Company Evaluation: Exporter And Operation Assessment Answer

Answer:

Introduction

BHP Billiton is an Australian conglomerate involved in mineral operations. It has also invested in other countries like Brazil, Peru and Colombia. BHP Billiton is an energy exporter and operates seven segments in mineral resources mainly, base metals, diamonds, stainless steel, liquefied natural gas, energy coal and oil. BHP Billiton is in a process of splitting of its core assets in order to concentrate on products such as iron ore, copper, coal, oil and potash(Banks, n.d.). As of March 1, 2016, came into effect a new operating model that will bring together the operations of the firm in three new areas: Oil, Minerals in the Americas and Australia.

Notes to Financial Statements represent clarifications or explanations of facts or situations quantifiable or not presented in the movement of accounts, all of which must be read in conjunction with the Financial Statements for proper interpretation. Also they represent important information for investors wishing to buy shares of a company through the stock market, because usually show relevant information to consider that determines the behavior of the value of the shares(Bragg, 2007).

The notes to the financial statements represent the dissemination of certain information that is not directly reflected in those states, and which is useful for users to make decisions with a clear and objective basis. This does not imply that these explanatory notes are a financial statement, since according to current regulations they are not, rather an integral part of them as part of the analysis, being mandatory submission. On the other hand these notes represent balances disclosures applicable to transactions or other significant events, to be observed in preparing and presenting the financial statements when appropriate.

BHP Sustainability report 2015

Sustainability is a core strategy in BHP Billiton growth implementation strategy. Sustainability report index aims at creating a good social responsibility with the communities around. It focuses on environmental sustainability, employee welfare, government contributions and its economic growth.

More than $225 million is committed to community programs

Local suppliers are awarded a 42% allocation to tenders in BHP.


More than $ 100 million was used to raise awareness to environmental issues.

It is known to have contributed more than $2 billion dollars of its income to community projects in the last two decades(Barclay, Dann and Holroyd, 2000).

 

Statement of financial analysis/ consolidated income statement

The profit for the last financial year ended 30 June 2015 is $44.6billion down from $56.76 billion the previous year. This decline is attributable to a sluggish economic uptake of minerals and depreciation of the Australian dollars. There is also an aspect of increased competition from major competitors like Torino(Bull, 2008). Profits from operations declined from $22.6 billion the previous year to $ 8.4 billion this financial year. This is a significant drop in operating profits due to the above mentioned reasons.

Profit after taxation from continuing operations dropped significantly to 1.152 billion. There is heavy taxation on mining company which is dictated by the Australian mining act.

Dividend per share in ordinary shares stood at $124 dollars which is an improvement and among the best paying company. It was an improvement of $ 3 from the previous year. Continued and discontinued basic earnings per ordinary shares stood at $35.9 dollars while diluted earnings from discontinued and continuing activities stood at a mere $35.8.

The number of ordinary shares at the end of the period stood at 5.324 million, the weighted average number of shares stood at 5.312 million while the diluted number of ordinary shares stood at 5.333 million.

Other financial information related to BHP Billiton is

Underlying earnings before interest and tax (EBIT) which stood at $21.8 million, while the underlying attributable profit which stood at $6.417 and the net operating cash inflows were at $19.26 million for the financial year ending 30 June 2015.

The initial note of identification of the business and economic activity is necessary for BHP Billiton(Diamond, Stice and Stice, 2000). Declaration on compliance with IAS official in the country where the financial statements are drawn up. Notes on significant accounting policies used by the company for the preparation of financial statements.

Notes specific character for items presented in the financial statements.

Other notes financial or not financial required by the rules, and those deemed by the board and management of the company are deemed necessary for a proper understanding of the financial situation and the economic result. Underlying earnings before interest and tax (EBIT) which stood at $21.8 million, the underlying attributable profit which stood at $6.417 while the net operating cash inflows were at $19.26 million for the financial year ending 30 June 2015.

Example of Notes to Financial Statements:

The following excerpt model elaborate note has been based on a real note of a Mining Company: According to recent geological studies and the current production volume, estimated ore reserves of the Company's proven and probable will last 7 years. As of December 31, 2015, the number of employees (officers, employees and workers) of the Company was more than 40000 respectively(Diamond, Stice and Stice, 2000).

The Financial Statements for the period ended 30 December 2015 were approved by the Board of Directors of the Company at a meeting that took place on January 20, 2008.

 

Significant accounting policies

The significant accounting policies used by the Company in the preparation and presentation of its financial statements are as follows:

Basis of preparation and presentation:

The financial statements are prepared and presented in accordance with generally accepted accounting principles in Australia, which comprise the International Financial Reporting Standards (IFRS). IFRS incorporated into the International Accounting Standards (IAS) from 1 to 41, and Interpretations 1 to 33, issued by the Standing Interpretations Committee (SIC), formalized for mandatory application in Australia from 2005(Goel, n.d.). The financial statements of the Company will be presented in the functional currency, ie Dollars, from the first quarter of 2015.

Balance sheet analysis and asset quality/ Liquidity risk

BHP billiton has a net debt of $ 26.1 billion, and a liquidity of $16.3  billion.

The current ratio: current ratio is also known as an efficiency or liquidity ratio, it determiones a firms ability to use its current assets to pay off its short term liabilities(Walters and Dunn, 2001). A company has got a limited amount of time to raise funds to pay for the short term liabilities that are usually payable between 1-3 years. The formulae for this ratio is Current assets/ current liabilities

= $ 126,534million/$63,974 Million

=1.97

The ideal ration to measure this short term liquidity risk is usually 2. This means that the company has a risk of not meeting its short term liabilities and therefore the company’s current assets do not meet the quality required by IASB.

Formulae:

Cash ratio= (Cash+invested funds+cash equivalents)/Current liabilities
As of December 2015 BHP billiton had a cash in hand of $ 23,876m, cash equivalent of $5,321m and invested funds that amounted to $10,432m.On the other hand, the current liabilities at the end of the period were $63,974.

$(23876+5321+10432)m/$63,974m

=0.62

This means that BHP Billiton may not be in a position to pay off its debt.

Industry analysis

The industry has generally been hit and the growth is sluggish.  Therefore, BHP Billiton is just one of the companies that is hit by the industry economic slump, thus shareholders should not be worried because the economic slump is across board(Goel, n.d.). Other mining companies also recorded reduced profits and stock value, however5, economic analyst are bullish on the industry trend.

 

Remuneration report

Remuneration policy of BHP biliton,General principles and foundations of the remuneration policy of Directors seeks to compensate them so adequately given the responsibility assumed and dedication, ensuring that such compensation is appropriate in terms of market requirements, as provided in the law. Furthermore, in the case of non-executive directors are that the Board of Directors ensures that the amount of remuneration given to the non-executive director is such that it offers incentives to dedication of the directors.
 Linking with the Group's strategy of BHP Billiton, a portion of the compensation must be linked to the achievement of the objectives that constitute the Group's strategy. Therefore, pay for performance significant part of the remuneration should vary depending on the results.
In 2016, the Board of Directors a proposal from the Remuneration Committee, has decided to submit to the approval of the General Meeting of Shareholders the implementation of
Plan Long Term Incentive 2016-2020, in line with policy remuneration of directors in force.

The accounting method

Any company, to carry out its activity, operates with the outside world, buy, sell, etc.  As a result of these actions, their heritage is altered and gets results, profits or losses. BHP Billiton uses Duality principle Is to distinguish in any empirical fact, at least two elements relate to each other. This principle also applies to economic facts. Thus, the companies, to capture or collect any of its transactions, distinguish at least two elements involved in it.

Valuation of inventory

Since any company performs multiple operations, the valuation of its elements will be subject to continuous variations. The financial statements provide an overview of certain economic variables of interest  of BHP Billiton. Within an outstanding place they occupy today, given its obligation, the balance sheet, the profit and loss and memory. The result will depend on various parameters, such as: the number of products sold the selling price of these, the cost of production, etc(Ricardo, 2001). Hence, it is impossible to determine the outcome or surplus generated by the company if certain interval of time has elapsed.The most detailed and comprehensive account of stocks of goods has a company to start operations or accounting period, after doing a physical count. Valuation methods do not involve physical movement of the goods, but inflation and the cost or price for the inventory.

Auditing Report

This article is for educational purposes and discussion, to conduct an analysis of the conceptual framework of companies accounting from the perspective of the International Standards on Auditing (ISA), consequently the reporting application in its case, the ISA ISA 800 or 700, but not intended to be a guide or establish any criteria

International Auditing Standards require the auditor to perform an analysis of accounting framework on which the financial information is prepared for that, consequently, the necessary disclosures are made in his report; to this effect, Auditing Standard 200, provides that the exercise of defining the type of conceptual framework is a complicated undertaking and on which a high degree of analysis and study is required.

 

Accounting publications

When there are conflicts between the financial reporting framework and the sources from which you can obtain guidance on its application, or between the various sources that make up the financial reporting framework, the source prevails more regulatory status.

Some financial reporting frameworks are fairly frames, while others are compliance frameworks. The financial reporting frameworks mainly comprising the financial reporting standards established by an authorized or recognized to promulgate standards to be used by entities in the preparation of financial statements for general purposes often are designed to achieve fair presentation in BHP Billiton.

Transfer pricing

In our country transactions between related parties they governed by Article 281 of the Tax Code and Regulation 78-14 on Transfer Pricing (Kaplow, 2011). For the purpose, they are considered related or related parties, individuals, legal persons or entities, provided that one of them resides or is placed in Australia and for which any of the circumstances linking BHP Billiton. Taxpayers achieved by the transfer pricing regulations are natural persons, legal entities or residents performing operations like BHP Billiton.

Conclusions and Recommendations

From this perspective it is worth reflecting on whether there are accounting frameworks addressed present fairly the financial or accounting performance end, perhaps one possibility might be the need that had an organizational  that would like to know the use and origin of liquid resources beyond their generation profitability, or perhaps the need for a regulator or authority to hear through the construction and issuance of financial statements of the timely implementation of any law as may be tax regulation.

Requirements applicable financial reporting framework determines the structure and content of financial statements (Godfrey et al., 2010). Although it is possible that the framework does not specify how to account for or disclose all transactions or events, usually it contains sufficient general principles that can serve as a basis for developing and applying consistent accounting policies with the concepts underlying the requirements of the framework.

 

References

Banks, D. (n.d.). The Mining industry.

Barclay, I., Dann, Z. and Holroyd, P. (2000). New product development. Boca Raton, FL: CRC Press.

Bragg, S. (2007). Business ratios and formulas. Hoboken, N.J.: Wiley.

Bull, R. (2008). Financial ratios. Oxford: CIMA.

Burgess, J. and Connell, J. (2006). Developments in the call centre industry. London: Routledge.

Diamond, M., Stice, E. and Stice, J. (2000). Financial accounting. [Cincinnati, OH]: Southwestern College Pub.

Goel, S. (n.d.). Financial ratios.

Mand, M. and Whipple, W. (2000). Partnering for performance. New York: AMACOM.

Temte, A. (2004). Financial statement analysis. La Cross, WI: Schweser Study Program.

Wiehle, U. (2006). 100 IFRS financial ratios. Wiesbaden: Cometis.

Godfrey, J., Tarca, A., Godfrey, J. and Picker, R. (2010). Financial accounting theory & practice. Milton, Qld.: John Wiley & sons.

Kaplow, L. (2011). The theory of taxation and public economics. Princeton, N.J.: Princeton University Press.

Overview of best practice environmental management in mining. (2002). [Canberra, A.C.T.]: Environment Australia.

Ricardo, D. (2001). On the principles of political economy and taxation. London: Electric Book Co.

Transfer pricing. (2002). London: Euromoney Institutional Investor PLC.

Walters, D. and Dunn, J. (2001). Student's manual of auditing. London: Thomson Learning.

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