BHP Group Ltd Financial Ratio Analysis Report: FIN600 TX YYYY

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BHP Group Ltd.
FIN600 TX YYYY
NAME: STUDENT ID:

Student name – ID FIN600 TX YYYY
Assignment – Company
Executive Summary
Financial performance is the key indicator of any business performance. There are various aspects or
benchmarks on the basis of which the performance of a business enterprise can be evaluated properly. Some of
the financial investors give more weight to the financial indicators. On the other hand, there also exist some
investors which give more importance or relevance to non-financial indicators. There exist some investors as well
which give proportion to both financial and non-financial indicators in different proportion or weight.
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Student name – ID FIN600 TX YYYY
Assignment – Company
Contents
Page Number
1 Introduction 2
1.1 Background and Business
2 Company Analysis
2.1 Analysis of financial statements of the business
Current Financial performance, economic outlook
3 Ratio Analysis
3.1 Profitability ratios
3.2 Efficiency ratios
3.3 Liquidity ratios
3.4 Gearing ratios
4 Recommendations and overall assessment
5 References/Bibliography
Appendices – attached Excel Spreadsheet
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Student name – ID FIN600 TX YYYY
Assignment – Company
1 Introduction
1.1 Background and Business
BHP Group deals in mining and extraction of mineral resources. As such, majorly the resources in
which the BHP Billiton Group deals are petroleum, copper, iron ore and coal. All the financial
items, be it revenue and costs, can be allocate on such minerals. However, some financial variables
cannot be allocated to these minerals on a reasonable and consistent basis. The report throws light
on the financial parameters of the given organization i.e., BHP Group. A complete understanding
will assist to gain a decisions affected by the ratio analysis as well as other financial parameters.
2 Company Analysis
2.1 Financial statements, Current Financial performance, economic outlook
An attempt has been made to understand the financial performance through brief analysis of ratio
analysis along with the economical outlook of the performance and progress of the concerned
business enterprise. Such analysis is of utmost importance for the investors. Accordingly, it will not
only help and assist prospective investors but also guide the existing investors in taking crucial
financial decisions.
3 Ratio Analysis
3.1 Profitability and Market ratios
(see appendix for calculations) YYYY YYYY Industry average
Return on assets 5% 4% NA
Return on equity 10% 8% NA
Net profit margin 17% 11% NA
Gross profit margin 44% 29% NA
Net Interest Income NA NA NA
Expense ratio/Cost to
Income ratio
78% 56% NA
Cash return on sales 51% 39% NA
Earnings per share $110.7 per share $-120 per share NA
Price earnings ratio 0.35 times -0.32 times NA
Earnings yield 289.79% -314.14% NA
Dividends per share $ $ NA
It can be clearly observed that the profitability and market ratios of previous year 2017 are much
lower than that of ratios computed for the year 2018. This indicates the fact that the performance of
2017 was much better than the performance of 2018. There is a significant difference between the
ratios computed for 2017 and 2018.
3.3 Efficiency ratios
(see appendix for calculations) YYYY YYYY Industry average
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Student name – ID FIN600 TX YYYY
Assignment – Company
Asset turnover 0.31 times 0.38 times times
Cash return on assets 0.14 times 0.16 times times
Fixed Asset turnover 0.38 times 0.57 times 0.34 times
It can be said that the performance of BHP Group is satisfactory from the viewpoint of efficiency
ratios. This is because the efficiency ratios of current year i.e., 2018 are comparatively higher than
the ratios computed for the previous year, i.e., 2017. There is not much difference between the
efficiency ratios for the 2018 with its immediately previous year 2017.
3.3 Liquidity ratios
(see appendix for calculations) YYYY YYYY Industry average
Current ratio 1.85:1 2.51:1 2.48:1
Quick ratio 1.53:1 2.24:1 1.51:1
Receivables turnover 44.47 Days 191.28 Days 12.64 Days
Average collection period 28.73 Days 7.27 Days Days
There is a significant positive difference between the liquidity ratios for 2018 and 2017. As such, it
can be said that the liquidity ratios of current year have increased when compared to the previous
year 2017. However, such higher current ratio of 2.51 is not beneficial as it indicates that company
has blocked the amount in receivables.
3.4 Gearing ratios
(see appendix for calculations) YYYY YYYY Industry average
Debt to equity ratio 0.68 % 0.62 % 48.15 %
Debt ratio 37 % 33 % %
Equity ratio 54 % 54 % %
Cash debt coverage 30 % 35 % %
Interest cover ratio 8.05 times 10.21 times 2.88 Times
Most widely used gearing ratios have been computed in such a manner that a feasible and an
achievable comparison can be made in relation to the financial performance of BHP Group by
comparison between 2 years namely 2017 and 2018.
4 Recommendations and overall assessment
After computing the various financial ratios, belonging to several categories, it can be observed and
concluded that the performance and progress of year 1 (in this case, year 2017) is better than that of
year 2 (2018).
Also, it can be well predicted that the company will succeed in the nearby future and aims and
achieve to go for hike in profitability. In the forthcoming however there is no likelihood or
possibility of any merger or acquisition. But it may think towards any business combination
technique or approaches.
For a decent increase in the amount of profits and to sustain in the market in the long run, the
management should focus on the core activities, i.e., extraction and exploration of minerals.
Besides, it should aim to identify the areas where cost reduction can be done in the best possible
manner.
4

Student name – ID FIN600 TX YYYY
Assignment – Company
Another issue that BHP group might face in the future is the political factors which management
needs to abide by. Also, it is difficult to calculate some ratios belonging to industry to which the
concerned organization, i.e., BHP Billiton Group. Wherever possible, these ratios have been
computed and determined. Apart from that, some ratios are higher of current year when compared
to its previous year. Thus, it is advisable to give appropriate weightage to relevant ratios while
arriving at the financial decisions.
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Student name – ID FIN600 TX YYYY
Assignment – Company
5 References/Bibliography
 Baki, A. Z.,Uthman, B.A., &Sanni. M., (2014). Financial ratios as performance measure. University
of Nigeria, vol.13, no. 1, pp. 82–97.
 Delen,D., Kuzey, C., & Uyar, A., (2013). Measuring firm performance using financial ratios: A
decision tree approach. Department of Management Science and Information Systems, Spears
School of Business, Oklahoma State University, United States.
 Rahi, S., (2017). Research Design and Methods: A Systematic Review of Research Paradigms,
Sampling Issues and Instruments Development. International Journal of Economics & Management
Sciences.
 Rahman. A., & Dalabeeh, E., (2013). The Role of Financial Analysis Ratio in Evaluating
Performance. Interdisciplinary journal of contemporary research in business. vol.2, no.2.
 Sriratanaviriyakul, N., Nkhoma, M., & Pham, H., (2013). Osaka Flower Coffee Shop: Transaction
Processing Systems. journal of Information Technology Education.
 Udoh, L., & Inuwa, I., (2016). Implementation of a Data-Driven Transaction Processing System for
the AUN’s Restaurant, Yola – Nigeria. International Journal of Computer Applications.
6

Student name – ID FIN600 TX YYYY
Assignment – Company
Appendices – attached Excel Spreadsheet
Profitability and Market Ratios -
2017 2018
Average
for
Industry
Return on
Assets (Profit / Average total assets)
6222/
((117006 +
118953)/2)
4823 /((117006 +
111993)/2)
0 0
5% 4% 5%
Return on
Equity (Profit / Average equity)
6222 /
((60071+627
26)/2)
4823 /
((62726+60670)/2)
0 0
10% 8%
Net Profit
Margin Net profit / Sales or revenue
6222/
36135 4823/43638
0 0
17% 11% 1.41%
Gross Profit
Margin Gross profit / Sales or revenue
15996/
36135 12554/ 43638
0 0
44% 29% 7%
Net Interest
Income
Net Interest Income / Average Earning
Assets
NII / ((Year 1
earning A +
Year 2
earning A)/2)
NII / Year 2 earning
A
for banks only 0 0
0.00% 0.00% result %
Expense ratio Expenses (excluding tax) / Net sales
28036 /
36135 24515 / 43638
(using operating expenses/operating income) 0 0
78% 56% result %
Cash return
on sales
Net cash flow from operating activity /
Sales or Revenue
18461 /
36135 16804 / 43638
0 0
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Student name – ID FIN600 TX YYYY
Assignment – Company
51% 39% result %
Earnings per
share
Profit for shareholders / Number of
ordinary shares 110.7 -120
EPS taken from annual report
Price earnings
ratio
Current market price / Earnings per
share
38.20
/110.7 $38.20 /(-120)
share price taken from annual report 0.0000 0.0000
0.35 -0.32
13.64
times
Earnings yield EPS / Share price
110.7 /
38.20 (-120) /38.20
share price taken from annual report 0 0
289.79% -314.14% result %
Dividends per
share
Dividends - Special dividends/ No of
shares 98 54
$xx per
share
(determined) DPS taken from annual report
Efficiency Ratios - XXX
2017 2018
Average
for
Industry
Asset
turnov
er Sales / Average total assets
36135 /
((117006+118953)/2)
43638
/((111993+117006)/
2)
0 0
0.31 0.38
result
times
Cashfl
ow
return
on
assets
Net cash from op activities /
Average total assets
16804/
((117006+118953)/2)
18461/
((111993+117006)/2)
0 0
0.14 0.16
result
times
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Student name – ID FIN600 TX YYYY
Assignment – Company
Fixed-
Asset
Turno
ver
Ratio Sales / Total non current assets 36135 / 95950 43638 /76863
0 0
0.38 0.57
0.34
times
Liquidity Ratios - XXX
2017 2018
Average
for
Industry
Current
Ratio
Total current assets /
Total current liabilities 21056 / 11366 35130 / 13989
0 0
1.85 2.51 2.48:1
Quick Ratio
(Total current assets -
Inventory) / Total
current liabilities
(21056 - 3673) /
11366 (35130 - 3764) / 13989
0 0
1.53 2.24 1.51:1
Receiveables
turnover
Credit sales rev / Avg
receivables
(36135/
((3096+2836)/2)/100
) *365
(43638/((803+867)/2)/
100*366
0 0
44.47 191.28
12.64
days
Average
collection
period
Average receiveables x
365 / Net credit sales
rev
(3096+2836
*365) / 36135 (803+867 *365) /43638
0 0
28.73 7.27
result
days
2017 2018
Avera
ge for
Indust
ry
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Student name – ID FIN600 TX YYYY
Assignment – Company
Debt to
Equity
Total debt/Total equity or Total
liabilities/Total equity 42914/ 62726 37334/ 60670
(use debt figures only) - DEBT or
BORROWINGS 0 0
0.68 0.62 48.15
Debt ratio Total debt / Total assets 42914 / 117006 37334/ 111993
0 0
37% 33%
result
%
Equity Ratio Total equity / Total assets 62726 / 117006 60670 / 111993
0 0
54% 54%
result
%
Cash debt
coverage
$$ from op activities / Avg total
liabilities
16804 /
((54280+58882)/2)
18461 /
((51323+54280)/2)
0 0
30% 35%
result
%
Interest
coverage
ratio EBIT / Interest expense 12554 /1560 15996 /1567
0 0
8.05 10.21
2.88
times
10