BHP Billiton Financial Performance: An Economic Analysis Report

This report offers a detailed financial analysis of BHP Billiton, covering a two-year period. It examines profitability ratios, liquidity ratios, financial stability, and cash flow statements to assess the company's financial health. The analysis uses BHP Billiton's 2018 financial report, offering both financial and non-financial perspectives. Key findings include a decline in net margin profit from 2017 to 2018 due to high administrative expenses, though liquidity and financial stability ratios show positive trends. Market analysis indicates a rising share price influenced by profit before tax. The report concludes that BHP Billiton presents a positive investment opportunity due to its financial strength, cash flow, and market position, supported by external sources highlighting growth potential. Desklib provides access to similar solved assignments and past papers for students.

1
FINANCIAL AND ECONOMIC INTERPRETATION
Executive Summary:
The report provides information regarding the financial performance of BHP Billiton
over the period of the two years. The analysis of the financial performance of the organization is
mainly conducted in the assessment, where its profitability ratio, liquidity ratio, financial
stability ratios and cash flows statement is analyzed to determine the current financial trajectory.
In addition, the analysis is based on the financial report of BHP Billiton for the year 2018, which
provide both the financial perspective and non-financial perspective of the company. The
analysis will provide adequate information to the investor regarding the current financial
performance of the company and detect whether it is a sound investment option.
Analysis and Interpretation:
1. Profitability:
2018 2017
0.00%
5.00%
10.00%
15.00%
20.00%
Profitability ratio The above figures provide information regarding
the decline in overall net margin profit of BHP
Billiton from 2017 to 2018. The net margin ratio
has declined from 16.91% in 2017 to 10.99% in
2018, which is approximately a decline of 5.92% in
the overall financial year. From the valuation, it is
detected that revenue of the company has increased
from 2017 to 2018, while decline in net income has
been witnessed during the period. This decline in
net profits is due to the high level of administrative
expenses, which is being conducted by BHP
Billiton. Moreover, the calculations also indicate
that the BHP Billiton has to reduce its
administrative expenses and loss from discounted
operations for increasing the level of income in
future.
2. Liquidity and Financial Stability:
2018 2017
-
0.50
1.00
1.50
2.00
2.50
Liquidity ratio The liquidity ratio of the organization provides
information regarding its current financial capability.
The calculation provides information regarding the
quick ratio of the company, which is at great position.
The company has a quick ratio of 2.24 in 2018, which
has increased from 1.53 in 2017. This increment in
liquidity ratio of the company will ensure that the
management can pay of all its short-term financial
obligations and conduct the operations without
hindering the fixed assets. Therefore the calculation
provide viable information regarding the current
position of the company

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FINANCIAL AND ECONOMIC INTERPRETATION
2018 2017
-
0.50
1.00
1.50
2.00
2.50
3.00
Financial stability
ratio
The financial stability ratio provides information
regarding the current ratio of the company, which has
increased in value over the period of two fiscal years.
The values have increased from 1.85 in 2017 to 2.51 in
2018. The current ratio value has increased due to the
high accumulation of current assets by BHP Billiton in
comparison to Current liabilities. The current assets
that had the highest contribution are the assets held for
sale and cash position of the company. The high
current ratio depicts a positive financial stability of the
organization.
3. Market Analysis:
Year ended 2018 2017 2016 2015 2014
Profit before tax 15,996 12,554 2,804 12,887 22,812
EPS 0.696 1.107 -1.200 0.359 2.600
Share price 33.91 23.28 18.65 27.05 35.90
The information provides in-depth analysis on the current market condition of BHP
Billiton. In addition, the share price of the organization provides information about the future
growth prospects that is anticipated by the investors. The rising values of Profit before tax have
increased the share price of the company. However, the EPS of the organization declined during
2018, which is due to the low level of profits that is obtained by the organization.
4. Cash Flow:
2017 2018
-15,000
-10,000
-5,000
-
5,000
10,000
15,000
20,000
25,000
Net operating cash
flows
Net investing cash
flows
Net financing cash
flows
The cash flow position of BHP Billiton is
considered to be positive, as the cash
outflows are lower than cash inflows. This
directly indicates that the net operating cash
flow is adequately positive to support the
expenses of investing and financing
activities. The company has adequate
conducted both the financial and investing
activities to increase its return in future.
Moreover, the positive net operating cash
flow provides high cash reserves for the
organization.
Conclusion:
The investigation has highlights that investment in BHP will be beneficial for the
investor, as its current financial strength, cash flow and market analysis is positive. In addition,
the article in Sydney Herald also pointed out the positive attributes of the company, where
growth in inventible due to the spike in iron ore prices (Smh.com.au 2019). Therefore, adequate
investments can be conducted in BHP for securing high returns in the long run.

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FINANCIAL AND ECONOMIC INTERPRETATION
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