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assign a company listed on the Australian Securities Exchange (ASX) for the assignment. 1) Introduction (maximum 250 words): Contains, in your own words, a concise discussion of:  The background of...

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assign a company listed on the Australian Securities Exchange (ASX) for the assignment.

1) Introduction (maximum 250 words): Contains, in your own words, a concise discussion of:  The background of the company; The purpose of the assignment.

2) Trend and cross-sectional financial analysis (maximum 2,000 words): You must use the financial ratios to analyse a company’s five years’ XXXXXXXXXXprofitability, operating efficiency, liquidity, solvency and market performance. You need to analyse whether the changes of a company’s financial position and performance are caused by any external factors such as regulatory changes, increased market competition, changes of consumer preferences, foreign exchange fluctuation or some other relevant events, especially when there are significant changes in performance (hint: you may find this information from director’s report or media reports). Also, remember to take all ratios, where appropriate, to two decimal places (ie ROE 10.75% not 10%) If you are able to find industry averages, compare a company’s financial ratios with the industry average. However, this is not always available data. This is to be presented as a business report so therefore use appropriate sub-headings throughout your report.

3) Conclusion (maximum 500 words): Provide a summary of the issues raised with concluding remarks and recommendations regarding your investment decision.

4) References: Any material used in this assignment must be acknowledged and appropriately referenced. Plagiarism by any student is a serious matter and, if it occurs, it will be dealt with on a case- by-case basis with penalties imposed. Please refer to the Unit Guide for more information on ‘referencing’. The reference list (using Harvard Referencing System) is not included in the total word count and this gives flexibility as to the extent of the research that is necessary to form opinions. Please make sure that you adhere to the total word limit (2,750 words).

NOTE:

1. Can calculate financial ratios.

2. Understand the meaning of each financial ratio.

3. Understand and can use financial ratios to assess a company’s financial performance, financial position, operating efficiency and market performance.

4. You are required to calculate and analyse all relevant ratios for a five-year period.

5. Analyse the changes in the following ratios of the company based on your five-year calculations: 1) profitability 2) operating efficiency 3) liquidity and solvency and 4) market performance.

To enable a comprehensive analysis of your company there will be additional relevant information including, but not limited to, performance of, and existence of competitors and regulatory and/or environmental factors influencing your company/industry. When undertaking your company research, you must utilise current financial press (such as The Age, Financial Review, The Australian, or appropriate relevant on-line business sites*). A minimum of five articles relevant to your company (or industry sector) over the period of analysis must be incorporated into your report to support your discussion. You are encouraged to use more than five to support your discussion where required.

assign a company listed on the Australian Securities Exchange (ASX) for the assignment.

1) Introduction (maximum 250 words): Contains, in your own words, a concise discussion of:  The background of the company; The purpose of the assignment.

2) Trend and cross-sectional financial analysis (maximum 2,000 words): You must use the financial ratios to analyse a company’s five years’ XXXXXXXXXXprofitability, operating efficiency, liquidity, solvency and market performance. You need to analyse whether the changes of a company’s financial position and performance are caused by any external factors such as regulatory changes, increased market competition, changes of consumer preferences, foreign exchange fluctuation or some other relevant events, especially when there are significant changes in performance (hint: you may find this information from director’s report or media reports). Also, remember to take all ratios, where appropriate, to two decimal places (ie ROE 10.75% not 10%) If you are able to find industry averages, compare a company’s financial ratios with the industry average. However, this is not always available data. This is to be presented as a business report so therefore use appropriate sub-headings throughout your report.

3) Conclusion (maximum 500 words): Provide a summary of the issues raised with concluding remarks and recommendations regarding your investment decision.

4) References: Any material used in this assignment must be acknowledged and appropriately referenced. Plagiarism by any student is a serious matter and, if it occurs, it will be dealt with on a case- by-case basis with penalties imposed. Please refer to the Unit Guide for more information on ‘referencing’. The reference list (using Harvard Referencing System) is not included in the total word count and this gives flexibility as to the extent of the research that is necessary to form opinions. Please make sure that you adhere to the total word limit (2,750 words).

NOTE:

1. Can calculate financial ratios.

2. Understand the meaning of each financial ratio.

3. Understand and can use financial ratios to assess a company’s financial performance, financial position, operating efficiency and market performance.

4. You are required to calculate and analyse all relevant ratios for a five-year period.

5. Analyse the changes in the following ratios of the company based on your five-year calculations: 1) profitability 2) operating efficiency 3) liquidity and solvency and 4) market performance.

To enable a comprehensive analysis of your company there will be additional relevant information including, but not limited to, performance of, and existence of competitors and regulatory and/or environmental factors influencing your company/industry. When undertaking your company research, you must utilise current financial press (such as The Age, Financial Review, The Australian, or appropriate relevant on-line business sites*). A minimum of five articles relevant to your company (or industry sector) over the period of analysis must be incorporated into your report to support your discussion. You are encouraged to use more than five to support your discussion where required.

Answered Same Day May 01, 2020 MPA702 Deakin University

Solution

Sweta answered on May 04 2020
167 Votes
Financial Analysis of BHP Billiton
Financial Analysis of BHP Billiton    May 2, 2018
“Financial Analysis of BHP Billiton”
Table of Contents
Introduction 250    2
Trend and cross-functional financial analysis 2000    3
1. Profitability Ratios    3
a. Return On Asset (ROA)    3
. Profit Margin Ratio    4
c. Return on Equity (ROE)    5
2. Efficiency Ratios    6
a. Asset Turnover Ratio    6
. Receivable Turnover Ratio    7
c. Inventory Turnover Ratio    7
3. Liquidity And Solvency Ratios    8
a. Cu
ent Ratio    8
. Quick Ratio    8
c. Operating Cash flow ratio    9
d. Free Cash Flow ratio    9
g. Financial Leverage    10
h. Interest Coverage ratio    11
i. Debt To Equity ratio    11
4. Market Performance Ratios    12
a. Earnings per share (EPS)    12
. Price-Earnings ratio    13
Conclusion 500    13
Reference List    15
Introduction
The objective of the report is to provide a financial analysis of BHP Billiton Limited based on profitability, operational efficiency, liquidity and solvency and market performance ratios. The company operates in the Materials industry and RIO Tinto Limited is its main competitor in the segment.
BHP Billiton Limited incorporated in the year 1885 has its’ headquarter in Melbourne, Australia. The businesses of the company include Minerals Australia, Minerals Americas and also Petroleum and Marketing. The company operates in the following segments
a. Petroleum- engaged in the exploration, development and production of oil and gases,
. Iron Ore- engaged in iron ore mining
c. Copper- engaged in mining of copper, silver, molybdenum, lead, zinc, gold and uranium.
d. Coal- engaged in the mining of metallurgical and thermal coal
BHP billiton is the third largest company on the ASX in terms of market capitalization and the market leader in the materials industry.
Rio Tinto Limited is the company engaged in extraction of variety of minerals globally with more operations in Australia and North America. It is engaged in iron ore, aluminum, diamonds, gold, energy products and industrial minerals.
Trend and cross-functional financial analysis
Ratio and trend analysis are the common financial tools used by analyst to measure the company’s financial health and performance.
1. Profitability Ratios
Profitability ratios are computed to determine the profitability of the company by employing various resources available to the company. This ratio indicates the financial performance of the company by using funds at its disposal.
a. Return On Asset (ROA)
Return on total assets shows the efficiency of using the company’s assets in generating profits before the contractual obligations i.e. interest and taxes are paid off. It is calculated by dividing Earnings before interest and tax by average total assets.
    
    2013
    2014
    2015
    2016
    2017
    ROA BHP Billiton
    8.14
    9.56
    1.38
    -5.24
    4.99
    ROA Rio Tinto
    3.21
    5.96
    -0.87
    5.11
    9.47
Earnings Before Interest and Taxes have been calculated by adding net income before taxes and interest expenses.
As seen from the above graph, the ROA of BHP Billiton has declined since past 5 years, while that of Rio Tinto has increased during the same period. The ROA which was negative in 2016, went up to 4.99% in 2017 mainly owing to the increase in revenue due to price increase and cost reduction. This shows that Rio Tinto has utilized its assets in a better way than BHP Billiton and generated more sales and profits.
. Profit Margin Ratio
The Profit margin ratio indicates the profitability of the company when compared with the total revenue. The net profit is divided by the sales revenue to calculate the profit margin.
    
    2013
    2014
    2015
    2016
    2017
    Profit Margin % BHP Billiton%
    16.49
    20.58
    4.28
    -20.66
    15.38
    Profit Margin% Rio Tinto
    7.16
    13.69
    -2.49
    13.76
    21.89
As seen from the above graph, the profit Margin % of BHP Billiton has declined since past 5 years, while that of Rio Tinto has increased during the same period. The ROA which was negative in 2016, went up to 15.38% in 2017 mainly owing operational efficiency achieved through cost reduction and increase in material prices. As per Australian Bureau of Statistics, mining industry returned the largest profit margin at 33.4% which is moderate decline from the margin recorded in 2008-09. (Anon., n.d.)
Hence, the profit margin percent of BHP Billiton is very low compared to industry data.
c. Return on Equity (ROE)
Return on common stockholder’s equity is the measurement of net profit available to the shareholders for investing their equity. The net profit is divided by the average equity to calculate the percentage.
    
    2013
    2014
    2015
    2016
    2017
    ROE BHP Billiton
    15.93
    18.47
    2.65
    -10.73
    10.56
    ROE Rio Tinto
    7.90
    14.16
    -2.07
    12.05
    20.86
As seen from the above graph, the ROE % of BHP Billiton has declined since past 5 years, while that of Rio Tinto has increased during the same period. The ROE which was negative in 2016, went up to 15.38% in 2017 mainly owing operational efficiency achieved through cost reduction and increase in material prices, but is still below 20% which is minimum expected return on equity for the company..
2. Efficiency Ratios
Efficiency ratios indicate the efficiency with which the company internally uses its assets and liabilities in its operations.
a. Asset Turnover Ratio
Total Asset turnover indicates the efficiency of the company in utilizing its assets to generate sales. The net sale is divided by the average total assets to calculate the...
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