Financial Performance Analysis of BlueScope Steel Ltd

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Accounting for Business
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Executive Summary
The aim of the report is to highlight the importance of accounting in the business activities. The
report will study about the financial performance of BlueScope Steel Ltd and will evaluate it on
the basis of its vertical analysis and Ratios. Certain measures will be provided after the analysis
of the statements, which will be helpful towards increasing the performance of the firm. The
report will also compare the company’s performance from F.Y 2016 & 2017. The report
provides insights on methods that can be adopted to achieve the long and short term goals of the
respective selected firm.
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Table of Contents
1.0 Introduction.........................................................................................................................................4
1.1............................................................................................................................................................4
1.2............................................................................................................................................................4
1.3............................................................................................................................................................4
2.0 Company Overview.............................................................................................................................5
3.0 Vertical Analysis..................................................................................................................................6
4.0 Ratio Analysis......................................................................................................................................9
4.1 Return on Equity.............................................................................................................................9
4.2 Asset Turnover.................................................................................................................................9
4.3 Quick Ratio....................................................................................................................................10
4.4 Debt to Equity Ratio......................................................................................................................10
5.0 Conclusion......................................................................................................................................11
6.0 Recommendations..........................................................................................................................11
References................................................................................................................................................12
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1.0 Introduction
1.1
Accounting is an integral part of Business Activities. It provides an insight about the financial
performance of the firm. There are various methods under accounting that are responsible for
collecting, managing, summarizing and analyzing the transactions occurring in the firm.
1.2
It presents a detailed picture of the activities incurring in the firm, and the measures to be taken if
required to solve the issues that are acting as a hurdle in achieving respective goals of the firm.
The report presents views about BlueScope Steel Ltd and analysis of its financial statements.
This analysis will help in comprehending the financial dynamics of a firm. It will be providing
assistance about the ratios that describes the performance of the firm. The investors,
shareholders, suppliers of the company looks at these ratios and make decisions regarding future
actions to be taken by them. These are beneficial in comparing and predicting the future
performance.
1.3
The report may not present accurate details as there is different perception of different firms.
Proper representation of facts and figures is required for correct presentation.
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2.0 Company Overview
BlueScope Steel Ltd is a flat product steel producer which is headquartered at 120 Collins Street,
Melbourne. It was established in 2002 after demerging from an organization named BHP Billiton
on July, 22 by the name of BHP Steel, but it was renamed as BlueScope Steel on November 17,
2003. Mark Vasella serves as the CEO of the company. It earned a revenue of AUS$ 1,569.1
million in the F.Y 2017-18.The resources or the raw material for the firm is collaborated from
New Zealand, Pacific Islands, Asia and North America.
The firm specifically deals in Steel Products. Its largest operating plant, an integrated steelworks
is located at Port Kembla, in New South Wales. Major products produced by the firm includes
Steel Slab, Hot rolled coil, steel plate, automotive steel, galvanized steel, corrugated galvanized
iron, and Colorbond. The firm employs over 16,000 personnel.
The firm majorly operates in different parts of Australia. The company manufactures different
products as per the nearest requirement of raw materials. The finished products are transported
throughout the country through rail freight operator namely Pacific National. BlueScope Steel
bought Orrcon Steel from Hills Corporation in February 2014. The products that were
manufactured in Orrcon Steel were RHS, SHS and CHS structural tubular steel.
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3.0 Vertical Analysis
Vertical Analysis
It is a method that is used for analyzing the financial statement under which every item listed in
the statement is presented as a percentage of a base amount. There are various items that are
present in the Income Statement and Balance Sheet, which are stated as the assets, liabilities,
expenses and income. The analysis of all these aspects is known as Vertical Analysis.
It is a best method that is used by the firm to compare the firm’s performance with that of other
company’s performance. It can be done under the same industry or different industries. This
method is very beneficial in comparing the previous periods for the purpose of time series
analysis which is used to compare the quarterly and annual figures (Bugreev, 2016).
It is useful for the firms as it aids them in understanding the correlation between the single items
of the balance sheet and the bottom line.
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Vertical Analysis of BlueScope Steel Ltd.
Particulars 2017
('000) % 2016 ('000) %
Revenue 10,530 50.92% 9,083 51.09%
Gross Income 1,724 8.34% 1,158 6.51%
Cost of Goods Sold 8,427 40.75% 7,539 42.40%
Total Income 20,681 100% 17,780 100%
Direct Operating expenses:
Research & Development 26 0.13% -
SG&A 679 3.28% 463 2.60%
Depreciation - 343 1.93%
Total Direct Operating Expenses 705 3.41% 806 4.53%
Administrative expenses
Amortization of Tangibles - 43 0.24%
Total Administrative Expenses - 0.00% 43 0.24%
Total Expenses 705 3.41% 849 4.78%
Profit Before Tax 19,976 96.59% 16,931 95.22%
Income Tax Expense 10,485 50.70% 9,623 54.12%
Profit After Tax 9,491 45.89% 7,308 41.10%
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After evaluating the vertical analysis of the fir, it can be said:
 The profit earned by the firm before tax was $ 19,976 M in 2017 and $ 16,931 M in 2016.
There has been increase of 17.98% in one Financial Year.
 It suggests that the financial condition of the firm is improving and it is generating higher
returns.
 There has been decrease in the depreciation charged in the year 2017, which is a good
sign.
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4.0 Ratio Analysis
Profitability Ratio
4.1 Return on Equity: The ratio that is used to measure the firm’s ability to generate revenue
from the investments that have been made by the shareholders of the company is known as
Return on Equity Ratio. It laymen words, it describes how much profit every single dollar of the
shareholder’s equity generates. The ratio of ROE is an indicator of effective management of firm
in using its equity financing that are used for funding the operations of the firm and enhancing
the growth of the company (Kijewska, 2016).
The Return on Equity Ratio of BlueScope Steel Ltd was 8.58% in 2016 and 14.71% in 2017.
This means that there has been considerable amount of increase in the firm’s revenue through the
investments. It a very good sign as it also reflects that the company is having effective strategies
that will lead them in producing higher revenues. If a company has ROE of 15-20%, then it is
considered good from investor’s point of view, as it also increases the stock valuation of the
firm.
Asset Efficiency Ratio
4.2 Asset Turnover: It is a ratio that is used to acknowledge the value of the company’s sales in
comparison with the value of its assets. It is a very significant indicator depicting the efficiency
of the firm in generating revenue on the basis of its assets (Mihola, et.al., 2016). The higher the
asset value, the greater the sales. It also represents the higher efficiency of the company. There
are various sectors in which the asset turnover ratio is more than others. Industry like Retail have
a lower asset base, but they have high sales, on the other hand sectors such as real estate have
huge asset bases but their asset turnover is comparatively lower.
Asset Turnover Ratio of BlueScope Steel Ltd was recorded 1.068 times in 2016 and 1.14 times
in 2017. There has been a slight increase in the ratio of the firm, which shows that there has not
been much increase in the asset base of the company. The firm needs to focus on policies that
will be able to efficiently use their assets in generating higher sales.
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Liquidity
4.3 Quick Ratio: The most common liquidity ratio that is applied by the firms to meet its short
term obligations is known as Quick Ratio. It denotes whether the firm is in a position to pay off
its debts using its liquid assets (Di Lorenzo, et.al., 2017). It also reflects the amount of liquid
cash or asset the firm has with itself and in dire time of emergency, will it be able to save itself.
There are several methods that are implemented by a firm to liquidate its assets, either by selling
or putting it on lease. The assets that are converted should have minimal impact on the amount
that it is worth of in the open market. A quick ratio of 1:1 is considers good for the organization.
The higher the ratio, the greater the liquidity.
The quick ratio of BlueScope Steel Ltd was 0.79 times in 2016 and was 0.90 times in 2017. As
seen, there has been a very slight increase in the ratio over the two years. It is below the ideal
ratio of 1:1. The firm should gather certain assets that can be easily liquidated.
Capital Structure
4.4 Debt to Equity Ratio: This ratio is applied by the company for evaluating the company’s
financial leverage. It is a very vital metric that is used in the corporate finance as it provides a
measure which states how the firm is operating through its owned funds. Debt to Equity ratio
indicates whether the firm is capable of covering all of its outstanding debt through its
shareholders equity. If the firm has a higher leverage ratio, it indicates that the risk is also higher
to the shareholders. Investors look at the D/E Ratio for aiming at the long-term debts only as the
liabilities associated with the longer debts is more than short-term liabilities (Rakićević, et.al.,
2016).
The D/E Ratio of BlueScope Steel Ltd was 83.51% in 2016 and 72.88% in 2017. There has been
a decrease in firm’s ratio, which means that there is possible decline in the shareholder’s equity.
It could be due to the changes in the stock of the firm in the market. The firm needs to focus on
the marketable strategies to reinforce the desired standard.
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5.0 Conclusion
It can be concluded that accounting plays a key role in managing the financial transactions of the
company. The reports generated through it presents a clear image of the performance. They also
aids the organization in taking key decisions regarding the long and short term objectives of the
firm. The report presents vertical analysis of BlueScope Steel Ltd and analyzes its ratios. It also
provides suggestion as how the firm can increase its performance.
6.0 Recommendations
After looking at the ratios of the firm, few recommendations can be made to further increase the
financial performance of BlueScope Steel in the future. These are:
 The firm should build strategies for strengthening its assets. Analysis of the financial
statements suggest that proper management of assets will help the firm in managing its
quick ratio and asset turnover ratio. The firm should focus on decreasing its liability, as
this will also enhance the chances of increase in the productivity as well as profit in the
firm.
 To achieve the long-term aim, the firm should emphasize on increasing its shareholders
equity. It should increase its outstanding shares and its retained earnings to enhance the
position of the equity.
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