Financial Analysis
Introduction
BHP Billiton Ltd is the world’s leadingcoal mining, mining, gold and iron ore company. It showed oil retention. Rio Tinto Ltd is being traded again in a similar commercial area and is productive all year round. This organization concentrates mainly on the exploration and processing of minerals extracted. Meanwhile, BHP Billiton expects to maintain a long-term collaboration with its investors to conduct business regularly. Rio Tinto plans to pass on solid and manageable profits to investors.
Trend Analysis
Profit and Loss Account
The wage declaration allows us to discover the costs and misfortunes incurred by a club at a given time (Dobie, 2013). BHP Billiton and Rio Tinto currently reflect these mining contracts (Dobie, 2013). Due to the salary structure of the two associations, BHP Billiton has a high percentage of gross profit. This leads to the conclusion that this partnership can fulfil net agreements in correlation with net agreements in general, without making much effort. The final result of BHP Billiton is more than saying that this partnership is becoming more profitable in connection with Rio Tinto.
Horizontal Analysis
A horizontal analysis is created that provides an idea of the net cost and profit of the two associations over a period of time. The level of diversity is determined from all perspectives, suggesting that both partners need to cut costs to achieve future development as quickly as possible.
This technique is also called comparative analysis or trend analysis and speaks for a certain period in the proportional dimensions of the balanced synthesis. It helps to make a business decision in several details. Tax reports have long been used to perform a uniform audit. The previous year’s articulation is used as the basis and explanations of other periods and items in the base year are compared. We are talking about a change in dollars and commissions.
Horizontal analysis formula
To analyze BHP’s Billiton trends, we used budget summaries for the years ended 2015 and 2014. The organization’s offers decreased by 6.42% in 2015 and slightly increased 1.90% in 2016. Regardless of a reduction in contracts, the organization’s wage costs did not increase. It decreased by 1.51% in 2015 and 3.85% in 2016. The organization’s total profit decreased by 27.47% in 2015 and 23.25% in 2016.
The size of the basic share remained constant for three years, although retained earnings increased individually by 7.63% and 11.30% in 2015 and 2016, respectively. The total value for investors increased separately in 2015 and 2016 by 7.28% and 11.99%. Therefore, there is a tendency to assume that the organization did not have many problems in 2015 but gradually recovered in 2016.
Vertical analysis
Also known as common-size analysis, it is the most used technique for tax reporting. Displays each component of the registry as an extension of the basic figure on the screen. For this check, each specific resource is defined as a complete resource zone. Current liabilities, the procedure, the value for the investor are considered as the extension of the global liability and the value for the investor. When an organization runs a payroll statement, contracts are often used as a base number. They are reported as multiple offers, such as cost of goods sold, consumption of labour, net income, cost of personal rights. One can also set up tables of the same size for multi-year exams across multiple organizations.
Vertical analysis formula
For the analysis of BHP’s vertical invoice, we use the tax summaries for the years ended June 30, 2016, 2015 and 2014. The organization pays labour costs in three years and about 70% of revenue ‘, which will earn 30% of the acquisition as labour wages. Cash costs (premium costs) are 1.19%, 2.10% and 1.89% for the individual years of 2014, 2015 and 2016. Appraisal costs employees generally represent 9% of turnover to the company. The total remuneration received by the organization is 21.95%, 17.02% and 20.58% separately for 2014, 2015 and 2016.
For three years, the organization maintained its current resources at 15% and its long-term resources at 85%. Current liabilities went from 17.04% in 2012 to 14.47% in 2015 and finally to 11.93% in 2016. The size of all liabilities and the value of investors remained constant at 49% and 51% over the three years.
Statement of cash flow
The Statement of cash flow helps to demonstrate homework money, contribute and finance global exercises (Drury, 2013). On the other hand, Rio Tinto has a better net result as compared to BHP Billiton. BHP Billiton generates negative sales that will not be positive in the coming years.
A vertical survey is carried out showing the money generated by the activities, the contribution and the financing in general. This test takes into account the absolute numbers and the coordination of the equivalent that was shown for the two associations.
Balance Sheet
The balance sheet shows the monetary situation of Rio Tinto and BHP Billiton. BHP Billiton has more resources to determine that the Rio Tinto-related organization has a higher budget. More resources should be available in the future and responsibilities should generally be limited.
The vertical analysis is so strongly determined by the association that it gives an idea of the advantages and responsibilities of a partnership. Both partnerships need to gain more resources in the future to achieve the success rate as quickly as possible.
Profitability Ratio
Net profit margin
The net benefit advantage is one of the productivity indicators that can be used to calculate net income relative to the age of wages in a given year (Datar et al. 2013). This percentage indicates the number of offers remaining after determining the cost of a given activity. BHP Billiton recorded a total net profit of 0.04 in 2015. This shows that the organization cannot properly manage its revenues. This organization should work best for larger shares as quickly as possible. Rio Tinto has a net profit of 0.14%, which shows that it has a position of correlation with BHP Billiton.
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Net Income | 3.665 | 6.527 | 13.832 | 1.910 |
| Sales revenue | 52.88 | 46.42 | 53.59 | 42.48 |
Net profit margin = sales revenue / net income
Rio Tinto
52.88 / 3.665 = 14.428
46.42 / 6.527 = 7.111
BHP Billiton
53.59 / 13.832 = 3.874
42.48 / 1.910 = 22.24
Return on Assets
This quota shows the net benefit of all resources used in the business. He talks about the efficiency with which the company observes and benefits from its profits. BHP Billiton maintained resource production in the range of 8% to 12% in each of the three years, which can be considered an acceptable number.
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Net Income | 3.665 | 6.527 | 13.832 | 1.910 |
| Total Assets | 25.6 | 21.28 | 162.09 | 159.75 |
Return on Assets = Net Income / Total Assets
Rio Tinto
3.665 / 25.6 = 0.143
6.527 / 21.28 = 0.306
BHP Billiton
13.832 / 162.09 = 0.085
1.910 / 159.75 = 0.012
Based on the analysis, it is evident that Rio Tinto had one of the highest return on Assets ratio. On the other hand, BHP Billiton struggled with a return on assets between periods 2014 and 2015.
Wealth is one of the proportions of benefits that measures total compensation with full-time resources (Larkin and DiTommaso, 2018). This percentage makes it possible to assess a company’s dominance in managing its profits, determining the profits for a specific period. BHP Billiton aims at low resource gains over the two years. This indicates that this organization does not redeem its money the last time it receives a profit. If Rio Tinto occurs, the return on investment over the years is very low, which is not capable of generating a final profit. Without a doubt, Rio Tinto is in a better position and can use its advantages convincingly.
Liquidity Ratio
They are processed to analyze the company’s ability to meet its current commitments. The liquidity parameters refer to the organization’s monetary position and the ability to convert other short-term resources into cash to settle short-term liabilities.
Quick ratio
The use of its rapid resources determines the organization’s ability to meet its current commitments. Quick activities are the advantages that can be exchanged for cash over a period of 3 months. Instant commercial instances are cash, monetary counterparts, marketable securities, transitory speculations, such as current records to be kept. The higher the percentage, the better.
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Current Assets | 25.6 | 21.28 | 21.3 | 23.79 |
| Inventory | 5.32 | 4.35 | 5.58 | 4.58 |
| Prepaid Expenses | 0 | 0 | 0 | 0 |
| Current Liabilities | 15.190 | 12.220 | 18.064 | 12.853 |
Rio Tinto
25.6 – 5.32 – 0 / 15.190 = 1.335
21.28–4.35- 0 / 12.220 = 1.385
BHP Billiton
21.3- 5.58 – 0 / 18.064 = 0.87
23.79–4.58 – 0 / 12.853 = 1.335
For BHP Billiton, the quick ratio remained stable at 0.87 in 2014, then rose to 1.335 in 2015. The company’s liquidity position is due to the fact that its strong resources are smaller than liabilities for short term.
The summary report is one of the liquidity measures that help to manage short-term liabilities linked to solid resources. This report helps to estimate the liquidity position of a specific association. BHP Billiton had he rapid participation of 0.51 and 0.55 in 2014 and 2015. This shows that this organization has sufficient profits quickly to distribute the liabilities among the company. Such an organization should not participate in the auction of distant resources as capital resources of a structure. Rio Tinto has a rapid proportion of 0.78 and 1.07 in 2014 and 2015. On the one hand, Rio Tinto has a better correlation with BHP Billiton. The organization can easily fulfil its current obligations to take care of its agile resources for future reasons (Zack, 2012).
Current Ratio
Current resources determine the organization’s ability to meet its current commitments. It is valuable to creditors because it gives them an idea of the organization’s liquidity. Today, a larger proportion is getting better.
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Current Assets | 25.6 | 21.28 | 21.3 | 23.79 |
| Current Liabilities | 15.190 | 12.220 | 18.064 | 12.853 |
Current Ratio = Current Assets / Current Liabilities
Rio Tinto
25.6/ 15.190 = 1.68
21.28 / 12.220 = 1.74
BHP Billiton
21.3 / 18.064 = 1.179
23.79 / 12.853 = 1.850
For BHP Billiton, the current rate has steadily improved, from 1.179 in 2014 and finally to 1.85 in 2015. Consequently, short-term resources for 2014 and 2015 should be lower as a short term liability, and in 2014, short-term assets were not higher than short-term liabilities.
The current report is a liquidity report that measures the liquidity position of a specific association. This percentage is estimated by separating short-term assets from short-term liabilities. These fees help to show the transitional obligations of a particular club. The perfect ratio is 2: 1. BHP Billiton has current rates of 1.18: 1 and 1.85: 1 in 2014 and 2015 individually. This shows that the company must improve its processes to fulfil its short-term commitments in the most productive way. Rio Tinto shows the current rates of 1.68: 1 and 1.74: 1 individually in 2014 and 2015. This shows that Rio Tinto is in a better position and can effectively fulfil its transition obligations without making much effort.
Equity Ratio
Calculate all of the organization’s liabilities as an extension of its absolute resources. Discuss how much profit the company must sell to fulfil all of its obligations. This percentage helps banks and financial experts assess the weight of the organization’s overall commitment. The higher the proportion, the greater the risk to the organization.
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Total Debt | 64.91 | 65.06 | 70.3 | 79.08 |
| Total Assets | 131.76 | 125.85 | 162.09 | 159.75 |
Debt Ratio = Total Debt / Total Assets
Rio Tinto
64.91 / 131.76= 0.49
65.06 / 125.85 = 0.52
BHP Billiton
70.3 / 162.09 = 0.43
79.08 / 159.75 = 0.49
BHP Billiton maintained the bond rate at around 49% over the three years, which shows that the organization has an almost equivalent level of bonds and securities.
The debt to equity ratio is one of the solubility ratios by which the total sum of benefits can be estimated. The owners of speculations correlated with the total value and all the resources of an association recognize this advantage (Larkin and DiTommaso, 2018). Rio Tinto has a lesser share value compared to BHP Billiton for fiscal years 2014 and 2015. At this point, BHP Billiton appreciates the excellent conditions. It is important to understand how a high level of speculation shows that investors are investing in resources in a specific organization. This condition will prompt financial specialists to invest resources in BHP Billiton as well as in potential tenants. This indicates that the organization is less precarious and that it is easier to make future loans in general.
The Debt to Equity ratio offers an assessment between the absolute bond and the company’s total value. A higher value bond indicates that the organization depends more on the obligation than on the value. Reduce the proportion of the title value. This indicates that the organization is financial and risk-free.
| Rio Tinto | BHP Billiton | |||
| 2014 | 2015 | 2014 | 2015 | |
| Total liabilities | 64.91 | 65.06 | 70.3 | 79.08 |
| Stockholders’ Equity | 56.56 | 51.34 | 84.27 | 72.91 |
Debt Equity Ratio = Total liabilities / Stockholders Equity
Rio Tinto
64.91 / 56.56 = 1.148
65.06 / 125.85 = 0.517
BHP Billiton
70.3 / 162.09 = 0.434
79.08 / 159.75 = 0.495
BHP Billiton maintained the bond value index at around 49% over the two years, which shows that the organization maintains an equivalent level of bonds and securities.
The Debt-Equity Ratio is a percentage of solubility that can be used to assess the ability of the association to continue in the years to come. It is advised that the club has a higher proportional value obligation, as this will help finance the speculator for future reasons. During a review with the two organizations, Rio Tinto was more obliged to individually assess the proportion of 1.148 and 0.517 in 2014 and 2015. This shows that this association will receive more credit. This will help investors get bank advances as soon as possible. BHP Billiton has a lower value ratio obligation, which suggests that it is more financially stable in the Rio Tinto test.
Market Performance
Earnings per share
Earnings per share are one of the market reports that can be used to calculate the net profit of ordinary shares in general. This percentage is one of the types of productivity that quantifies the ability to associate more effectively with the age of income (Zack, 2012). The figure above shows that BHP Billiton had the highest earnings per share in 2014. One of the recommendations is for the association to generate earnings per share, as this means the productivity position of a specific association. BHP Billiton is becoming increasingly profitable in its relationship with Rio Tinto and can offer its investors more benefits without much effort.
Dividends per share
Dividends per share are used to estimate the total salary for a given period (Soin and Collier, 2013). This report highlights the benefits of an organization that helps keep the store active for future reasons. Currently, consistency in relation to high or low is generally significant.
Analysis of BHP Billiton and Rio Tinto
An investigation into this problem is completed by calculating the BHP levels of Billiton and Rio Tinto. In a basic investigation, Rio Tinto can only believe that there are points of interest in conflict with BHP Billiton. Certain modifications must be made in both organizations to participate in future exchange exercises.
The performance files aim to understand the situation of the two organizations in the market in terms of money. It is recommended that Rio Tinto and BHP Billiton find new ways to reach an agreement on future goals.
The liquidity list quantifies a company’s ability to perform temporary tasks for future purposes. Rio Tinto has a higher liquidity position than BHP Billiton. This is due to the way that Rio Tinto has a high level of short and fast resources, which allow managing the tasks in progress.
The capital structure or the solvency ratio must be high to guarantee the activities of financial experts and receive bank income for future purposes. BHP Billiton has a higher FICO rating, which means that One can obtain bank loans more quickly than Rio Tinto in other cases.
The execution of the contract determines the position of the beneficiary of a specific partnership. BHP Billiton has revenues and revenue from file-sharing that allow the company to pass on profits to its investors.
It is important to remember that both organizations work in a similar sector. Therefore, it is important to plan imaginative thoughts. Managers must try to adapt and update the new benefits to ensure that organizations remain in the global market.
Conclusion
At the end of the review, BHP Billiton was in a better position than Rio Tinto in terms of profitability and interventions. It is suggested that the organization purchase resources and reduce its commitments. The organization should try to maintain their inventory with time. Inventive controls are essential for a company to generate future profits.
Recommendations
Financial professionals are encouraged to invest in BHP Billiton, which is more beneficial than BHP Billiton. Also, Rio Tinto must provide competitors with the resources to generate more revenue for their organizations.
Bibliography
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