Impact Of Corporate Reputation And Reputation Damaging Events On Financial Performance And Stock Prices: A Study On BHP Billiton

Aim and objective of the project

The main aim of the project is to analyze the impact of financial performance on stock price of an organisation BHP Billiton which is one of the leading global resource company. It is found that the financial performance of BHP Billiton is mainly analyzed with the help of two financial ratios which includes return on assets (ROA) and Return on Equity (ROE).

The objectives of the project are as follows:

• To identify the impact of financial performance on stock price of BHP Billiton
• To analyze whether the financial performance impacts the stock prices

The research questions of the project are listed below:

• Does the financial performance of an organization impact the stock price?
• How the financial performance of BHP Billiton impacts the stock price?

According to Luo et al. (2015), determination of share prices is considered as one of the central questions which are generally get addressed in the field of capital markets by the researchers as well as academicians.  It is found that maintaining the financial performance of the organization is one of the objectives before BHP Billiton (Lins, Servaes & Tamayo, 2017). Therefore, it is identified that the wealth of the stakeholders is generally get influenced with the growth in context to sales, in profit improvement margin, capital structure decisions as well as the decisions that are mainly related with capital investment. The consequences that are related with revenue valuation generally helps in suggesting that the revenue growth mainly helps in providing proper incremental information about the growth in the future earnings. On the other hand, it is stated by Li et al. (2014) that the price of stock is considered as the present value for the cash flows that generally accrue to its owner. The fundamental principle of finance generally helps in indicating that the stock variation is generally considered as the bottom line earnings that generally results in cash pay-outs either in the form of share repurchases or line earnings (Gatzert, 2015).  It is found that cash flow generally helps in providing a key metric in assessing the ability of the firm for generating the entire cash flow from various internal operations.

According to Jawadi, Jawadi and Louhichi (2014), number of theories is developed for explaining the behaviour of the stock returns as well as the factors that helps in creating impact on the prices of the stock. It is found that one of the most populous theory that is generally utilized for explaining the relationship between the returns and risk CAPM which is generally known as Capital Asset pricing model (O’Neill, Sohal & Teng, 2016).  In addition to this, it is analyzed that the actions that are generally taken by the BHP Billiton are generally creating huge implications on the valuation of stock as they generally can transit information in the market regarding the future prospects of the firm (Tayeh, Al-Jarrah & Tarhini, 2015).  This sections generally reflects on number of theories that include revenue investment as well as catering theory, capital asset pricing theory as well as efficient market hypothesis so that with the help of the theories the impact that financial performance of BHP Billiton creates on the prices of stock can be easily analyzed.

Literature Review

In order to analyze the impact of financial performance on the stock prices of BHP Billiton, it is quite necessary to have proper information as well as knowledge about the terms that helps in calculating the stock prices. According to Ajmi et al. (2014), it is found that financial performance analysis is one of the relevant method that helps in analyzing the balance sheet with the help of ratio analysis. It is found that the ratio analysis can be calculated for a single year or it generally can be extended over more than a year. The financial performance analysis can generally be compared with the help of similar rations for making proper comparative study. On the other hand, it is stated by Cooper, Gulen and Rau (2016) that the current ratio can be calculated by dividing he current assets with the current liabilities. It is found that the current ratio generally helps in indicating the relation that exists between current assets as well as current liabilities (Yasser, Entebang & Mansor, 2015).  Thus, the ratio measures generally help in measuring the capacity of the organization “BHP Billiton” for meeting the financial obligation.

 The acid test ratio helps in representing the current assets by excluding expenses as well as stocks. It is found that the stock is mainly excluded as it is analyzed that it is not easily realizable in cash. It is opined by Tsai (2015) that gross profit ratio can be calculated by making a comparison with the standard ratio for BHP Billiton for revealing a picture of the probability. The net profit ratio generally helps in serving a similar function in conjunction with the gross profit ratio. The earnings per share can generally be calculated with the help of the formula that is provided below:

It is found that the actions of marketing can be helpful in influencing the financial markets of the organization “BHP Billiton”. It is found that they generally can created impact on the stock prices indirectly with the help of the market share as well as profitability and directly when the perceptions of the analyst as well as investors are altered (Kim, Wang & Zhang, 2016).  It is found that the entire procedure is generally helpful in shaping the entire perceptions in the financial markets for determining the expected value as well as liquidity of the organization “BHP Billiton”.

It is found that the ability of BHP Billiton to generate the positive cash flow with the help of organizational operations generally assists in affecting the legitimacy as well as power of the shareholders (Epstein, 2018).  It is found that the cash flows from various operations can also indirectly affect the urgency of the shareholders by creating proper influence on the marketing perceptions of the organizations. In determining the entire value of the firm distinctiveness of the retail that might utilize some of the different ratios in a quite different way (Cooper, Gulen & Rau, 2016).   It is found that the stock price of the entire organization can go up if the financial performance of the company is good. However, it is noticed that most of the time when the financial performance related results are announced then the expectations are generally reflected the reports reflect bad or good news but the stock prices do not show any changes.

Earnings per share

 The research will generally be undertaken after the the research topic is approved and proper feedback on the topic is received from the lecturer.  It is found that descriptive research design is mainly utilized in order to analyze the impact of financial performance of BHP Billiton on the stock prices. It is found that information as well as data related with the research is generally collected by analyzing number of mathematical, statistical as well as graphical model that not only helps in analyzing the impact but also reflects on percentage of changes.

Proposed data collection methods: As this research is generally focussing on the impact of financial performance on stock price of an organisation BHP Billiton, secondary data collection method is generally utilized (Lewis, 2015).  It is found that in order to collect information the yearly reports of the organization are reviewed in order to analyze the impact that is mainly created on the stock prices due to the financial performance of BHP Billiton.

Proposed method of data analysis: It is found that the data will generally be analyzed by utilizing both mathematical as well as statistical models. It is found that the main aim of the research is to reflect the relation between financial performance of an organization and stock prices. It also helps in analyzing the impact that is mainly achieved due to the financial performance on stock price of an organisation BHP Billiton (Gatzert, 2015).  It is found that the findings will generally be analyzed by calculating the earning that is achieved from each share. In addition to this it is found that the calculation of both return on assets (ROA) and Return on Equity (ROE) are done for analyzing the impact of financial performance on stock price of BHP Billiton.

The schedule for the proposal “impact of financial performance on stock price of an organisation BHP Billiton” is provided in the table below:

Figure 1: Gantt chart

(Source: Created by Author)

References

Ajmi, A. N., Hammoudeh, S., Nguyen, D. K., & Sarafrazi, S. (2014). How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests. Journal of International Financial Markets, Institutions and Money, 28, 213-227.

Cooper, M., Gulen, H., & Rau, P. R. (2016). Performance for pay? The relation between CEO incentive compensation and future stock price performance.

Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Gatzert, N. (2015). The impact of corporate reputation and reputation damaging events on financial performance: Empirical evidence from the literature. European Management Journal, 33(6), 485-499.

Jawadi, F., Jawadi, N., & Louhichi, W. (2014). Conventional and Islamic stock price performance: An empirical investigation. International Economics, 137, 73-87.

Kim, J. B., Wang, Z., & Zhang, L. (2016). CEO overconfidence and stock price crash risk. Contemporary Accounting Research, 33(4), 1720-1749.

Lewis, S. (2015). Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice, 16(4), 473-475.

Li, X., Xie, H., Chen, L., Wang, J., & Deng, X. (2014). News impact on stock price return via sentiment analysis. Knowledge-Based Systems, 69, 14-23.

Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. The Journal of Finance, 72(4), 1785-1824.

Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), 123-136.

O’Neill, P., Sohal, A., & Teng, C. W. (2016). Quality management approaches and their impact on firms? financial performance–An Australian study. International Journal of Production Economics, 171, 381-393.

Tayeh, M., Al-Jarrah, I. M., & Tarhini, A. (2015). Accounting vs. market-based measures of firm performance related to information technology investments. International Review of Social Sciences and Humanities, 9(1), 129-145.

Tsai, C. L. (2015). How do US stock returns respond differently to oil price shocks pre-crisis, within the financial crisis, and post-crisis?. Energy Economics, 50, 47-62.

Yasser, Q., Entebang, H., & Mansor, S. (2015). Corporate governance and firm performance in Pakistan: The case of Karachi Stock Exchange (KSE)-30.

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