Shareholder analysis
Discuss about the Corporate Finance for Environmental Management In Mining.
BHP Billiton is an Australian conglomerate involved in mineral operations. It has also invested in other countries like Brazil, Peru and Colombia. BHP Billiton is an energy exporter and operates seven segments in mineral resources mainly, base metals, diamonds, stainless steel, liquefied natural gas, energy coal and oil. BHP Billiton is in a process of splitting of its core assets in order to concentrate on products such as iron ore, copper, coal, oil and potash. As of March 1, 2016, came into effect a new operating model that will bring together the operations of the firm in three new areas: Oil, Minerals in the Americas and Australia (Best Practice Environmental Management In Mining 2002).
Shareholder analysis
The mining industry has seen a significant drop in its shares in recent years, resulting from a strong dollar and therefore its inverse with commodities correlation, however, some investors are watching this area carefully. The poor state of the economy and how expensive they were in most markets, However, there is enormous opportunity that represented the mining of precious [1]metals and their actions described as undervalued. Investments that go counter to the popular trend and tend to earn a reputation for delivering high returns where most are not paying attention.
The company was badly affected in 2015, but had a strong start to 2016 and have recently returned good profits to attractive valuations. they would recoil precious metals and mining sector, would give investors that seek value, an excellent opportunity to invest in these companies. Therefore, an investor who would invest in the shares of BHP Billiton is the one who is not afraid to invest in stocks that have less value and is willing to see the value grow. In simple terms this is a patient investor.
Internet has become a channel of communication and interaction of companies with their environment and context of performance absolutely unavoidable. In very large extent it is already the first channel we access when we want to obtain specific information or identify a point of contact with an organization or a person (BHP Billiton Skills.Net Roadshow Queensland 2003). The message from the board of directors is that they want to be close to all those who want to collaborate with them, work, developing new projects and support the growth of these projects we develop every day with enthusiasm and confidence. We count on a team ready and excited. The chairman addresses all the shareholders and assures them that the company continues to strive towards achieving the goals of the company as well as increasing the share value.
Major Share holders
BHP Billitons major shareholders are institutional investors , the single largest investor with over four million shares is Bank of America. This is a market capitalization of $147 billion. The second largest shareholder in BHP Billiton is an American Company Known as Dimensional Fund Advisors LP, which is a investment firm based in Austin Texas. It manages mutual funds and investment portfolios for ist clients (Brebbia 2013). The company has 3.2 million shares in BHP. The fourth largest shareholder is CI Investment Inc, which has slightly over two [2][3]millionshares. The fifth largest shareholder is Neuberger Berman Group which as an asset management company based in New York and has offices in Australia, Germany and UK among other major cities around the world. The other major shareholder is Earnest partners LLC, which has a total of 2.1 million shares in BHP Billiton. This is an investment firm based in Atlanta Georgia.
Message to shareholders
A proper assessment of the investment in shares should take into account a horizon medium and long term, given the potential to deliver value to shareholders through dividend payments, the overall strength of corporations and profit on sale (Brebbia 2013) .It is obvious that investment in equity presents opportunities, it is no less true that investing in stocks is not without risk, the investors having to face many uncertainties, which in many cases can end up with unexpected losses. In addition to increased volatility, i.e a higher risk of fluctuations in price, investing in stocks involves greater risk for shareholders in the event of bankruptcy or bankruptcy by BHP billiton. in these circumstances, the company should be liquidated and ordinary shareholders would be placed in last place in the division with respect to bondholders and other creditors. Therefore, the shareholders invest in these stocks for the opportunity they present.
Before making their investment decisions in the stock market, investors should analyze in detail its goals of profitability, its ability to withstand temporary losses and investment horizon (short, medium or long term), to plan in detail a strategy consistent with these characteristics. They should also consider the opportunities, but also increased risk factors, incorporating equity investment directly (buy shares directly). These risks tend to be smaller if it has a diversified portfolio of stocks (from different sectors and companies), or if invested through collective investment. The profitability of BHP Billiton is also another factor that has led these shareholders to invest in the company (“BHP Billiton | A Leading Global Resources Company” 2016).
They also invest for the long term. The dividends the shareholders receive improve the companies bottom-line. Markets rise and fall, but long term there is usually more ups than downs. Know stay the course and not be distracted by the daily variations. This is a characteristic of the shareholders. Another reasons for investing in the shares of this company is to diversify . These shareholders have invested in the mining sector by putting their money in BHP Billiton. They have also invested in these stock because of the stability in management that the company has . The company has been in existence since 1853 and they are sure that it has a going concern.
Risk –return analysis
The identification and understanding of the risks associated with productive activities is the cornerstone of any decision, action or activity related to any growth and development in BHP Billiton mining company.
Every day becomes more important for companies to know, to the fullest extent possible, the market impact or may have therefore continually come under pressure from various fields to achieve their reduction or elimination. This is the goal of many legislative, economic or educational initiatives with the concept of risk-return analysis on the axis of its development (Cinnamon, Helweg-Larsen and Cinnamon 2010).[4]
The sources of risk present
Through various means such as publications, studies, diagnoses issued by experts or specialist[5]
consultants, rules and legal, etc.
Risk Identifiers
They indicate where and how they act the sources of risk in the concrete conditions of a company or workplace.
Major Shareholders
The effects or consequences of risk
Price risk of goods
Probability that the company has a negative result depending on the price of products (commodities) and the position BHP Billiton company, that is, if the company owns the product (long position) any price increase would be beneficial, whereas if you must purchase the product produced by BHP Billiton (short position) profitability would be that the price.
The price of a product is a result of market equilibrium between the amounts of supply and demand, so that a higher price increased supply and lower demand and lower prices lower supply and higher demand, then, regarding the price, the demand is given by a downward sloping curve, while the supply curve is positively sloped.
Risk of share price
Probability that the company has a negative result depending on the price of the shares held in portfolio. This risk is broken down in turn in specific, diversifiable, or unsystematic risk and systematic risk or non-diversifiable.
Interest rate risk
This risk is likely as a result of the interest rate change in a direction opposite to the position that the company has.
Exchange rate risk
This is the potential loss as a result of exchange rate variations, ie, according to its volatility and have the agent position in each currency.
Currency risk
The risk involved in currency fluctuation
This is the risk which an export company faces due to fluctuations of values of different currencies of trade. Various raw materials used in the production of raw materials increase the final product cost due to the currency risk.
Why people choose to risk money in a new company with so many possibilities such as putting it in the money markets where I know nothing happens and I also recognize performance, the answer is very simple for utilities, because of the ability to increase profits in the coming years and that a better return was calculated by investing in a new company that wearing the silver to the bank (Cinnamon, Helweg-Larsen and Cinnamon 2010).
Earnings per share are the result of the formula profit after tax divided the number of shares in
[6]circulation.
Price of Action
The index price / earnings: describes the relationship between share price and earnings per share, this is calculated by dividing the share price on the amount of gain for each of these.
Dividend yield: the percentage of annual return provided by the dividend, this is calculated by dividing the annual cash dividend per share, including the share price.
Reasons for buying BHP Billiton stock
Although each person has a deferential objective by investing, stocks are bought for a fundamental reason: to make money
Return on stock Investment
The return on investment or ROI is one of the most useful metrics that we should know about our business. It is essential as it provides us information about whether or not we are making money through investment we are doing. Here are a few simple and practical to calculate and make decisions based on the outcome advice.
Why shareholders invest in this stock
The ROI mainly calculates the effectiveness of an investment. In this operation, your numbers may be actual or estimated (in case you want to calculate a new strategy or some reform on the site to improve different performances).
The simplest of formulas to obtain this data is solving the following mathematical operation:
(Total return on an investment) [less] (Cost of Investment) [divided] (Cost of Investment)
If the number is positive you’ve made a profit. If it is negative, you did not (Capinski and Kopp 2012).
A numerical example
If you have proved difficult to understand here we draw a clear example: imagine you got $ 600 of profit and that your investment was $100 in BHP Billiton
600-100 / 100 = 5
ROI = 5
In this case, for every dollar invested, did you get 5 dollars back.
Some alternative uses of calculation
ROI = -10%
[Because (3600 – 4000) / (4000)]
Number of acquired customers: 1
Average sale: $150
Total gain: $450
Investment: $ 400
ROI = 13%
[Because (450 – 400) / (400)]
Currently BHP Billiton stock trades at $ 34.61 however, investing in these shares will be dependent on the return attributable to this stock. As a company established in 2001, the stock shares have fallen from the year 2008 after a high of $ 58 during its listing. There are various reasons that have led to the volatility of the shares including environmental and economic factors affecting BHP Billiton.
Dividend Discount Model
Perhaps from the point of view of analysis one of the most desired parameters when assessing a company is to know what is the right price for it for a purchase. The number of Graham is an attempt to determine what Benjamin Graham called the Fair Value, fair price, below which the shares are traded at a discount. But methods to get the price of a company there are many; today I bring the dividend discount model will try to include in future analysis.
Price of a stock as dividend discount model
Where:
DPA estimate is the estimated time dividend “t”
Since it is not possible or rather sensible, make projections dividend infinitely have been particularizing a little more this type of model companies that pay dividends more or less constant, appearing more complex models of which we later, but today we focus on the simplest model:
Gordon growth model:
This model applies when a company is in steady state as far as growth and cash generation and therefore dividend relates. It considers that the rate of dividend growth will remain constant forever.
If we apply these considerations in the above equation and after some mathematics arrived at the following simplified formula:
Price of a stock as dividend discount model Gordon
Where:
Dpae is the estimated dividend per share next year
K is the expected return on capital
C is the rate of dividend growth
Cost of equity/ Cost of Capital
– The situation of the company affects profitability demanded by shareholders of the shares of the company and therefore its cost of capital.
Risk-Return Analysis
– Ke: The cost of common equity or share capital.
– Say that action Dividends generated at the end of the period “i”.
– Po: current value of the share or market value.
. Only be willing to assume a risk unit if it receives an additional profitability as measured by the so-called risk premium (difference between the market return (Rm) and the risk-free return itself (Rf)). The amount of risk assumed with the shares of a company is determined by its coefficient of volatility, which measures the relationship between the profitability of the securities of the company and the market. Thus, the cost of capital contributions is identified with the performance of the title so that:
– K0 = weighted average cost of capital.
– K1 = cost of financial source “i” for i = 1, 2, …, n.
– F1 = resources financial source “i” (in the case of capital must be collected the market price, while the debt must include the amounts received by the company free of charge).
– T = sum of all the resources of T = R1 + R2 + … + Rn.
To determine the weighted average cost of capital is necessary to calculate the total resources of the company
The Weighted Average Cost of Capital ( WACC ) is a fiscal gauge , that is meant to include in one figure stated in % terms , the charges for various types of financing that a BHP Biliiton may use to fund a particular project .
To determine the WACC , will have to identify the amounts , rates of interest as well as taxes bases for each of the chosen options for financing outcomes , therefore it is worthy of finding the time to evaluate various combinations of those sources and also decide to try to give the lesser figure .Comparatively , without getting into details of the project assessment , “the WACC needs to be lower than the profit potential of the venture to fund” or even stated in another order , “the project’s overall performance has to bemore than WACC” .
Selling price Valuation of Monetary Assets or even Capital Asset Pricing Model ( CAPM referred to as ) is among the equipment utilized in financial to figure out the necessary rate of return for a certain asset (Capinski and Kopp 2012). .
The CAPM design provides an interesting and also instinctive method an easy way to forecast the risk of an active separating these into methodical risk as well asunsystematic risk . Systematic risk denotes the overall financial uncertainty , the natural environment , to exogenous , that which we could not deal with . Unsystematic risk ,nevertheless , is a specified risk of the organization or even of our financial industry . Which is , it can be our own risk .
This enables the CAPM to develop the best portfolio to ascertain as accurately seeing that percentages of investment in each and every asset . To figure out this method todiscover the linear relationship (Armitage 2005).
There is little friction or even market failures . There is certainly a risk-free rate that market speculators mayborrow or even place finances , There is absolutely no information asymmetry and also investors are rational , which does not necessarily mean that most investors possess the same conclusions regarding the expected returns and also standard deviations of feasible portfolios (Alexander 2008) . The formulae for CAPM is
E(RI)=Rf+Bi(E(RM)-Rf) where;
E (ri) is the expected rate of return of capital on the asset I,βim is the Beta (amount of risk relative to the market portfolio), E (rm – rf) it is the excess return on the market portfolio, (rm) Market Performance and (rf) Performance of a risk-free asset.
Ri = 0.02 + (0.0568 to 0.02) x 1.12 = 0.061216 ≈ 6.12%
($4,255,000 interest Expense)*(1-.30 Tax rate)/$45,800,000+$1,500,000 Unamortized premium
=6.2%
Therefore, according to the annual CAPM required return to shares of BHP Billiton, given its systematic risk and excluding dividends, will be 6.12%. Namely, to 10.1% (6.12 / 5.56) higher than the required return to the market average.
References
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Best Practice Environmental Management In Mining. [Canberra]: Environment
Australia,2002. 28[8]
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Bhpbillito (s 2005) (s 2005) (s 2005)n.Com. https://www.bhpbilliton.com, 2016.
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Bloom, David E. Does Age Structure Forecast Economic Growth?. Cambridge, MA:
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Capinski, Marek and Ekkehard Kopp2012. The Black?Scholes Model. Cambridge:
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