BHP Billiton: Largest Mining, Metals, And Petroleum Company

Overview of BHP Billiton and its History

BHP Billiton is an Anglo Australian transnational mining, metals a well as Petroleum Company that is publicly listed and headquartered in Australia. The company is established in the year 1885 and is ranked as the largest mining corporation, founded on market capitalization. Again, this company is considered as the third largest corporation in terms of revenue.  The primary products of the firm include iron ore, petroleum, natural gas, uranium, copper as well as nickel. The revenue registered is USD 38.285 billion, while operating income of the firm is USD 11.753 billion and the net income is USD 6.222 billion during the current period. The Australia registered firm is a primarily listed in the Australian Securities Exchange and can be largest corporations in the Australia in terms of market capitalization.

The core activities of BHP Billiton are as mentioned below:

Minerals Australia: The Minerals Australia asset group comprises of operated assets particularly in Western Australia, New South Wales, South Australia in addition to Queensland. The assets mainly concentrate on copper, nickel, coal as well as iron ore.

Minerals Americas: The Minerals Americas asset group comprises of projects, different operated as well as non-operated assets particularly in Canada, United States, Columbia as well as Brazil. These assets as well as projects concentrate on copper, coal, potash, zinc as well as iron ore.

Petroleum: BHP Billiton has a petroleum unit that consists of conventional oil as well as gas functionalities and consists of exploration, production as well as marketing actions operating in the USA, Australia, Trinidad along with Tobago.

Marketing: In essence, marketing is necessarily an independent core business of the firm BHP. Particularly, this is the linkage between global operations of the firm BHP Billiton and the global customers (Liao et al. 2016).

Market: BHP Billiton has a global market of operations. The company has been created from particularly an amalgamation between BHP as well as Billiton. These companies review their own legacy along with brawny practicalities based on which their firm is developed. Essentially, from these two different diminutive mining corporations that originated during the period of mid 1800s the company BHP Billiton is presently a global leader in various capital industry. Particularly, Billiton was initially a mining firm that began operations during the period 1860, whilst the articles of the corporation were permitted by especially conference of company’s shareholders. Billiton during the early trade forays integrated both tin as well as lead smelting in the areas of Netherlands, pursued during the period 1940s by mainly bauxite mining in the area of Indonesia. During the year 2001, the firm BHP amalgamated with particularly the Billiton mining firm to form BHP Billiton.

Core Activities of BHP Billiton

The ownership structure of BHP Billiton contains a fiscal council, compliance manager, ombudsman as well as advisory council. In essence, governance structure and risk management of the firm BHP Billiton along with internal control systems includes identification, analysis along with management of business risks for enhancement of shareholder’s investment and shielding of assets of the firm (Liao et al. 2016).

The chairman of the company is Ken MacKenzie who has participated in the areas of engagement with shareholders as well as other stakeholders around the entire world in a bid to better comprehend their own perspectives.

Board Members

The board committee consists of board of directors along with executive leadership team. The board normally has nine different members.

CEO

The CEO and the executive director of the company is Andrew Mackenzie.

Balance Sheet Ratio	Amount (US$M)
Quick Ratio	2017	2016
Quick Assets	14153	10319
Current Liabilities	21056	17714
Ratio	0.67216	0.582534
Debt Equity Ratio
Total Liabilities	54280	58882
Shareholder’s Equity	62726	60071
Ratio	0.865351	0.980207
Receivable Turnover
Revenue	38285	30912
Accounts Receivable	3639	4022
Ratio	10.52075	7.685728
Ratio for Income Statement
Operating Margin
Operating Income	11753	-6235
Revenue	38285	30912
Ratio	0.306987	-0.2017
Net Profit Margin
Net Income	9063	9227
Revenue	23668	24578
Ratio	0.382922	0.375417
Return on Equity
Net Profit	6222	-6027
Shareholder Equity	62726	60071
	0.099193	-0.10033
Asset Turnover
Net Sales	30912	38285
Net Fixed Assets	101239	95950
	0.305337	0.39901

Based on the calculations presented above,

-Debt equity ratio calculated for the corporation for the financial year 2017 and 2016 shows a decreasing trend. In essence, this replicates that debt equity ratio of the business concern of the corporation has decreased from 0.98 in 2016 to 0.86 in 2016. In essence, this specifically points out towards favourable financial condition. This essentially indicates towards amount an increase in shareholders’ equity and consequent decrease in total liabilities of the firm (Brigham et al. 2016).

This necessarily indicates higher investor financing is utilized by the firm than the creditor financing over the specified period of time (Omar et al. 2014). As such, the low debt equity ratio recorded reflects greater financial stability and a desirable financial condition.

-Receivable turnover registered for the BHP Billiton for the financial year 2016 and FY 2017 reflects an increasing trend. Essentially, this show that receivable turnover of the BHP Billiton has enhanced from 7.68 in 2016 to 10.52 in 2017. Increase in the ratio can be regarded to be a desirable financial situation of the corporation since it replicates higher potential of the corporation to effectively gather receivables of the firm. For itself, the greater ratio reveals that BHP is efficiently gathering all company’s receivable in a more recurrent way (Bieber 2016).

-Quick Ratio enumerated for the corporation for financial year 2016 and FY 2017 reflects a increasing trend during specific period. In essence, this shows enhancement in liquidity condition of the corporation (DeFusco et al. 2015). Evaluation of trend replicates the fact that increase in quick ratio is primarily because of the increase in quick assets by approximately 31.88% and simultaneously increase in liability of the corporation in 2017.

Ownership Structure of BHP Billiton

– Operating margin enumerated during the financial year 2017 and financial 2017 reflect an increase during the specified time period. In essence, operating margin increased to approximately 0.30% in 2017in comparison to previous year figure of -0.20% recorded during 2016. This increase in operating margin (expressed in %) shows a favourable financial situation of the corporation as this reflects that the business concern is failing to produce adequate money from specifically its ongoing functions to pay out different variable costs together with fixed costs (Grant 2016).

-Net Profit Margin calculated for the financial year 2017 and FY 2016 reflects a decrease ratio during the specified time period. In essence, net profit margin of particularly BHP Billiton has increased to approximately 0.38% in 2017 in comparison to the year ago figure of 0.37% recorded during 2016. In particular, this reveals desirable circumstances of the corporation since high ratio point towards that business concern is generating higher net earning out of sales of the corporation.

– Return on equity enumerated for the financial year 2017 and financial year 2016 represents a decrease during the specified time period. Particularly, return on equity has increased to 0.09% in 2017 as compared to -0.10% in 2016. This higher ratio reflects a desirable financial state of affairs of the corporation since it reflects that the corporation is producing higher profit from shareholders (Lin et al. 2015).

-Net asset turnover ratio of the firm is observed to have decreased for the firm during the current period that is 2017. This decrease in net asset turnover replicates the fact the company is generating lower amount of sales for each and every dollar that is invested in company’s assets. In essence, asset turnover is founded on standards of the industry (Entwistle 2015). The net asset turnover is calculated to have decreased during the period 2017. In essence, this shows that the business concern is not properly utilizing assets and probably might be encountering some kind of management issues in the firm.

Graphical representation of the results 

	BHP Billiton	AORDN
31-05-2015	39.507435	5451.2
30-06-2015	36.037365	5681.7
31-07-2015	33.96595	5222.1
31-08-2015	32.602711	5058.6
30-09-2015	27.990704	5288.6
31-10-2015	30.180534	5218.2
30-11-2015	24.482115	5344.6
31-12-2015	23.637901	5056.6
31-01-2016	20.105062	4947.9
29-02-2016	20.747398	5151.8
31-03-2016	23.766369	5316
30-04-2016	29.108269	5447.8
31-05-2016	25.049456	5310.4
30-06-2016	26.52623	5644
31-07-2016	27.575764	5529.4
31-08-2016	27.863688	5525.2
30-09-2016	32.471287	5402.4
31-10-2016	32.818016	5502.4
30-11-2016	35.179569	5719.1
31-12-2016	33.530235	5675
31-01-2017	38.693775	5761
28-02-2017	35.441963	5903.8
31-03-2017	34.036278	5947.6
30-04-2017	34.075932	5761.3

 Calculation of beta values and expected Rates of Return using CAPM

Expected Return=Risk free rate+ Beta*(Market- risk free) +Rate risk free

Weighted average cost of capital that is referred to as WACC is essentially the rate that a business concern is expected to disburse on average to all the security holders to fund the assets. Essentially, WACC is normally indicated as cost of capital of the firm. Normally, the assets of a firm are funded by both debt as well as equity (Robinson et al. 2015). Particularly, WACC can be termed as the average of costs of different sources of financing and each one of these is mainly weighted by respective utilization in the current solution. 

Board Members and CEO of BHP Billiton

E stands for market value of equity (also indicated as E). This is also known as market capitalisation. However, as of the current period, market capitalisation (E) of the company BHP Billiton is AUD A85.4  billion

The market value of debt is hereby calculation can be simplified herein by using the book value of debt. This is calculated by adding Current Portion of Long Term Debt and the Long Term Debt & Capital Lease Obligation, therefore the total book value of the debt is calculated to be $ 16.32 billion

Weight of equity= E/ (E+D)

=85.4/(85.4+16.321)=0.83

Weight of debt=D/ (E+D)

=16.321/ (85.4+16.321)

=0.1604

Cost of Equity

Capital Asset Pricing Model can be used for calculating requisite rate of return. The formula for calculation of cost of equity is as presented below:

 Cost of Equity= Risk free rate of return+ Beta of Asset * (Expected rate of return of the market-Risk Free Rate of Return)

The risk free rate of BHP Billiton is 2.74%

Beta refers to the sensitivity of specifically expected asset returns to mainly the expected surplus market returns. Essentially, beta of BHP is calculated to be 1.19

Expected return of the market- Risk free return rate is primarily indicated as market premium. This calls for market premium to necessarily be 6%.

 Cost of equity= 2.74+1.18*6% = 9.82%

Interest expenses are necessarily divided by current two year average number of debt to get simplified cost of debt. The corporation BHP Billiton is registered to be $0.985billion. The total book value of debt is registered to be $16.32 billion.

Cost of debt= 0.985/16.32=0.06

The two year average tax rate is observed to be 27.1055

Therefore,

WACC for the company BHP Billiton can be calculated as:

WACC= E/(E+D)*Cost of Equity+ D/ (E+D)* Cost of Debt*(1- Tax rate)

=0.83*9.82%+0.16*0.06*(1-27.105%)

=0.081+0.0096*0.7289

=0.0069+0.081

=0.087 or 8.7%

Use of debt ratio for the company over the last two years

The business is persistently in requirement of finances for working capital requirements or else for working capital requirements or for carrying out capital expenditures. In this kind of scenarios of debt financing, at the time when corporation borrows wealth from different lenders specifically at a fixed rate else wise floating rate of interest or for a specified period of time (Alin-Eliodor 2014). The specific sources of debt financing for business concerns for a corporation comprises of banks along with credit unions and many others. Calculation of debt equity ratio of the firm BHP Billiton shows the proportion of debt and equity used by the corporation. In essence, decrease in debt equity ratio reflects the fact that the firm uses higher amount of equity in comparison to debt figure of the firm. The debt equity ratio calculated for the firm BHP Billiton shows decline in debt funds in comparison to equity. This shows a favourable financial condition of the corporation as this reflects decrease in interest expenditure of the firm. The decrease in use of borrowed funds of the company helps in risk of bearing higher interests that might prove to be higher than the rate of return earned from the employment of the funds (Wahlen et al. 2014).

Financial Ratios of BHP Billiton

Business concerns can raise capital either by means of debt or else equity. In essence, each one of the strategy has their own benefits as well as disadvantages. Debt normally costs lower than the equity owing to advantages of tax, particularly at the time when the overall rates are lower. Nonetheless, the debt also obligates the company to make payments for a specific portion of upcoming earnings even at the time when earnings are decreasing (Seguí?Mas et al. 2015). On the other hand, equity does not have the need to be repaid, as there is specific ownership concerns associated to equity.

An optimal structure of capital can be considered to the most effective debt equity ratio for a corporation that maximizes overall value (Iyer and Samociuk 2016). In essence, the optimal structure of capital of a firm can be regarded to be a one that can present a specified balance between appropriate debt to equity range as well as minimize cost of capital of the corporation.

The capital structure of the corporation can be considered to be composition or else structure of overall liabilities (Bepari and Mollik 2016). Optimal capital structure can be regarded as financial enumeration that corporation utilizes to ascertain appropriate mix of particularly debt as well as equity financing. In essence, debt financing normally delivers lowest capital cost owing to deductibility of tax, nonetheless, it is rarely the optimal framework as the company’s risk normally enhances as debt augments (Wong and Millington 2014).  Therefore, the declining trend debt financing that can be observed during 2017 can be said to be favourable as this can lower risk of using borrowed funds.

The dividend policy of the company BHP Billiton delivers a minimum 50% payout of particularly principal attributable proceeds at all period of reporting. Again, minimum dividend disbursement for the 2^nd half was necessarily 33 US cents for every share. Identifying the significance of cash returns to different shareholders, company’s Board has resolute to disburse an extra amount of essentially 0 US cents for every share, considering final dividend of 43 US cents for every share that is under free cash flow created during financial year 2017. Altogether, dividends of particularly USD4.4 billion (that is 83 US cents for every share is a raise of 177% from financial year 2016. This can be ascertained for the financial year 2017, counting supplementary amounts of USD1.1 billion.

The entire group necessarily undertook a dividend strategy during the year 2016 that delivers for a minimum 50% payout of fundamental attributable gain at each reporting period. The Board can evaluate, at different reporting period, overall potential to disburse amounts supplementary to the least amount payment, consistent with the Capital Allocation Framework (Gomes et al. 2015)

During the year 2017, dividends as well as other distributions in USD since it is the chief functional currency. In essence, the company BHP Billiton Limited disbursed its dividends in particularly Australian dollars, US dollars, UK pounds sterling as well as New Zealand dollars. Again, BHP Billiton Plc disbursed dividends in mainly UK pounds sterling to shareholders listed on principal register in particularly the United Kingdom as well as in South African rand to investors listed on branch register in particularly South Africa (Hay et al.2014).

In the company BHP Billiton, currency conversions are mainly founded on exchange rates of foreign currency on the recorded date, excluding conversion into South African area that occurs one week prior the date of recording. In line with the date of conversion of currency with the record date (for different currencies excluding conversion into South African rand) allows a superior stage of certainty around currency necessary to disburse dividend and aids to eradicate the exposure of the Group to alterations in rates of exchange as the total number of shares based on which dividends are necessarily payable is last at end of the business on the date of recording.  In line with the end date to accept elections of currency (date of currency election) date record further simplifies the procedures (Liao et al. 2016).

Analysis of organizational performance of the firm reveals the fact that undesirable financial condition of the firm can be observed in terms of net asset turnover of the corporation. In essence, the firm can work towards efficient utilization of available assets that necessarily can be put to use by the corporation for enhancement of financial condition. In addition to this, it can be hereby mentioned that the firm BHP Billiton has the need to improve overall liquidity in the subsequent period when considered in terms of the conventional standards and not just in terms of the specified period of time. Again, in terms of stock performance, it can be hereby mentioned that the firm has a beta of

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