Executive Summary
This report examines the existence of trends in the Australian share market with respect to the effect of profit announcements in the mining industry; specifically the effect on BHP Billiton. The price index of BHP Billiton and two of its competitors, namely Rio Tinto and Fortescue Metals Group, on the Australian Stock Exchange has been recorded for 3 weeks before and 3 weeks after a profit announcement in order to facilitate an investigation into investor behaviour following the release of accounting information. Closer examination of BHP Billiton’s internal management and wider external economic forces have also been in order to better predict the market’s reaction before analysis of the actual reaction of investors. Key factors, including the improvement of cash flows in and out of BHP, change in accounting standards and an increase in leverage are integral in assessing the effect a profit announcement on an industry that has previously been in gradual decline. Ultimately it has found to be a combination of these factors, in addition to a change in political circumstances that can be attributed to an increase in stock price following the profit announcement.
This report aims to analyse the effect of releasing accounting information on investor trading. More specifically, the direct effect of a publicly listed company, and two of its competitors, announcing profit figures and the resultant change in share price due to the natural economic forces of demand and investor perception of the wider industry. Having regard to this, the market’s reaction to BHP Billiton releasing its half yearly profit statement will be investigated to determine the direct effect the announcement had on the share price listed on the...
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...ns on investment.
In addition to this, both internal and external factors were examined to explore possibilities for why the share price increased on the date of announcement. Closer examination of financial ratios revealed that BHP’s success so far has been to improved productivity from low risk investments, essentially demonstrating that the company, whilst investing in higher risk programs, have kept to the bread and butter of the company’s business venture in order to increase cash flow so net debt can be reduced in the second half of the financial year.
As such, BHP is firmly within a consolidation period with a focus on increasing efficiency of outgoing cash flow and down payment of debt whilst maintaining its reputation as a safe stock that provides consistent return on investment capital, further cementing its place as a leader in the mining industry.
Following the Global Financial Crisis (GFC) of 2009 BlueScope was in its worst ever market position. As of 2011 the price of shares had hit record lows of 38c compared to $12.03 of just three years earlier, showing a 93% reduction in share prices. Huge financial losses were also recorded. In the 2010/2011 financia...
• Qantas had to make an increased profit and pay a dividend to its shareholders which increased over the years of management
This strong growth in its downstream can be attributed to its efforts of diversifying its business to those products that have higher margins. For instance, the company’s refining and marketing margins helped the company to increase its earnings by a whopping $4.1 billion in 2015. This was however offset by volume and mix effect that led to increased maintenance costs and reduced its earnings by $200
...disclosing positive signal to the investor. In this case, the profitability, turnover and return to the investors are less and this is the industrial trend. In this situation, an investor has to look into the liquidity ratio and into the debt ratio. When the profit earning capacity of the company is lesser in the industry, those company should not prefer to have higher debt as this will drain their entire liquidity and will add more pressure to the company. This will increase the chances of bankruptcy and financial distress costs too. In this regard Exxon has very poor liquidity and higher debt which is adding more risk on investment. In this case, Chevron will be preferred over Exxon because, Chevron provides for similar return to investors but at lower risk, where as risk is higher in Exxon with lower return. Thus, Exxon should not be chosen for making investment.
As a natural resources company, BHP Billiton is vulnerable to changes in the environment and policies regarding the environment. With each environmental downfall, profit is jeopardized, which can push growth and innovation back. BHP Billiton has been heavily affected with blackouts in South Australia that has been interrupting production in Olympic Dam since September 28 during a two-week blackout. Without power supply security, BHP Billiton is having difficulty keeping power prices affordable in South Australia. The total estimated profit loss of the power outages was $450 million. These obstacles have disturbed BHP Billiton’s ability to compete globally with electricity price rises.
In Microsoft’s 2004 fiscal year, a 33% increase in net income resulted in a 1% increase in stock price. In the 2005 fiscal year, a 2% gain in net income resulted in a 4% decrease in stock price (Microsoft Inc 2006). As seen, an increase in net income does not automatically lead to an increase in stock price. For growth companies such as Microsoft, stock price is primarily driven by the growth of earnings (25 April 2007).
Then BHP was formed a dual listed company in JUNE 29, 2001 as a result of consolidation between two companies broken hill proprietary (BHP) and BHP (PLC). Thereafter it becomes a one of the world's biggest diversified resource companies. Its main ...
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
After the announcement of higher- than-expected profit on 31st July 2015, the share price went from 727.5p to
The cyclical nature of the resources industry means that both FMG and ILU’s performance will be positively affected when world economies are strong and minerals are in high demand, and adversely affected in economic slowdowns. Whilst both companies’ performance will be negatively impacted by China’s slowing economic growth in the short term, the severity of the consequences are different for FMG and ILU. For FMG, China’s slowing economic growth means that there is less ‘end user’ demand for Iron Ore, leading to a further reduction in prices, negatively impacting FMG’s results (Oliver 2014). For ILU their significant market share affords the company to ramp down production and allow inventories to build, keeping earnings before interest, tax, depreciation and amortisation margin at sustainable figures to offset reduced demand (McArthur
We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.
The project is done to find out the impact of stock split on the stock market. In our project, we have made use of event study methodology to assess the accuracy of stock price reaction of 39 public listed Indian companies in National Stock Exchange (BSE) in the year 2006 and onwards. The abnormal returns (actual returns-returns from regression line) results were taken for 20 days before and after the announcement date to test whether the result is significant or not (Level of significance=5%). The project shows that there is no significance difference in the price level before the announcement date while after the announcement date, there was a significant difference in the price level for few days(level of significance being 5%) The project supports the hypothesis that Indian stock market is semi strong efficient.
Schofield (2014) researches the difference between public and private company financial reporting. For instance, a private company has fewer consumers reviewing their financial statements, whereas public companies could have multiple consumers reviewing financial statements. In addition, private companies typically have less specialized accounting personnel, whereas public companies will have several. Lastly, Schofield (2014), reviewed the number of amendments proposed and finalized to help benefit private companies financial reporting.
As Sutton suggests, the CEO of BHP Limited – Paul Anderson, had a change in his leadership style which lead to the success of his company. This was more closely analyzed in Sutton’s talk with the CEO himself where they discussed about the progression of the company. When Paul first took over in 1998, the company was under a messy management and there had not been a CEO for nine months previously. As a result, they were facing challenges in keeping the talented staff and maintaining the stock price as well as gaining profit. At this time, Paul used autocratic/telling leadership style. With this type of leadership style, he made all his decisions then he informed others of the organization about it. The leaders are usually very involved and supervise