Introduction

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BHP Group Limited, a well-known mining and resource firm, has been the subject of a thorough financial investigation. The grasp of the company's financial health and stability by studying its performance during the previous five years, from 2018 to 2022. In the first place, the profitability study demonstrates that BHP has been on a remarkable rising track. A crucial measure of profitability, the Net Profit Ratio, increased significantly over time. The Net Profit Ratio for BHP was 19.60% in 2018; but, by 2022, it had soared to an incredible 47.47%. The significant increase in 2022, the Gross Profit Ratio, which had previously shown stability, reached 77.09%.

The steadily increasing profitability ratios highlight BHP's capacity to adjust to shifting market conditions and improve its financial performance. The evaluation of the Current and Quick Ratios demonstrates the company's ability to satisfy its immediate financial obligations. The fact that BHP's current ratio progressively improved from 1.21 in 2018 to 1.69 in 2022 shows that the corporation has been skilled at managing its current assets and commitments. The Quick Ratio, which does not include inventories in current assets, also experienced big swings but finally showed improvement, demonstrating BHP's increased capacity to deal with cash flow problems and fulfil pressing obligations.

Profitability analysis

Figure 1: Profitability ratio

Analysis of the profitability ratios for BHP Group Limited, a well-known mining and resource firm, can offer important insights into the company's financial performance and health. The Net Profit Ratio and Gross Profit Ratio for the years 2018 to 2022 will be the primary metrics under consideration in this analysis (Rudianto, 2022, p.25). The Net Profit Ratio and the Gross Profit Ratio over the past few years, BHP Group Limited has recently shown to be quite profitable. The organisation's excellent financial performance has been aided by its capacity to turn a profit from its main businesses and efficiently control costs.

Net profit ratio

The percentage of sales that are still profitable after all expenses have been paid makes up the net profit ratio, an essential indicator of a company's profitability. In the period between 2018 and 2022, BHP's Net Profit Ratio showed a clear rising trend. In 2018, the Net Profit Ratio was 19.60%; however, it fell to 19.34% in 2019, showing a little reduction in profitability (Shaturaev, 2022, p.6). In 2022, when BHP reached a Net Profit Ratio of 47.47%, the growth was most impressive. A growth rate of 27.61% over the prior year is represented by this outstanding number.

BHP must have been able to keep about 47.47% of its sales as profit in 2022 with a Net Profit Ratio this high. It is particularly noticeable that the Net Profit Ratio experienced an amazing growth in 2022, which suggests that BHP's profitability has significantly improved. This expansion shows that the business has successfully taken advantage of favourable market circumstances and enhanced its cost management procedures. Numerous elements, like greater cost control, rising commodity prices, or increased demand for the company's products, may be responsible for this extraordinary rise in profitability.

Gross profit ratio

The ability of the business to make money from its core operations is shown by the gross profit ratio, another crucial profitability metric. Despite minor swings, BHP's Gross Profit Ratio showed a largely stable performance during that time (Isayas, 2022, p.45). A solid success in generating profits from its main businesses is indicated by the Gross Profit Ratio, which grew marginally to 74.23% in 2019 from 73.61% in 2018. However, there was a minor decline in 2020, with the ratio reaching 68.19%, indicating a drop in profitability from the year before.

The biggest gain was in 2022, when the Gross Profit Ratio reached 77.09%, an impressive 9.14% higher than in the previous year. It's crucial to remember that for a thorough evaluation of BHP's financial performance and health, these ratios should be taken into account in addition to other quantitative measures and qualitative elements. However, this increased trend in profitability ratios is encouraging for the company's stakeholders and investors (Hutabaratet al, 2023, p.1556). The Gross Profit Ratio then bounced back, reaching 67.95% in 2021—still a remarkable result, but a little lower than in prior years.

Key observations

• In 2022, the Net Profit Ratio of BHP Group Limited significantly increased and peaked at an astounding 47.47%. It's possible that variables like improved sales, cost control, or favourable market conditions are to blame for this amazing gain.
• The gross profit ratio demonstrated a high performance overall. Its value in 2022, 77.09%, demonstrated BHP's effectiveness in deriving income from its core businesses (Arimany etal, 2022, p.359)
• Growth in the Net Profit Ratio surpassed growth in the Gross Profit Ratio by a wide margin, indicating that BHP has been successful in controlling its operational costs and other costs, resulting in a more significant improvement in its bottom line.
• The upward trend in profitability ratios over time is evidence of BHP's capacity to adjust to shifting market circumstances and consistently enhance its financial performance.

Liquidity analysis

Figure 2: Liquidity ratio

The Current Ratio and Quick Ratio, two vital financial ratios that show how well a company can fulfil its short-term financial obligations, are an indication of its liquidity. In order to comprehend the company's financial health and how it has changed, we will analyse the liquidity ratios of BHP Group Limited (BHP) over the previous five years (2018-2022).

Current ratio analysis

The current ratio calculates a company's level of short-term liquidity by contrasting current assets and liabilities. When the ratio is larger than 1, it is likely that the business has enough assets to pay all of its immediate liabilities. BHP's current ratio in 2018 was 1.21, meaning that its current assets exceeded its current liabilities by that amount (Karakan, 2022, p.54). It signifies a position with moderate liquidity. BHP witnessed changes in its current ratio throughout the following two years (2019 and 2020).

As liquidity improved in 2019, the ratio rose to 1.54. Though it still managed to surpass 1, it decreased to 1.45 in 2020. BHP's current ratio climbed in 2021 to 1.63 and then again in 2022 to 1.69. This growing trend is encouraging because it shows that the corporation would be able to comfortably fulfil its short-term commitments. BHP's current ratio increased steadily from 2018 to 2022, increasing by 0.07 from the year before. Given this expansion, it appears that BHP has been managing its present assets and obligations adequately.

Quick ratio analysis

The Quick Ratio, sometimes called the Acid-Test Ratio, is a more cautious liquidity indicator due to the exclusion of inventories from current assets. It paints a more accurate picture of a company's capacity to meet urgent obligations without relying on the sale of inventory (Gunawanet al, 2022, p.24). A fast ratio of 22.23 was recorded by BHP in 2018, which is a very high value. As a result, it might be inferred that the company's short-term liquidity was mostly dependent on inventory, which might not be long-term viable. The quick ratio of BHP fell to -1.45 in the next year. Because of a significant drop in inventory, this negative ratio indicates that the corporation experienced a serious liquidity issue that year.

Inventory write-downs or a drastic reduction might have been the root of this issue. 2020 saw a considerable increase in BHP's quick ratio, which reached 1.17. This shows that the business dealt with the liquidity concerns from the prior year. In 2021 and 2022, BHP kept making progress with a fast ratio of 1.36 and 1.40, respectively (Sihombing, 2022, p.141). The company's improved capacity to fulfil short-term obligations without largely relying on inventory is indicated by these favourable ratios. BHP's quick ratio increased significantly between 2018 and 2022 with a growth of 20.77 in 2018 and a decrease of 2.63 in 2019. The fast ratio, however, then had a gradual improvement, increasing by 0.19 in 2020, 0.05 in 2022, and 1.45 in 2021. BHP's efforts to manage its liquidity more effectively are seen in this pattern.

Key observations

• Indicating that the company has been successfully managing its short-term liquidity, BHP's current ratio has steadily increased between 2018 and 2022. An upward trend was observed in the ratio, which rose from 1.21 in 2018 to 1.69 in 2022.
• The existing ratio has experienced rather modest annual growth with an increase of 0.07 in 2022 compared to 2021, . This shows that BHP manages existing assets and obligations in a consistent manner that is not greatly impacted by external factors (Purwanti&Warasto, 2023, p.33).
• It decreased from a ratio of 22.23, which was quite high, to a ratio of -1.45 in 2019, which is extremely low and indicates serious liquidity problems. Throughout the five-year span, there were significant swings in BHP's quick ratio.The business, however, was able to bounce back and in the years that followed, it had a positive quick ratio.
• BHP's fast ratio dramatically increased in 2020, reaching 1.17; it then proceeded to rise in 2021 and 2022, achieving ratios of 1.36 and 1.40, respectively. This indicates that the corporation takes action to solve its liquidity issues.

Solvency analysis

Figure 3: Solvency ratio

BHP Group Limited's debt to equity ratio and debt to total assets ratio are calculated. By analysing the ratios between BHP's debt and equity or total assets, one can determine how much of its operations are financed by debt. The analysis of these ratios for BHP Group Limited from 2018 to 2022 will now be broken down.

Debt to equity ratio analysis

The debt-to-equity ratio calculates how much of a company's capital structure is funded by debt as opposed to equity. A greater ratio denotes more financial leverage, which can raise the possibility of better returns as well as the risk of financial distress (Handayani, Ladewi&Rahayu, 2022, p.33). BHP's debt-to-equity ratio in 2018 was 1.00. It can be seen from this that the corporation significantly relied on debt funding because its total debt and equity were equal. Because of the decline in growth, it appears that BHP was able to lower its debt-to-equity ratio in 2018. This is a good indicator.

The ratio decreased considerably to 0.16 in 2019, showing a considerable decrease in debt relative to equity. Debt forgiveness or a rise in equity may be to blame for this. In 2020, the Debt to Equity Ratio further fell to 0.00, showing that BHP had no debt in relation to its equity at that time. A data reporting problem or a noteworthy financial event might be to blame for this. In the year 2021, the ratio stays at zero, indicating that there is still no debt. If this is a true reflection of the company's financial status, it's crucial to look into it. The ratio is still 0.00 in 2022, which raises concerns about the accuracy and consistency of the data.

Debt to Total assets ratio

The ratio of debt to total assets determines how much debt is used to fund a company's assets. As it signifies less financial risk, a smaller ratio is typically thought to be better. Debt funded 19% of BHP's assets in 2018, according to the company's debt to total assets ratio of 0.19. This implies moderate financial leverage, which is normally appropriate for a big company. In 2019, the ratio grew to 0.22, indicating a little greater reliance on debt to finance assets. A rise in debt or a drop in total assets could be to blame for this.

The ratio climbed further to 0.28 in 2020, indicating greater leverage. This might be a reason for worry as it shows a rising reliance on debt funding. In 2021, the ratio decreased to 0.15, showing a considerable decline in debt as a percentage of total assets (Pratama, 2022, p. 169). This is a good sign that could indicate a shift to a capital structure that is more conservative. In the year 2022, the ratio had further dropped to 0.06, demonstrating that efforts to lessen the reliance on debt in funding assets were still being made.

Key observations

• The data has errors, particularly when it comes to the lack of debt in 2020, 2021, and 2022. The financial reports should be carefully reviewed and reconciled in light of this.
• A move to reduce financial leverage can be seen as a good because of the ratio's large decrease from 2018 and 2019 (Rudianto, 2022, p.25).
• Over time, there has been a general downward trend in BHP's debt-to-total-assets ratio.
• It is significant that the ratio fell between 2020 and 2022, indicating that the corporation is still committed to improving its financial situation by lowering debt.

BHP Group Limited's debt to equity and debt to total assets ratios study shows that the company's financial leverage has historically fluctuated. The data has discrepancies that need to be addressed for a more accurate analysis, particularly in the Debt-to-Equity Ratio. Although reducing debt dependence is a crucial financial tactic for boosting liquidity and stability, the trajectory in the debt to total assets ratio indicates a favourable advance in that direction. It is crucial for stakeholders to pay close attention to these ratios to ensure that BHP maintains a sound and sustainable financial structure.

Conclusion

The profitability, liquidity, and solvency ratios for BHP Group Limited for the five-year period from 2018 to 2022 are examined in detail, and this study offers important insights into the stability and performance of the company's finances. The BHP Group showed an amazing rise in its Net Profit Ratio from 2018 to 2022, with the biggest jump that year reaching an impressive 47.47%. This shows that the business has been able to take advantage of the market's current favourable conditions while also enhancing cost control. Indicating BHP's capacity to create profits from its core businesses, the Gross Profit Ratio also demonstrated consistency and development. The fact that the Net Profit Ratio has increased significantly while exceeding the Gross Profit Ratio is evidence of BHP's success in keeping operational and other costs under control.

The analysis of liquidity demonstrates that throughout time, the short-term liquidity of BHP Group has consistently increased. Indicating the company's ability to comfortably satisfy its short-term obligations, the Current Ratio steadily increased from 2018 to 2022. The Quick Ratio finally shown a positive trend, demonstrating BHP's efforts to manage liquidity more effectively, especially following the hard year of 2019. The Quick Ratio was subject to more large volatility, although it ultimately exhibited a positive trend. The ratio of debt to total assets shows a favourable trend towards lessening the reliance on debt to finance assets, notably from 2020 to 2022.

References

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