HC1010 Accounting for Business 1: Financial Position Evaluation

This report provides a detailed financial analysis of a company, evaluating its profitability through ratio comparisons, analyzing its cash flow statement to identify financing, operating, and investing activities, and assessing its financial position by analyzing the balance sheet. The analysis includes a comparison of the company's financial figures over two years and against a competitor within the same industry. The report also examines corporate governance statements, management approaches, business operations, investment activities, financing activities, industry size, major competitors, and market share. Key financial ratios such as Return on Assets (ROA), Inventory Turnover Ratio, Quick Ratio, and Price/Earnings (P/E) ratio are calculated and interpreted to provide a comprehensive understanding of the company's financial health and market position. This document is available on Desklib, a platform offering a range of study tools and solved assignments for students.

HC1010 Accounting for Business
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Contents
Executive Summary.....................................................................................................................................4
Introduction.................................................................................................................................................5
Section 1......................................................................................................................................................6
1. Analyze profitability by comparing 2 year’s financial figures and with that of competitor from
same industry...........................................................................................................................................6
2...............................................................................................................................................................6
2. Analyse cash flow statement to identify the company’s financing/operating/investing activities........9
4. Evaluate the company's financial position by analyzing the balance sheet....................................11
Section 2....................................................................................................................................................14
Ratio analysis........................................................................................................................................14
Section 3....................................................................................................................................................16
Corporate Governance statements and the practice of integrity policy..................................................16
Management Approach..........................................................................................................................16
Business Operations..............................................................................................................................17
Investment and Investment Activities....................................................................................................18
Financing and Financing Activities.......................................................................................................18
Industry Size..........................................................................................................................................18
Major Competitor..................................................................................................................................18
Market share of the Industry Players.....................................................................................................18
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Conclusion.................................................................................................................................................20
References.................................................................................................................................................21
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Executive Summary
This report explains about the financial position of the company by analyzing the profitability of
the organisation through comparison between the ratios of profitability so that the actual results
can be revealed. The main aim of the report is to provide the overall understanding about the
annual reports which will help in attaining the accuracy and accountability within the
organisation. For the practical implementation the ratios of BHP Billiton has been compared of
the current year with that of previous year and that of the competitor fortescue metals group ltd.
Cash flow is also analyzed so that the inflow and outflow of cash can be evaluated. The light has
also been thrown on the director’s report which will enable to understand he corporate
governance, various management approaches. The business operations of the industry are also
determined. With that the report also depicts about the market share of the industry.
4

Introduction
The report depicts about the various ratios and also explains the results of that ratio so that the
financial position of the company can be determined as well as the position in the external
market. The profitability ratios are much highlighted which will enable the shareholders of the
organisation in taking the investment related decisions. The cash flow statement is also evaluated
to know about the investing, financing and the operating activities. The turnover ratios evaluated
depicts about the return which the shareholder will get by doing the investment in the
organisation. The areas which will help in managing the risk are explained with that of the
actions and the attitude towards the reporting of financing. The business operations of the BHP
Billiton are highlighted so as to provide the understanding about their business areas and also the
share in various projects.
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Section 1
1. Analyze profitability by comparing 2 year’s financial figures and with that of
competitor from same industry.
Comparison with last year's data
2.
3.
6
2017 2016
US$M US$M Increas
e/
decreas
e in $
Increase/
decrease
in %
Continuing operations
Revenue 38,285 30,912 7,373 23.85%
Other income 736 444 292 65.77%
Expenses excluding net finance
costs
-
27,540
-35,487 7,947 -22.39%
Profit/(loss) from equity accounted
investments, related impairments
and expenses
272 -2,104 2,376 -112.93%
Profit/(loss) from operations 11,753 -6,235 17,988 -288.50%
Financial expenses -1,574 -1,161 -413 35.57%
Financial income 143 137 6 4.38%
Net finance costs -1,431 -1,024 -407 39.75%
Profit/(loss) before taxation 10,322 -7,259 17,581 -242.20%
Income tax (expense)/benefit -3,933 1,297 -5,230 -403.24%
Royalty-related taxation (net of
income tax benefit)
-167 -245 78 -31.84%
Total taxation (expense)/benefit -4,100 1,052 -5,152 -489.73%
Profit/(loss) after taxation 6,222 -6,207 12,429 -200.24%

Comparison with a competitor company
Particulars BHP
Billiton(2017
)
fortescu
e metals
(2017)
Increase/
decrease in $
Increase/
decrease in %
Revenue 38,285 8447 29,838 453.24%
Other income 736 14 722 5257.14%
Expenses excluding net
finance costs
-27,540 -5011 -22,529 549.59%
Profit/(loss) from equity
accounted investments,
related impairments and
expenses
272 0 272 0.00%
Profit/(loss) from
operations
11,753 3,450 8,303 340.67%
Financial expenses -1,574 -502 -1,072 313.55%
Financial income 143 19 124 752.63%
Net finance costs -1,431 -483 -948 296.27%
Profit/(loss) before
taxation
10,322 2,967 7,355 347.89%
Income tax
(expense)/benefit
-3,933 -874 -3,059 450.00%
Royalty-related taxation
(net of income tax benefit)
-167 0 -167 0.00%
Total taxation
(expense)/benefit
-4,100 -874 -3,226 469.11%
Profit/(loss) after taxation 6,222 2,093 4,129 297.28%
From the calculations above it can be noted that the company has attained the growth and there is
a high increase in the profits which are experiences and this is the case in the company itself also
and also in the comparison which is made with the other company (Fortescue Metal Groups
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Limited, 2017). It is in better profitability position that any other business and also from the past
year the performance has been improved.
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2. Analyse cash flow statement to identify the company’s financing/operating/investing
activities.
In the carrying out of the evaluation of the company, it is essential that the cash flow statement
of the company shall be analyzed. For that, all of the activities which are undertaken in the
business have to be analyzed inappropriate manner. The description in relation to all of the
aspects which are involved in this is as follows:
Operating activities: In this part of the statement the focus will be given to all the activities
which are undertaken in respect of the operations which are carried in the business. In this, there
are several incomes and expenses which are incurred and they all will have to be included under
this. The expenses which are incurred in the normal course of business such depreciation, finance
cost, and other payments (BHP Billiton, 2018). The incomes in this will be including dividend,
receivables, and income from sales. In the BHP the net cash flow from the operating activities is
increasing and it has risen from 10625 to 16804 and this is a positive factor as the company is
having the increase in the cash inflow which canbe used for the further expansion of the business
(BHP Billiton, 2018).
Investing activities: Under the company, there will be the purchase of the fixed assets which is
made and the payment that is made in respect of it in the cash will be included in this. With that,
the expense such as exploration, investment in equity accounted assets and other investments
will be included. The company sale some of the assets and the amount which will be received by
that will also be taken into consideration. In this, the company is having the negative balance as
there are more of the investment than the earing which is made. The company has obtained a
decline in this which is also favorable. The amount of this in 2016 was -7245 and that has
declined to -4161 in 2017 (BHP Billiton, 2018).
Financing activities: The company is making the issue of the shares and the amount which is
received from that and also from the borrowings will be incorporated in this. Then the payments
which are made in this respect such as dividends and other repayments which are made will be
taken into consideration. The share purchase in ESOP has been made and that also includes the
use of the cash. All of them in combined form results in the positive balance in 2016 which
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amounts to 284 and in 2017 there is the negative cash flow which equals to -9133 (BHP Billiton,
2018).
The net balance of the cash at the end of the year is positive and that has increased which shows
that position of the company in terms of cash is favorable and it will be beneficial for the
company.
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4. Evaluate the company's financial position by analyzing the balance sheet
2017 2016 Increa
se/
decrea
se in $
Increase
/
decrease
in %
US$M US$M
ASSETS
Current assets
Cash and cash
equivalents
14,153 10,319 3,834 137.15%
Trade and other
receivables
2,836 3,155 -319 89.89%
Other financial assets 72 121 -49 59.50%
Inventories 3,673 3,411 262 107.68%
Current tax assets 195 567 -372 34.39%
Other 127 141 -14 90.07%
Total current assets 21,056 17,714 3,342 118.87%
Non-current assets
Trade and other
receivables
803 867 -64 92.62%
Other financial assets 1,281 2,680 -1,399 47.80%
Inventories 1,095 764 331 143.32%
Property, plant and
equipment
80,497 83,975 -3,478 95.86%
Intangible assets 3,968 4,119 -151 96.33%
Investments accounted
for using the equity
method
2,448 2,575 -127 95.07%
Deferred tax assets 5,788 6,147 -359 94.16%
Other 70 112 -42 62.50%
Total non-current
assets
95,950 101,239 -5,289 94.78%
Total assets 117,006 118,953 -1,947 98.36%
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LIABILITIES
Current liabilities
Trade and other
payables
5,551 5,389 162 103.01%
Interest-bearing
liabilities
1,241 4,653 -3,412 26.67%
Other financial
liabilities
394 5 389 7880.00
%
Current tax payable 2,119 451 1,668 469.84%
Provisions 1,959 1,765 194 110.99%
Deferred income 102 77 25 132.47%
Total current liabilities 11,366 12,340 -974 92.11%
Non-current liabilities
Trade and other
payables
5 13 -8 38.46%
Interest-bearing
liabilities
29,233 31,768 -2,535 92.02%
Other financial
liabilities
1,106 1,778 -672 62.20%
Deferred tax liabilities 3,765 4,324 -559 87.07%
Provisions 8,445 8,381 64 100.76%
Deferred income 360 278 82 129.50%
Total non-current
liabilities
42,914 46,542 -3,628 92.20%
Total liabilities 54,280 58,882 -4,602 92.18%
Net assets 62,726 60,071 2,655 104.42%
EQUITY
Share capital – BHP
Billiton Limited
1,186 1,186 0 100.00%
Share capital – BHP
Billiton Plc
1,057 1,057 0 100.00%
Treasury shares -3 -33 30 9.09%
Reserves 2,400 2,538 -138 94.56%
Retained earnings 52,618 49,542 3,076 106.21%
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