Introduction to BHP Billiton Limited

Describe about the Case Study of Corporate Finance for Largest Company.

BHP Billiton, a multinational by nature, is also Australia’s one of the largest company and it can also be said that BHP Billiton is the world’s largest among the mining companies in relation to its profit generation and value wise. Its global headquarters are in Melbourne, Australia. The company was incorporated in 2001 by the process of merger of two companies Anglo-Dutch Billiton plc and Australian Broken Hill Propriety Company Limited or BHP. The company was listed on various important stock exchanges of the   world like Australian Securities Exchange (ASX), London Stock Exchange (FTSE) for BHP Billiton plc. It is also listed with Japan Stock Exchange, New York Stock Exchange for both BHP Billiton Ltd and BHP Billiton Plc (Bhpbilliton, 2016).

The businesses spread over 25 different countries and 30 locations with varied interests and almost 42,000 employees are there. The business visa-vis countries or locations are as–

North America

USA—Oil & Gas (3 sites), Coal.

Canada—Potash & Potash headquarters.

South America

Chile—Copper (2 Sites) & Copper Headquarters.

Colombia—Coal, Nickel.

Peru—Copper.

Brazil—Iron ore.

Trinidad—Oil & Gas.

Europe

London—Corporate Office.

K.—Oil & Gas.

Africa

Algeria—Oil & Gas.

South Africa—Ferro Alloys & Steel, Titanium, Aluminium Smelters.

Mozambique—Aluminium Smelters.

Asia

Singapore—Marketing Headquarters.

Malaysia—Global Processing Centre—Corporate Office.

Pakistan—Oil & Gas

The company’s growth is still in the line as expected in the areas of Copper, Oil & Gas, and Iron Ore. But the disaster at the Brazil operations has placed the company in a very tight situation. The Brazil disaster got politically framed and legal entangles have made the company bit sluggish there (Yeomans, 2016).

The Standards and Poor downgraded the BHP credit to A from A+ due to Brazil disaster. The weakness due to Brazil disaster is shown up in the share prices also which had fallen substantially. The accurate role of the CFO is to present accurate and timely financial information to the management and to the stakeholders. The role of the managers are not limited, on the basis of the report the future course of action will be acknowledged. The controlling and the management of creditors, employees and other stakeholders are the primary responsibility (BHP Billiton, 2016).

The treasury duty of the management is to ensure that he will decide about the probable option available to the company regarding investment and the investment opportunities. The consideration of liquidity and timeliness is the main area of the treasury responsibility.

BHP Billiton’s Global Presence

The Finances of any business needs to be managed in a very professional manner so that the financial health of the company is well lived and profit generation and working capital employed and its assets are used in a very professional and systematic manner.

The process depends and varies from company to company and its size and type. The basics of all finance are to have accounting and auditing to know the exact financial position of the business and its growth plan and progress. To do this in better manner bigger companies employ very high knowledgeable and qualified and experienced professional accountants to manage the finances of the company with great caution and care. Such accountants may Chartered Accountants, may be MBA–Finance, Cost and Management Accountant and so on as it all depends on the choice of the management concerned and business type where what type of person is required. The main motto is to create e better safeguarding policy for financial management and fund allocation (Investopedia Staff, 2016).

The position thus calls CFO or Chief Financial Officer. The main duties of the CFO are of different types although financial management are the main area. In the perspective of BHP Billiton Limited CFO’s role should as stated below. The CFOs are mainly responsible for the past and future financial situation of the company. The most efficient and the effective policy of the company are to ensure economic forecasting and modelling and the responsibility rests on the CFO regarding policy making. The role of CFO is complex one and the occasionally it is seen that CFOs need to scratch surface to get the thinks done and or put them in order (Managementhelp, 2016).

The other responsibilities of CEO include planning, operation, financial information and risk management (Accountingtools, 2016).

Planning and that part comprises of following;

The planning for the future direction of the company

The financial and the tax strategies are to be developed

The capital requirement and the budgeting factors is also part of planning

The development of the performance measure of the company

Operations include;

The participation in the decision making body including shareholders meeting

Management of third party transactions

Oversee the international business and operations

Oversee the employee benefit plan and the operational benefit plan (TRAMMELL, 2014).

The Cash or fund flow management is the most important element to prepare a forecast planning and budgeting without which any big operations cannot perform in the best possible manner. Thus fund flow will help to make proper allocation of the fund available and also to arrange and rearrange of fresh funds from different sources available and to create new sources for more funds so that at any given point of time this new source can be used to make new financial acquisitions or to handle exigencies which are unforeseen (Anderson, 2016).

Recent Challenges and Performance

The Liabilities are also risky areas to be handled in such a manner that it does not become a burden on the company at any point of time and also due this the profit will be affected. The legal, taxation part including statutory compliances is the area where unforeseen things can take place hence a policy must be formulated to guard such areas. The main operation of the company is concentrated for five types of areas of interests. They are—Coal, Potash, Petroleum, Copper, and Iron Ore (BHP Billiton, 2016).

The growth is in the fields of Coal by producing  almost 45 Metric tonne in 2015.The oil extraction generated almost 260 million barrels of oil and almost 1.9 million tonnes of copper, and as well 238 metric tonne of iron ore.

The CFO is responsible to maintain a departmental control on all its members and employees so that the functional part is at par as policy guidelines stated.  The objective of the control should be to see that every one responsible for their job is doing so in right manner and also in time so that any financial data or report required by the Board or the higher management can be easily met and achieved to show that the departments are doing right jobs.

All such departments should also be subject to regular audits both internally and externally to find any mistakes are lying anywhere which is not visible but can be located on audit.  The CFO is responsible to arrange this audit and preparation of various reports and financial statements for auditors and the management to take vital decisions (Agrawal et al., 2016).

The CFO needs to have a good relation with all suppliers, debtors, creditors, bankers, Auditors and shareholders so that all these stakeholders have full faith in the business and its Board and management. Hence the CFO is the bridge actor between the Board & higher management and all other stakeholders as well as all other employees of different departments related to finance, accounts, taxation, statutory compliances or government liaison, purchase, sales, marketing, advertising and publicity, budgeting and forecasting, production, packaging, logistics, distribution and most important the inventory or stock department (BIERY, 2015).

CFO is the only person needs to in contact with all departmental heads so that actual fund requirement by each and every department is placed into the budgeting and forecasting and planning can be made to arrange for more funds. Banks and lenders are to be placed in confidence of CFO to get more funds easily and to make banks agree to allow more overdrafts for emergency fund requirement as well from the debtors (Investopedia Staff, 2016).

The Role of CFO in Financial Management

The profit is the most important of all things people think about a business. It is the primary duty of the CFO is to increase the margin of profit. For this he needs to introspect all areas of functioning and report to management where he sees risk is there and company will be at loss by taking such risks. He also highlights the grey areas where immediate rectifications are required to save company from losses from any particular operations. For this CFO needs to study each and every cost centre reports on weekly, fortnightly , monthly, quarterly, half yearly and yearly basis very seriously and also make variance analysis on such reports (BHP Billiton, 2016).

It is a well known debate among the investors whether the market is efficient and it reflects all the information made available to the participants of the market. According to the theory efficient market hypothesis (EMH) all stocks are perfectly priced because of inherent investment properties and the information available to all market participants. At the first glance several flaws to the concept or the theory can be found.

The efficient market hypothesis perceives all available information in the same manner. There are numerous methods and values that are used to valuing the stocks.  One investor generally looks for undervalued market opportunities and another looks for the valuation of the stocks on the basis of growth. At the same point of time two different investor values stocks at different fair market value (Team, 2016).

According to the other assessment no single investor can attain greater profitability compared to the other investor who has invested in the same fund. According to EMH both investors will gain identical return out of two stocks. According to EMH no single investor has clear advantage over another and there would be no change of return.

According to the third assessment of market, EMH observes that no investor ever be able to beat the market and average annual return would be achieved by the investors and by the funds. There are several examples of the investors who have constantly beaten the market. Therefore the EMH theory is not all correct to reflect the human wisdom and intellect (Bergen, 2016).

There are some of the evidences which somewhat supports the theory. It is quite common occurrence in the market is negative news. It happens that native news is not followed by the drop of prices but a no correction and it is followed by the surge in price. All investors start saying that market already priced in or discounted the bad news. If EMH is considered essentially to be correct, the no investors can beat the market. Investor’s performance does not always follow the hypothesis. This is a theory that has some relevance to the operation of the market.

Company’s Performance and Liabilities

The intuition of human mind and the efficiency of humans are not the same, the pricing strategy adopted by the investors and the fund managers are not same. The interpretation of publically available information is also not the same. Unless the theory acknowledges human intelligence, where it is used the most cannot be correct 100% (Maverick, 2015).

Most of the economists describe that market has no memory. Therefore the fund managers wait for the managers when the market would become inefficient. This simply means that if the markets were truly efficient then the investors would not have been able to beat the market and constantly achieve superior rates of return. According to two branches of EMH, weak and semi strong theories price in the market is not fairly adjusted and market at times becomes inefficient when investors beat the market and achieve the higher rate of return (Hu, 2014).

References:

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Anderson, C., 2016. What Are the Top Ten CFO Responsibilities? [Online] www.bizmanualz.com Available at: https://www.bizmanualz.com/be-a-better-boss/what-are-the-top-ten-cfo-responsibilities.html [Accessed 13 September 2016].

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BHP Billiton, 2016. BHP Billiton Announces Simplified Operating Model To Accelerate Productivity and Value Creation. [Online] www.bhpbilliton.com Available at: https://www.bhpbilliton.com/investors/news/bhp-billiton-announces-simplified-operating-model [Accessed 13 September 2016].

BHP Billiton, 2016. OUr Company. [Online] www.bhpbilliton.com Available at: https://www.bhpbilliton.com/aboutus/ourcompany [Accessed 13 September 2016].

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Yeomans, J., 2016. Mining giant BHP Billiton stumbles to worst-ever loss. [Online] www.telegraph.co.uk Available at: https://www.telegraph.co.uk/business/2016/08/16/mining-giant-bhp-billiton-stumbles-to-73bn-loss/ [Accessed 13 September 2016].