Corporate Finance Analysis: Wealth Maximization and Profitability

This report provides a detailed financial analysis of two major Australian companies, Woolworths and BHP Ltd, examining their corporate objectives, including wealth maximization, profit maximization, and environmental and social responsibility initiatives. The analysis delves into the companies' approaches to ethical suppliers, employee relations, and gender equality, providing a comprehensive overview of their financial strategies. The report further explores the concepts of profit versus wealth maximization and includes an investment analysis section calculating the present and future values of cash flows for two hypothetical investments. The comparison between investment options highlights the importance of the time value of money in financial decision-making. The report provides a comprehensive look into the financial strategies and performance of the two companies.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Part A...............................................................................................................................................2
Overview..........................................................................................................................................2
Analysis of Company Objectives....................................................................................................2
Wealth Maximisation...................................................................................................................2
Profit Maximisation.....................................................................................................................3
Ethical Suppliers..........................................................................................................................4
Employees....................................................................................................................................5
Gender Equality...........................................................................................................................6
Social Responsibility...................................................................................................................6
Profit vs. Wealth Maximisation.......................................................................................................7
Part B...............................................................................................................................................7
References......................................................................................................................................10

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Part A
Overview
The companies that are selected for the purpose of financial analysis is the Woolworths
and BHP Ltd Company whereby the operations of the company is into different industries.
Woolworths Supermarket is an Australian Supermarket Grocery Store that is owned and
managed by the Woolworths Group. The BHP Billiton Company on the other hand, operates as
an Multinational Mining, Metals and Petroleum Company that is headquartered in Melbourne,
Australia. The above companies taken into consideration is listed in the Australian Stock
Exchange whereby each company analysed is one of the biggest market share holders in their
respective industry. It is well important to note that with the wide scale of business operations
and activities there are several polices in terms of profit maximisation, wealth maximisation,
environmental issues, suppliers policy, employee relationship, gender equality and social
responsibilities policy that needs to be analysed. The policies mentioned would be able to better
explain and understand us regarding the various courses and set of actions that are taken by the
company in the trend period taken into consideration.
Analysis of Company Objectives
Wealth Maximisation
Wealth Maximisation is the concept of increasing the value of business so that the value
of the shares held by the shareholders of the company ultimately increases in the trend period
analysed for the company.

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Woolworths: The wealth creation by the Woolworths Company can be well inferred to the
increase in the equity value of the company $955 million and the same can be well inferred with
the increase in the retained earnings of the company that was a result of increased profitability of
the company for the year 2018 representing an increase of 10.03% (Annual Report, 2019).
BHP Ltd: The equity balance of the company on the other hand, saw a decline where by the
equity value of the company has declined by about $1,666 million representing a decrease by
2.91%. The decrease or fall in the value of equity could be well contributed to the fall in reserves
and retained earnings of the company (Annual Report, 2019).
Change in Total Equity Value
Particulars 2018 2017 Change (%)
Woolworths
1048
1 9526 10.03%
BHP Ltd
5559
2
5725
8 -2.91%
Profit Maximisation
In terms of profit maximisation the resultant increase in the profitability of the company
from one year to another in the trend period analysed could be well judged with the increase in
the reported net profitability of the company.
BHP Ltd: The reported profit by the Woolworths Company for the year 2018 was around
$7,744 that was considerably much higher than the last year profitability of $6,694 representing
an increase of 12.68% for the company. The massive increase of revenue in the financial year
was the key reason for increased profitability of the company for the period 2018 (BHP
Sustainability Report, 2019).

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Woolworths: The reported profit by the Woolworths Company for 2018 was around $1,676 that
was higher than the reported profit of last year, which was around $1,481 representing an overall
increase of 13.17%. The increase in profitability was due to both revenue maximisation approach
and cost cutting approach that was followed by the company in the defined trend period.
Environmental Issues
The key environmental issues are primarily concern towards carbon emissions, waste
recycling and energy generation done by companies. The issues highlighted are well considered
by the companies as shown below:
Woolworths: Taking new initiative and challenges with technological implementation in order
to increase the solar power generation, reducing carbon emissions by around 13% below 2015
levels, recycling waste and selling them and upgrading the stores with Hybrid or HFC-free
refrigeration systems are the issues considered by company.
BHP Ltd: The approach taken by BHP Company is varied where in the requirement and
standards for addressing the concerns of environment are well accounted with the ISO
management system requirements that is the ISO14001 for Environmental Management.
Protecting the threatened environment and following a mitigation hierarchy in order to minimize
compensate for potential environmental impacts that may have occur due to the business activity
of company. The company has taken additional efforts in supporting the biodiversity by
improving the marine and terrestrial biodiversity.
Ethical Suppliers
The suppliers represents an important part of the various stakeholder that a company
includes. The terms and condition sets out represents an important part of dealing between the

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supplier and the company it is well important that the policy set out benefit both the concerned
party. The policies and actions taken by each of the company in relation to supplier policy are:
Woolworths Group: The Company understands with working and building long-term
relationship with the suppliers, encouraging open communication and fostering trust. The
company works with the Advantage Group to allow the suppliers of the company give their ideas
and views anonymously about the performance and engagement with the team (Ioannou &
Serafeim 2017).
BHP: The BHP supply team continues to be a leading comprehensive program so that it can
better work with inclusion and diversity program followed by the company. The BHP Company
has encouraged suppliers for greater diversity through economic design and better development
of product and services (Cho et al., 2015).
Employees
Woolworths: Employee policy followed by company where in they focus building people, with
the focus of company on attracting, retaining and developing talented team today and in future
are the key aspects of the company (Stacchezzini, Melloni & Lai, 2016). Parental Leave,
Training and development program for better growth, development of employees, covering 80%
of the employees with the Enterprise Agreement whereby voices and concerns of the employees
can be better heard and accounted.
BHP: The global workforce hired by the company is the key asset for the company whereby the
company has an aim of providing the employee with a safe and a healthy work environment to
live in. Supporting the well-being and promoting a diverse and inclusive culture are some of the
key vital components of employee policy (Maas, Schaltegger & Crutzen 2016). Building a

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culture of care and trustful relationship along with supporting strong leadership position are
some of the key aim of the company.
Gender Equality
Gender Equality is an important role that every organization should play in their due
course of its business operations. Companies and organization have undertaken various steps and
initiatives in order to decrease the gender inequality that can be addressed well below:
Woolworths: The Company creates an opportunity for all where it was recognized to receive an
Gold Tier Status in the Australian Workplace Equality Index Awards in recognition of our
LGBTI inclusion initiative taken by company (Ehnert et al., 2016). It was well observed that
around 40% of the executive and senior management positions are held by women, whereby the
company do not discriminate or create a wage gap between male and female employees at all the
level of activity carried out by employees.
BHP: The Company has a key aspirational goal of having an equality in the gender balance by
the year 2025. The company is set to increase the representation of women workforce which
currently represents around 22.4% of the total workforce employed (Herremans, Nazari &
Mahmoudian, 2016). Giving a safe and a health work environment is what the company aims at
when in concern with policy of employees.
Social Responsibility
It is well important that companies take several initiatives in the field of environmental
sustainability initiatives, direct philanthropic giving, ethical business practices and economic
responsibility.

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Woolworths: Social Compliance Audit Program and Initiatives like the Social Accountability
International (SA 8000) that are followed by the company (Woolworths Sustainability Report,
2019). The global social compliance program that is well complied with the firm helps the
company in collaborating with peak organizations for improving various aspects of operations
that the company undertakes.
BHP: The BHP Company has an informal set of relationship that exits with global, regional and
local stakeholders of the company. Social Investment initiatives are well carried out by the
company with the help of responsibilities, business activity, economic activities that are carried
on by the company.
Profit vs. Wealth Maximisation
The concept of wealth maximization requires the business to enhance the wealth of the
shareholders by increasing the prices of the stock. This can be done by a business by increasing
the flow of dividends and meeting the expectations of the shareholders. It is often considered that
enhancing the value of the stakeholders is the superior goal of the business and the management
needs to adopt the same in order to maintain the interest of the shareholders in the business
(Sharfman, 2014). The case considers the business of Woolworths ltd and BHP Billiton ltd. As
per the analysis of the business of Woolworths ltd, the management of the company is trying to
enhance the profits of the business and also achieve growth in the operations of the business (Ng
& Rezaee, 2015). The management of the company is trying to achieve growth in the operations
which would also result in profit maximization (Queen, 2015). Therefore, the management of the
company does not follow fully wealth maximization policy and it is clear that the same does not

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reconcile with the objectives of the shareholders which is due to the fact that the management of
the company is following profit maximization policy.
In the case of BHP Billiton ltd, the management of the company is trying to enhance the
value of the shareholders by offering better dividends to the shareholders and the management
takes all efforts for creation of long term value for the shareholders (Smith & Rönnegard, 2016).
The analysis shows that the management of the company is trying to enhance the profits of the
business so that the management is able to offer more dividends to the shareholders. It can be
therefore said that the policy of the business is consistent with the goals of the shareholders. It is
also clear that the management of the company is trying to enhance the value of the shareholders
by offering higher dividends and satisfying the customers.
Part B
1) The present value of the cash flows from Investment A was around $12,092.13 and for
the Investment B it was around $10,652.59.
Investment A 0 1 2 3 4 5
Cash Flows 5000 4000 3000 2000 1000
Present Value individual
years =SUM(G6:K6)
$12,092.1
3 4545 3306 2254 1366 621
Present Value =NPV($F$2,G5:K5)
$12,092.1
3
Future Value =FV(F2,K4,,F7)
$21,421.9
5 $8,052.55 5856.4 3993 2420 1100
Equivalent Annual Cost
(annuity) =PMT(F2,K4,F7) -$3,189.87
2) The future value of the cash flow streams for Investment A was around $21,421.95 and
for Investment B was around $18,871.71.

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Investment B 0 1 2 3 4 5
Cash Flows 1000 2000 3000 4000 5000
Present Value individual
years =SUM(G16:K16)
$10,652.5
9 909 1653 2254 2732 3105
Present Value =NPV(F12,G15:K15)
$10,652.5
9
Future Value =SUM(G18:K18)
$18,871.7
1 1610.51 2928.2 3993 4840 5500
Equivalent Annual Cost
(annuity)
=PMT(F12,K14,F17,0,0
) -$2,810.13
3) The present value from Investment A was considerably much more than Investment B
due to the cash flow pattern that was involved in the Cash flows flowing to the investors.
Time value of money plays an important perspective when valuing the cash flows that
would be received by the company in the due course of operations. The cash flows from
Investment in the initial year were considered to be of significant amount of the total cash
flows that would be received by the company. On the other hand in the case of
Investment B cash flows that weighed a significant amount will be received at the end of
the investment periods leaving the investors with an little opportunity for re-investment
purpose.
4) The annual equivalent amount or the annuity amount of cash flows for Investment A was
calculated to be around $3,189.87 and for Investment B it was well considered to be
around $2,810.13.
5) The present value of cash flows can be well compared with the help of the present value
of cash flows that is received by the Investors in the defined period of investment which
would be invested by the investor at the prevailing interest rate that is 10%. The amount
that would be received by the investor including the interest and principal amount could

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be well compared with the annual cash flows that would be received by investors from
the project.
Proof of PV Meaning for Investment A 1 2 3 4 5
Opening Balance (PV G7) $4,545.45 $3,305.79 $2,253.94 $1,366.03 $620.92
Interest at 10% $454.55 $694.21 $746.06 $633.97 $379.08
Available Balance $5,000.00 $4,000.00 $3,000.00 $2,000.00 $1,000.00
Withdrawal -5000 -4000 -3000 -2000 -1000
Closing Balance $0.00 $0.00 $0.00 $0.00 $0.00
6) Interest Rate or the required rate of return for the investors shows the minimum set of
investment return that is required by the investors as a compensation for the purpose of
taking risk and for the minimum set of real return required for investment. The required
rate of return is set as an assessment for the investor for assessing the financial viability
of the project.

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References
Annual Report (2019). Bhp.com. Retrieved 18 August 2019, from
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf
Annual Report (2019). Woolworthsgroup.com.au. Retrieved 18 August 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf
BHP Sustainability Report (2019). Bhp.com. Retrieved 18 August 2019, from
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpsustainabilityreport2018.pdf
Cho, C. H., Laine, M., Roberts, R. W., & Rodrigue, M. (2015). Organized hypocrisy,
organizational façades, and sustainability reporting. Accounting, Organizations and
Society, 40, 78-94.
Ehnert, I., Parsa, S., Roper, I., Wagner, M., & Muller-Camen, M. (2016). Reporting on
sustainability and HRM: A comparative study of sustainability reporting practices by the
world's largest companies. The International Journal of Human Resource
Management, 27(1), 88-108.
Herremans, I. M., Nazari, J. A., & Mahmoudian, F. (2016). Stakeholder relationships,
engagement, and sustainability reporting. Journal of Business Ethics, 138(3), 417-435.
Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability
reporting. Harvard Business School research working paper, (11-100).