financial management focuses on the equity, debt and ratios of an organization in
order to evaluate the performance, financial position and other financial facts about the
business. Financial management involves a proper planning directing, organizing and
controlling the financial activities such as utilization and procurement of organization’s
funds. Procurement of funds and management of funds are the primary activity in the
financial management (Gibson, 2011). In case of management of funds, the assets and the
resources of the business is managed to ensure the adequate and regular supply of funds, to
ensure the utilization of optimal funds of the business etc.
In this report, the study has been done on Woolworths limited and BHP Billiton
limited to identify the performance of both the companies in the market in order to invest in
the company. The capital structure, WACC, intrinsic value etc. of both the companies has
been determined to measure the overall performance of the business so that the better
investment decision could be made.
Company overview:
Woolworths limited:
Woolworths limited is an Australian company which operates its operation under the
Australian retail industry. The main area of operations of the company is Australia and New
Zealand market. This company is recognized as the second largest Australian company in
terms of revenue generation. In the year of 2018, 205000 people are working in the company
in order to meet the mission, vision and strategic objectives of the business (Home (b) (a),
2018).
BHP Billiton:
BHP Billiton limited is an Australian company which operates its operation under the
Australian mining industry. The main products and operations of the company are in mining,
metals, petroleum etc. The main area of operations of the company is worldwide. This
company is recognized as the largest mining company in terms of market capitalization
(Home (a), 2018). In the year of 2018, 62,000 people are working in the company in order to
meet the mission, vision and strategic objectives of the business.
Capital structure:

Managing Finance
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Capital structure is a position of funds of an organization. It evaluates the long term
debt and total equity of the business against the total available capital of the business.
Evaluation on the capital structure level of the business is crucial for the investors as it
defines about the total associated risk with the business (Higgins, 2012). In this report, the
capital structure of BHP Billiton and Woolworths limited has been identified to measure the
associated risk with the companies.
In case of Woolworths, it has been found that the capital structure of the company has
been changed a lot in last 5 years. At initial stage, the debt equity proportion of the company
was 0.62:0.38 which has been led to 0.73:0.27 (Annual report, 2018). It represents that the
company has improved the equity level to fund the resources of the business which has
reduced the risk of the business. Mainly, the capital structure level of the business has been
changed because of the industry factors and the need of the business to set an optimal capital
structure. Through evaluation on the retail industry, it has been found that the changes are
quite similar to the industry and these changes have taken by the business because of the
market demand. Woolworths is following the trade off theory in order to manage the tax
shield of the business through improving the funds through debt and equity funds (Lemmon
& Zender, 2010).
Calculation of capital structure of Woolworths limited
2014 2015 2016 2017 2018
Total ordinary share 10252500 10834200 8470600 9526000 10481000
Total long term debt 6394500 5334000 6038900 4565600 3881000
Total 16647000 16168200 14509500 14091600 14362000
Ordinary share proportion 61.59% 67.01% 58.38% 67.60% 72.98%
Long term debt proportion 38.41% 32.99% 41.62% 32.40% 27.02%
(Morningstar, 2018)
Further, in case of BHP Billiton, the calculations represents that various changes have
occurred into the capital structure position of BHP as well. But these changes are not huge
and represent that almost similar proportion of equity and debt is managed by the company so
that the associated risk and cost level of the business could be managed. The current debt and
equity proportion of the business is 0.57:0.43 (Morningstar, 2018). Through evaluation on the
mining industry, it has been found that the debt and equity level of industry has also not been
changed a lot. BHP is following the trade off theory in order to manage the tax shield of the
business through improving the funds through debt and equity funds (Frank & Goyal, 2009).