MBA403: BHP Billiton Financial Analysis and Investment Recommendation

This wealth report provides a financial and economic interpretation of BHP Billiton, an Australian mining company, for potential investors. It analyzes the company's profitability, liquidity, cash management, and market-related factors using data from 2016 to 2018. The report examines key financial ratios such as gross profit margin, return on capital employed, current ratio, quick ratio, price-to-earnings ratio, cash flow margin, and short-term debt coverage. Additionally, it considers BHP Billiton's core business, geographic locations, financial results, industry trends, business strategy, market potential, management team strength, remuneration trends, and competitor analysis. The report concludes that while the company showed improvement in 2017 compared to 2016, performance slightly deteriorated in 2018. However, the company is still generating returns for shareholders, leading to a recommendation to hold investments in BHP Billiton for future earnings. The analysis also incorporates external resources and data to provide a comprehensive assessment of the company's financial health and investment suitability.

Running head: FINANCIAL AND ECONOMIC INTERPRETATION
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Table of Contents
Resource A.................................................................................................................................3
Analysis..................................................................................................................................3
Interpretation and analysis.....................................................................................................3
Resource B.................................................................................................................................5
Conclusion and recommendation...............................................................................................7
Reference....................................................................................................................................8
Appendix....................................................................................................................................9

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Executive Summary
The report aims at covering various aspects of the BHP Billiton in terms of the financial
performance of the company and other various operational performance of the company.
BHP Billiton operating in the Australian Mining Industry is located in the Melbourne,
Victoria, Australia. The report covers the various aspect of the financial condition of the BHP
Billiton Company in terms of the profitability, liquidity, management of cash and other
market related factors for the company.

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Resource A
Analysis
The key measurement data that will be taken into consideration will be the
profitability, liquidity, cash management activity and market related factors for the company.
Interpretation and analysis
Gross profit margin – gross profit margin of the company determines the earning available
with the firm after paying for the cost of goods sold from the revenues. It further states
whether the earnings available after paying off the COGS are sufficient to meet the
operational, financial and tax expenses. Looking into the gross margin ratio of the company it

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can be determined that the gross margin of the company is in improving trend and increased
from 39.44% to 60.58% over the years from 2016 to 2018 (Weygandt, Kimmel and Kieso
2015).
Return on capital employed – ROCE measures the profitability of the entity and the
efficiencies with which the entity is deploying its assets. Looking into the ROCE of the entity
it can be determined that the same for the company is improved from 2016 to 2017 however
in 2018 it dropped again from 10.29% to 6.66% (Gitman, Juchau and Flanagan 2015).
Current ratio – current ratio measure the liquidity position of the entity through measuring its
short term liabilities against the short term assets. Looking into the current ratio of the entity
it can be determined that the same for the company is improved from 2016 to 2017 and in
2018 it dropped again from 3.17 to 2.73 (Bakker and Shepherd 2017).
Quick ratio – quick ratio is also the liquidity ratio that is stricter than the current ratio as it
does not consider the liquid assets those take some time to get converted into cash while
measures the liquidity. Looking into the quick ratio of the entity it can be determined that the
same for the company is improved from 2016 to 2017 and in 2018 it dropped again from 2.18
to 1.91 (Muhammad et al. 2015).
Price to earnings ratio - it determines the relationship among the stock price of the entity and
the EPS. Higher PE ratio indicates the investors expect the higher return from their
investments. From the PE ratio of the entity it can be determined that it has been increased
from -17.23 to 46.62 over the years from 2016 to 2018 (Sari, Nurlaela and Titisari 2018).
Cash flow margin – it measures the efficiency of the entity with regard to converting of sales
into cash. It can be used a good indicator for the entity’s earning quality. It can be identified
from the calculation table that the cash flow margin of the entity has increased from 0.34 to
0.44 over 20176 to 2017 and dropped it to 0.40 again in 2018 (Islam and Khandaker 2015).

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Short – term debt coverage – it represents the entity’s financial position with regard to its
ability to meet the short term financial requirements from the available cash of the entity. It
can be identified from the calculation table that the short-term debt coverage of the entity has
increased from 0.80 to 1.40 over 20176 to 2017 and dropped it to 1.26 again in 2018
(Ehrhardt and Brigham 2016).
Resource B
Core business and geographic location
BHP Billiton’s main objective is growing the potash mining business into the core
business. It the increasing the investment in the potash mining and looking for divesting its
shale gas assets from US
Various geographic location of the business are Australia, Canada, UK, Malaysia,
Chile, Singapore, England and London (BHP 2019).
Financial results
Looking into the financial results of the entity it can be identified that company has
improved in its profitability aspect and that can be verified through the gross margin. In
liquidity context the company has improved in 2016 as compared to 2016 and deteriorated in
2018 again in comparison to 2017. The same trend of liquidity is followed for cash
management ratio. However, the market value ratios have been improved that can be verified
through PE ratio.
Industry trend
Industry trend can be verified through the data available in IBIS World or Bloomberg.
Business strategy

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The company’s business strategy is to create and grow value and growing the cash
returns to the shareholders. The employees need right skill and experience for mining
industry to work for the entity (BHP 2019).
Market potential
Though the mining companies have good future prospects it is facing tough situation
regarding complex socio-political environment, pressurised financial performance and tough
operating scenarios.
Strength of management team
The management team of the company headed by CEO Ken MacKenzie who has
extensive knowledge and experience in global business. Other management team also have
extensive knowledge and experience in their respective fields. It will assist the company in
forming better business strategies (BHP 2019).
Remuneration trend
Remuneration for highest earners are is increasing trend as compared to previous
year.
Competitors business
Yes, wage difference is there in competitor’s business
Management team
CEO of the company is Ken MacKenzie. Other directors are – Andrew Macenzie,
Terry Bowen, Malcolm Broomhead, Anita Frew, Carolyn hewson, Lindsay Maxsted, John
Mogford and Shriti Vadera (BHP 2019).
Other benefits

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Non-wage benefits include travel allowance
Conclusion and recommendation
From the above it can be concluded that the company is improving in its financial
aspects in 2017 as compared to 2016. However, the performance deteriorated in 2018.
However, the company is able to generate return for the shareholders and the shares of the
company are undervalued. Hence, it is recommended that the shareholder can hold their
investment in BHP Billiton for future earnings.

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Reference
Bakker, R.M. and Shepherd, D.A., 2017. Pull the plug or take the plunge: Multiple
opportunities and the speed of venturing decisions in the Australian mining
industry. Academy of Management Journal, 60(1), pp.130-155.
BHP. 2019. BHP | A leading global resources company. [online] Available at:
https://www.bhp.com/ [Accessed 4 Feb. 2019].
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Islam, S.Z. and Khandaker, S., 2015. Firm leverage decisions: does industry matter?. The
North American Journal of Economics and Finance, 31, pp.94-107.
Muhammad, N., Scrimgeour, F., Reddy, K. and Abidin, S., 2015. The impact of corporate
environmental performance on market risk: The Australian industry case. Journal of business
ethics, 132(2), pp.347-362.
Sari, R.K., Nurlaela, S. and Titisari, K.H., 2018, August. The Effect of Liquidity Ratio,
Profitability Ratio, Company Size, and Leverage on Bond Rating in Construction and Real
Estate Company. In Proceeding Ictess (Internasional Conference on Technology, Education
and Social Sciences).
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.

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Appendix
1) Operation Distribution of BHP Billiton.