Company Performance Analysis: A Case Study of BlueScope Steel

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Company Performance Analysis
1

Abstract
The financial analysis of BlueScope Steel Limited shows that they worked on their efficiency
and profitability also. As the more and more efficient workforce is employed as it is being
reduced the cost of production as more number of units in terms of volumes it produces or
manufacture. The concept of economies of scale state as production increased the value of the
outcome price per unit is decreased.
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Table of Contents
Abstract.......................................................................................................................................................2
I. Introduction..............................................................................................................................................4
II Financial Analysis of BlueScope Steel Limited..........................................................................................5
2.1............................................................................................................................................................5
2.2............................................................................................................................................................6
2.3..........................................................................................................................................................10
2.4..........................................................................................................................................................11
2.5..........................................................................................................................................................20
2.6..........................................................................................................................................................21
III Recommendation Letter........................................................................................................................23
IV Conclusion.............................................................................................................................................24
References.................................................................................................................................................25
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I. Introduction
In the assignment of company performance analysis, Bluescope Steel Limited case study would
be discussed, it is a steel manufacturing company established in Australia in 1932. After
expanding their hands in the domestic market in the production of coated steel, they move
forward to different ASEAN Countries for global expansion. Thus, their financial analysis has
been done on the basis of their profitability and efficiency ratios.
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II Financial Analysis of BlueScope Steel Limited
2.1
BlueScope Steel limited had established in 1915 in Australia as steel manufacturing unit. They
manufacture stainless steel from last 25 years after expansion in the domestic market. They
stretch their arm in the fastest growing economies of various countries. BlueScope Steel Limited
was also expanded to the global market as well by joint venturing with various companies. In
India, they made a joint venture with the Tata conglomerate and Nippon Steel for exploring new
opportunities of trade in a new market, Bluescope steel Limited is being emerged as a
manufacturer of painted and coated steel product globally. Moreover, they also expand
themselves in the field of engineered steel building. They built their market in Asia, Australia,
and New Zealand and various coastal states of North America (Bluescope, 2019).
Comparative advantages achieved by the BlueScope Steel Limited as follows:
Consistent Financial Performance- Bluescope Steel limited had established one of their units in
the United States of America by setting up of their manufacturing plant over there. Thus, the
BlueScope Steel limited unit gives consistent return to their investors (Bluescope, 2019)
Customer Support- Bluescope Steel limited have successful customer support as many of their
customers are blue Chip companies or Fortune 500 as they help them in providing quality of
steel products at minimizing cost at large volumes as it ultimately achieved through the process
of economies of scale (Bluescope,2019).
Global Network: The Bluescope Steel limited has established their presence in many of the
countries like Australia, New Zealand, US and various countries of Asia continent including
India.
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2.2
Calculation and analysis of the following ratios as under:
The efficient Ratio of BlueScope Steel limited has been explained below:
Efficiency Ratios:
Particulars 2016 2017 2018
Asset Turnover Ratio
1
.08
1
.14
1
.12
Inventory Turnover Ratio
3
.47
3
.91
3
.71
Receivables Turnover
Ratio
8
.59
9
.26
9
.16
Average Collection
Period
42
.48
39
.42
39
.87
Asset
Turnover Ratio Inventory
Turnover Ratio Receivables
Turnover Ratio Average
Collection
Period
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2016
2017
2018
As per the above trend analysis, indicates the efficient performance analysis of BlueScope Steel
limited on the basis of their efficient ratios as follows:
Asset Turnover Ratio: The asset turnover ratio helps in determining how efficient the BlueScope
Steel limited are to efficiently utilize their plant and machinery to generate sales. As per the data
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of BlueScope Steel limited of last three year (2016,2017 and 2018).Thus the asset turnover of
BlueScope Steel limited are most probably stable it ranges between 1.08 to 1.12 in three years. It
indicates that Bluescope Steel limited has already worked on their full capacity in utilizing their
assets of generates future sales (Warrad and Omari, 2015).
Inventory turnover ratio: The ratio which determines the ability of BlueScope Steel limited how
quickly they convert their stock into sales proceeds. The data of inventory management of
BlueScope Steel limited shows that they develop proper inventory management software for
effectively rotating their stocks into sales (Gaur and Omari, 2015).
Receivable Turnover Ratio: This ratio refers to the meaning that how effectively Bluescope Steel
limited manages their credit as well as their collections. If the receivable turnover of the
respective company increases year by year, it shows the creditors have extended the credit limit
but unable to recover them from their borrowers. In the case of Bluescope Steel limited it is
being shown that the receivable turnover ratio increases in 2017 and reduces in 2018 that
indicates that Bluescope Steel limited has improved in their collection of debts (Dong et.al.
2019).
Average Collection Period- This period shows how much time is taken by the lender for
collecting their debt. This ratio gives a true and exact picture of Bluescope Steel limited
collection time in the number of days. As per the financial data of Bluescope Steel limited, it is
analyzing the average collection period has been reduced from 2016 but increased as compared
to the year of 2017. It indicates the company has not adopted specific procedures of collection of
their debt (Dong et.al.,2019).
Computation of Profitability ratio of Bluescope Steel limited as under:
Profitability Ratios:
Particulars 2016 2017 2018
Gross Margin
45
.40
43
.81
41
.83
Operating Margin 4 9 10
7

.53 .57 .26
Return on Assets
4
.16
7
.65
15
.30
Return on Equity
8
.07
14
.97
27
.37
Gross Margin Operating
Margin Return on
Assets Return on
Equity
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
2016
2017
2018
Gross Margin: It refers to the margin which is being computed by the difference between the cost
of goods sold and sales, it generally shows the manufacturing expenditure incurred by the
Bluescope Steel limited for developing their output of steel products. As per the last three years,
data of Bluescope Steel limited it is being analyzed that their gross profit margin has been
reduced from the last three year each year. It indicates that the Bluescope Steel limited has not
been able to effectively utilize their manufacturing cost well in a cost-effective manner (Lacinka
et, al.,2018).
Operating Margin: These margins are similar to the gross profit margin but the difference is that
it involves some expenses of administrative purposes also which mostly factory overhead
expenses as the Bluescope Steel limited case their operating margin has been increased over the
expectation from the year 2016 to 2018. Thus, it indicates that Bluescope Steel limited has
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reduced its overhead expenditure that means Bluescope Steel limited working in a cost-effective
manner (Daud, 2018).
Return to assets: This ratio helps in determining how much return the company earn through
their investment on plant and machinery or other assets. As per the case of Bluescope Steel
limited it is being determined that the company’s return on assets has been unexpectedly
increased from 4.16 (2016) to 15.20 (2018). Thus, the leaders of the Bluescope Steel limited has
taken good decision with respect to the investment on the assets of the company as it produces at
an enhancing rate year by year.
Return on Equity- The return on equity is being evaluated by dividing the net income with the
total equity of Bluescope Steel limited as it determines how much the amount of net income
Bluescope Steel limited earn from the equity investment from their shareholders. The above-said
table of profitability ratio shows that the return on equity Bluescope Steel limited has been
increased year by year over the expectation that means their shareholders has made good
investment decision of buying shares of Bluescope Steel limited as it increases their return year
by year as shown above.
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2.3
Marketable securities are those securities which can easily saleable in the market in the short
period of time in the time period of one year. These are to be considered as highly liquid assets
as it can be easily converted into cash within a period of one year. All the time they can easily
get buyers that means they are ready to sale in the market as it depends on the owner opinion
whether he/she wants to sale in the market or not (Lee et, al., 2016).
As per the financial statement of Bluescope Steel limited as on 30th June 2018, it observes that
the Bluescope Steel limited has not held any kind of marketable securities in their asset aside. it
just includes cash and cash equivalent, trade as well as other receivables which do not come
under the definition of marketable securities. Thus the Bluescope Steel limited does not have any
marketable securities for their effective management of cash resources. If in case the company
have a considerable amount of marketable securities in the form of their current assets so the
company can take the advantage of liquid cash for raising fund for the management of their
working capital which is utilized for managing their daily operations (Lee et,al.,2016).
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2.4
Sensitivity Analysis as shown below:
Step 1. Computation of value of Initial Cash Outflow as below:
Purchase of Machinery : -2000000
St
ep
s
2.
Calculating the net present
value of annual cash
inflow as under:
Ye
ars
Units
(nos)
Selling price
per unit
Ann
ual
Sale
s
Vari
able
Cost
Fix
ed
cos
t
Dep
recia
tion
Profit
befor
e tax
Tax
@3
0%
Profi
t
after
tax
Pv
@1
0%
PV
of
CF
1
30000
0 20
6000
000
3600
000
300
000
450
000
1650
000
495
000
1155
000
0.9
09
10
49
89
5
2
30000
0 20
6000
000
3600
000
300
000
450
000
1650
000
495
000
1155
000
0.8
26
95
40
30
3
30000
0 20
6000
000
3600
000
300
000
450
000
1650
000
495
000
1155
000
0.7
51
86
74
05
4
30000
0 20
6000
000
3600
000
300
000
450
000
1650
000
495
000
1155
000
0.6
83
78
88
65
Tot
al
36
60
11

.
19
5
Step 3. Computation of amount residual value as under:
Residual Value
Residual Value of Equipment 200000
Add: Working Capital Adjustment 600000
Total cash inflow at the end 4th year 800000
PV @ 10% 0.683
Present Value of cash Inflow 546400
Step 4. Computation of the amount of Net Present Value as under:
Step 1. +Step 2. +Step 3
2206595
Case i) Compute NPV, If annual sales decrease by 10%
Step 1. Initial Cash Outflow
Purchase of Machinery
-
2000000
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