Report about the Finance Management 2022

Running Head: Finance Management
8006FMGT – Finance Management
NAME
STUDENT ID
TITLE OF REPORT

Finance Management
Executive summary
This report performed the financial analysis of BHP Group. The ratio
analysis is done using the capital structure and profitability ratios for the
last five years. All the major capital structure ratios have deteriorated as
the debt portion of the balance sheet has increased over this period. Also
the profitability ratios have deteriorated as the company’s business
performance went down. In comparison to its competitor RIO TINTO, the
financial ratios of BHP were weaker. The report also performed the
calculation of the cash conversion cycle of BHP and it found that the CCC
has declined from 9.32 days to -18.59 days due to the increase in days of
payables. This is generally taken as a positive for the firm. The document
also performed analysis of debt and equity funding and it found that the
low cost debt financing is preferable for BHP depending upon the current
capital structure.
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Finance Management
Table of Contents
Executive summary..................................................................................2
1. Introduction........................................................................................4
2. Financial Ratio Analysis......................................................................5
2.1 Capital Structure Ratios Analysis..................................................6
2.2 Profitability Ratios Analysis...........................................................6
2.3 Areas for improvement for BHP and appropriate actions.............7
2.4 BHP comparison with RIO TINTO...................................................7
3. Cash conversion cycle of BHP.............................................................9
4. Analysis of debt and equity funding.................................................10
4.1 Price of the bond before and after the rumour and the expected
change in the price of the bond...........................................................10
4.2 Value of the ordinary share........................................................11
4.3 Relationship between the coupon interest rate and yield to
maturity and the market value of a bond............................................11
4.4 Funding decision between equity and debt on the basis of BHP’s
current capital structure......................................................................12
5. Conclusion........................................................................................13
References.............................................................................................14
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Finance Management
1. Introduction
The report performs the financial analysis of BHP, a global resources
company based in Australia. To perform the ratio analysis it uses
profitability and capital structure ratios like net profit margin, return on
assets, return on equity, debt to equity ratio, debt ratio, equity ratio and
debt coverage ratio. Trend analysis of these ratios is used to determine
the deterioration or strengthening of BHP’s business. These ratios are also
compared with its competitor RIO TINTO. Then the cash conversion cycle
of BHP is analysed over last five years to check if there is any change in it.
Then the report analyses the different kind of funding available to the
firm. The price of the bond is measured before and after the change in
YTM due to the rumour. The value of ordinary share is also determined
using Gordon growth model. Then the current capital structure of BHP is
analysed to decide between the debt and equity funding.
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