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Analysis of BHP Billiton Plc

Added on - 23 Feb 2020

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A global mining company, BHP Billiton was formed through the existence of BHP (Australiabased) and Anglo Dutch Billiton Plc (UK based). The company is one of the largest in thebusiness as reflect from the market capitalisation ($ 111 billion) and annual revenues ($ 31billion). Further, the company has interests in mining or various metallic and non-metallicminerals with a wide geographical spread of mines spanning various continents. Theshareholders use the information available in financial statements to evaluate the prospects offuture capital appreciation and expected dividend payments. The lenders use the same tocompute the credit risk while the government uses the same to test compliance withapplicable regulations. For the contractor, financial statements indicate the expected futureprojects coupled with potential to default on the existing outstanding payments.In relation to the income statement, the most pivotal aspect remains revenues whichessentially play a vital role in determining profits. This is due to the nature of the miningbusiness where revenue receipts are heavily influenced by prevailing commodity prices andhence revenue fluctuations are common. Usually the expenses do not have much of aninfluence unless there is a write-off. Besides, considering the capex requirement, fixed assetsare substantial and PP&E account for almost 75% of the total assets held by the company. Inrelation to the liability, long gestation period of capital intensive projects imply that long termborrowing contribute significantly to the total liabilities. A small portion is also contributedby short term debt. Further, internal accruals for the company are significant and can providesupport for future projects.The business type where the ores are inside the mine, considerable management judgementcoupled with accounting conventions are required to report the information in the form of
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