Company Case Study: BHP Billiton

BHP Billiton, which is known to be one of the world’s largest resource groups dealing in mineral exploration and production. The company has marked a distinction due to its deep inventory o f growth projects, quality of assets, focused-marketing and diversified markets across the countries. The operating assets have been grouped into customer sector including diamonds, petroleum, aluminium, iron ore, base metal and energy coal.
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In spite of dynamic market conditions the company’s net operating cash flow has remained strong which resulted in decline in net debt. The cash flows enable the company to internally fund their existing operations, return capital to shareholders through dividends and maintain pipeline for growth projects. The company’s primarily focus for cash is reinvesting in the business through which they have grown the business consistently and rapidly along with project developments and acquisitions by using combination of borrowing and payments to shareholders. The balance sheet is managed aiming maintenance of gearing levels that optimises costs of capital and return on capital employed. The company’s main source of cash is through Net Operating Cash Flows. Cash is also raised through debt financing for managing temporary fluctuations in arranging liquidity and to refinance existing debt. BHP Billiton’s liquidity position is supported by its stable and strong credit rating and focused debt
The company is seeking to maintain a strong ‘A’ credit rating as their strategy plan. However, the future cash flows were widely affected by the fluctuations in commodity prices and economical volatility so as to access capital from financial markets at favourable prices. If company’s key financial ratios are not maintained properly, it can have widely affect on company’s cash reserves and liquidity, interest rate cost on borrowed debt and future access to capital markets along with ability to fund current and future major capital programs.
The company’s current ratio indicates its ability to meet its short-term liabilities. A current ratio below 1 will depict the situation where the company is not able to pay off its obligations when they are due whereas the ratio equivalent to 2 shows the company’s financial security. BHP Billiton’s current ratio was declining since 2009 and dropped below 1 in 2012 which was a danger sign to company’s liquidity and finance health. The declining value of current assets added to the worst liquidity of the diversified mineral resource company. The main reason for company’s lower current assets is less cash in