Financial and Economic Interpretation of BHP Billiton's Performance

This report provides a comprehensive financial analysis of BHP Billiton, a multinational mining company listed on the Australian Securities Exchange. The analysis, conducted for the MBA403 course, examines both financial and non-financial performance indicators. Financial analysis includes a detailed ratio analysis of liquidity, profitability, and solvency, providing insights into the company's financial health and its ability to meet short-term and long-term obligations. Key ratios such as current ratio, quick ratio, debt-equity ratio, profit margins, and return on equity are evaluated and interpreted. Non-financial indicators, including KPIs, environmental impact, vendor relationships, and social responsibility, are also considered to provide a holistic view of the company's performance. The report concludes with recommendations regarding the company's suitability for investment, based on the analysis of its financial and economic performance.

FINANCIAL & ECONOMIC
INTERPRETATION

Executive summary
The report brings out a discussion financial and non-financial performance of BHP Billiton.
The company is a multinational organisation, which deals in mining, petroleum, metal with
dual listed public organisation that is headquartered in Australia (BHP Billiton, 2019). The
company listed on Australian securities exchange as it is one of the largest organisations with
the help of market capitalisation. The report brings out ratio analysis, which assess the
financial situation helping external stakeholders to think of investing in this company.

Contents
Executive summary...............................................................................................................................1
Resource-A............................................................................................................................................3
Analysis.................................................................................................................................................3
Interpretation.........................................................................................................................................3
Resource-B............................................................................................................................................4
Non-financial indicators........................................................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8

Resource-A
Analysis
The analysis has been undertaken through financial measures and non-financial measures.
Financial analysis will include ratio analysis, which is seen that this tool is comparison of
items in financial statements so that they can evaluate liquidity, profitability, and efficiency
of the operations. Evaluation of profitability can be conducted through Gross profit margin,
net profit margin, return on capital employed, operating profit margin, and return on equity.
Gross profit margin is calculated through divided by proportion of sales to gross profit. Profit
margin defines the level of changes and generation of profits from business operations, which
an organisation use to assess the financial health. Further, solvency ratio evaluates the level
of capability of the organisation to pay its debt and long-term bill. Liquidity refers to the
capability of organisation to accomplish financial obligations, which are short-term debts.
Efficiency ratios is used to examine how well the company utilises the assets and liabilities.
Interpretation
The liquidity position of BHP Billiton is defined through current ratio, which depicts the
ability of the company to pay off short term obligations. The two prominent ratios include
current ratio and liquidity ratio. The current ratio of BHP for 2019 is 1.89, which indicates
that the company has 1.89 times liquid asset to pay off one current liabilities (BHP Billiton,
2019). The ideal for current ratio is 2:1. Quick ratio is 1.58 where the ideal ratio is 1:1. BHP
has been maintaining appropriate liquid assets to pay off liabilities. The company is
experiencing boost and improvement in liquidity positioning, which indicates high inventory
and increase in account receivables with low current liabilities (Bismark, Kofi, Frank, and
Eric, 2018).

Solvency ratio is used to evaluate the organisation’s capability to accomplish its capital
structure, which will include both equity and long-term liabilities. It indicates whether the
company is sufficient to repay debt (Boyas, and Teeter, 2017). If the organisation wish to
have low solvency then it will have to maintain 2:1 ratio for debt-equity ratio. BHP has not
been maintaining debt and equity in 2:1 proportion because it has the proportion of 0.45 debt
equity ratio.
Debt to total assets depict that it is total amount of assets, which is funded and financed by
the creditors (Loans, and bonds payable). If the company has high debt to asset ratio then it
will be at high risk due to increased interest market rate. The company has maintained 23
percent of debt to finance its assets in generation of profits and higher sales.
With an aim to analyse the profitability, GP ratio, operating margin ratio, net profit ratio, and
return on equity are used. There is a greater upsurge in profit margins as it is nearly 21-35
percent. This demonstrates that BHP is stable and increase profits despite of maintaining
return on equity. The ideal ratio for profit margin ratio is estimated at 15-20 percent.
Return on equity indicates the organisation`s capability to generate maximum returns to
stakeholders (internal and external). Increasing profitability ratios of BHP indicate that it has
highly efficient on its core operations, which covers operating expense, fixed costs, and
depreciation by providing earnings to organisation (Myšková, and Hájek, 2017).
Resource-B
Core business activities
BHP Billiton deals in mining, petroleum, metal operations.
Specific financial results improved or changed

However, BHP avails maximum returns to its shareholders, which is the reason the company
does not wish to rely on debt for its funding. BHP`s higher profits indicate that it avails high
dividends to the shareholders.
Current and future market potential situation and growth
Higher debt equity ratio means that company debt is more than the shareholder’s fund and
lenders are at high risk (BHP Billiton, 2019). On the other hand, BHP maintains more equity
and low debt, which indicates that shareholder`s right to take decisions is limited as it is
distributed.
Strengths of the company’s management team
Current management structure deals in BHP Billiton where it has strong relation with other
dealers and finally it accomplishes strong financial position. BHP Billiton has large asset base
by investing in training the employees. The company has strong product portfolio with cost
advantage when serving customers (Mustarós, Coenders, and Mestres, 2018).
Remuneration trends and wages analysis
The wage earnings of different job titles include mining engineer creating most averaged
annual salary $132969 and technicians has the average salary of $86359 (BHP Billiton,
2019). The company already has strong market position with a very strong international
brand name with an employee base of 45000, which can meet the differences/gap created in
profitability conditions (Booth, and Carroll, 2015).
Non-wage benefits
BHP avails insurance benefits, retirement benefits, flexible work environment, and more
vacation benefits for its employees (BHP Billiton, 2019).

Non-financial indicators
These non-financial performance indicators will be measured through KPIs, environmental
impact, relationship with vendors, and social responsibility. These performance indicators
will reward increased credibility in the community, low risk of issues, improvement in
operations, better stakeholder confidence, and improvements in management decisions
(Robinson, Henry, Pirie, and Broihahn, 2015).
KPI demonstrates that BHP Billiton has been maintaining its sales and marketing team in an
effective way (Ariesta, Marlina, and Hidayati, 2019). Higher KPI indicates that overall
performance of business is great. Whereas, lower KPI indicates employee turnover is not
appropriate as being faced by BHP Billiton due to its processes on mining. The KPIs
indicates that-
Balance scorecard
(Source: Schmarzo, 2013)

Through the assistance of coordination procedure, improvement in communication, and
casual relationship affecting PPP (public private partnership). BHP will have to align its
activities to reach the appropriate goals (Booth, and Carroll, 2015).
Corporate governance indicates that it is globally shared resource, which can access in
cleaning water. Disclosing the water performance led to sustainable land and leading towards
the leadership stewardship (Subalakshmi, Grahalakshmi, and Manikandan, 2018). As the
customers have geographically diverse, which structure the organisation to accomplish the
changing demands where global markets shift timely (BHP Billiton, 2019).
Conclusion
From the above report, it has been seen that findings indicate that financial analysis and non-
financial reviews of BHP Billiton limited (mining industry). Financial conditions of BHP
indicate that profitability ratios of the company is quite stronger as it generates more than 20
percent return to its shareholders. Further, the company does not face any issues with
solvency as the company more rely on equity funds to finance its activities. The company is
quite capable of absorbing financial risks and economic fluctuations. The liquidity conditions
of the company is to pay off its current liabilities with the help of its current assets.

References
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https://www.bhp.com/-/media/documents/investors/annual
reports/2019/bhpannualreport2019.pdf [Accessed on: 16/02/2020]
Schmarzo, B., 2013. Big Data and The Balanced Scorecard Framework – Part I & II.
Available on: https://infocus.dellemc.com/william_schmarzo/big-data-and-the-balanced-
scorecard-framework-part-i-ii/ [Accessed on: 16/02/2020]
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Boyas, E. and Teeter, R., 2017. Teaching Financial Ratio Analysis using XBRL.
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Linares-Mustarós, S., Coenders, G. and Vives-Mestres, M., 2018. Financial performance and
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