Financial statement analysis of an organization involves gaining brief understandings regarding the organizational financial situation and performance. This review involves identifying the trends and proportion analysis of the organizational performance. Trend lines of the financial report include gross margin, revenue, cash, debt, account receivables and net profit. In the proportion analysis relationship between various accounts size and it has been analyzed by using an array of financial ratios. In this report, a brief analysis of the BHP Billiton Limited has been considered for making a financial study. Profitability of selected firms is analyzed while comparing with the figures of current financial years. Using cash flow statement companies operating, financing and investing activities are analyzed. The balance sheet of the company is briefly reviewed for finding the financial position. Corporate governance statement analysis has been done. Management approach towards managing risks and processing accounting functions has analyzed in a brief manner.
Profitability of BHP Billiton Limited
The profitability of the organizations is analyzed using the income statement and this, in turn, provides the users an insight into the financial performance of the business firm. From the income statement of BHP Billiton Limited, it has been observed that the company is at a pace of profit compared to its competitors. There are numerous matrices has used to make an in-depth analysis of the business performance.
From the annual income statement of the BHP Billiton Limited, the net revenue generated in the financial year 2017 is of $38285 whereas the expenses incurred are of $27540. From the analysis, the net profit or loss gained by the company is of $11753. Before taxation, the profit and loss incurred are of $10322. Profit/ loss observed after taxation is of $6222. Basic earnings per ordinary share are of $110.7.
In the comprehensive income statement after taxation, the profit/ loss from discontinued and continuing operations have shown is of $6222. Henceforth the total comprehensive income/loss incurred in the firm is of $6173.
Profitability of Rio Tinto
One of the major competitors of BHP Billiton Limited in the same industry is Rio Tinto. The income statement of Rio Tinto is ended on 31 December. Consolidated sales revenue generated from the consolidated operations are of $40030. Henceforth the net operating cost noted in the income statement is of $26983. The total operating profit generated from the firm is of $14135. The profit before taxation and finance items are of US$12,816. The profit or loss shown after the tax in the current year is of US$8,851. The basic earnings per share is of 490.4 cents and diluted earnings per share is of 486.9 cents.
In the consolidated comprehensive statement, the net of tax shown is of $3,088. The total comprehensive income for the year 2017 is of 11,939.
In case of comparison, the metrics used in the income statement plays a crucial role (Bozanic et al. 2018, p.75). In order to compare the firm's performance, gross profit margin and revenue growth are taken into consideration for similar companies within the same industry.
BHP Billiton Limited
Revenue growth: 24% ($38,285)
Net profit margin: (6,222/38,285)*100=16%
Net income growth: 0.24%
Revenue growth: 44%
Net profit margin: 26.35%
Net income growth: 0.67%
It has been observed from the above analysis that the growth and profitability of Rio Tinto are better than the BHP Billiton Limited. This profitability of the company is derived while comparing with the previous financial year report to the current financial years status. Both the industries are in the respective way of growth where the investor is expected to gain maximum profit from Rio Tinto while investing.
As per the comment of Gitman et al. (2015, p.120), the cash flow statement shows the entities that generate cash and called as cash inflows and cash spent by the firm named as cash outflows over the specific period of time. The time period can be taken on the annual or quarterly basis. This analysis helps the organization to make long-term solvency and liquidity of the company. The cash flow statement uses accrual basis accounting where the income statement and balance sheets will be considered into account to prepare. The cash flow statement analysis produces the tax payables and profits (Boyas and Teeter, 2017, p.44).
As per the comment of Gilchrist et al. (2017, p.800), the components of cash flow statements are derived from the investing, financing and operating activities.
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