3

I would like to calculate the profit margin and gross profit percentage for BHP in 2017.

To do that, I need to figure out:

1) Gross profit

Which one is it? The revenue is 38,285, and I am supposed to take out the "cost of sold products". But there isn't any. Does that mean that the Gross profit is indeed $38,285?

2) Net sales

Well, this is supposed to be the gross profit MINUS the cost of sold products. But, there is no indication for cost of sold products! Si, is it really meant to be $38,285...? Surely, costs like opening a plant, paying people on site, etc. would make up for "cost of sold products"? If not does that mean that gross profit == net sales? (Meaning that the gross profit % is 100%...?)

3) Net income

Is this 5,841?

I am puzzled because Fortescue, a competitor, DOES show operating expenses.

The two income statements follow!

BHP's income statement

Fortescue's income statement Note 5 from BHP

2

Both companies referenced above report under IFRS (or at least the Australian equivilent), however, they seperate costs differently -- BHP under nature of expense method and FMG under function of expense method.

There is no requirement to indicate a cost of sales figure under IFRS on the income statement. (For example, how would one derive cost of sales for most service businesses?)

You can see the same mismatch in cost reporting between Vale and Rio Tinto.

As such, you won't (easily) be able to determine cost of sale -- or by extension, gross profit by an entity reporting under nature of expense.

This shouldn't really deter you analysis -- a cost breakdown should still have been presented for each cash-generating unit (CGU). That should allow you an indication of where CAPital EXpenditure (CAPEX) and income is occurring. (The all-in gross profit of BHP isn't actually that helpful without considering the underlying production mix for that year).

  • Fantastic answer. Thank you... But let me beg you for some help (I will accept the answer regardless). For BHP, I want to work out the gross profit margin. To do that, I need the gross profit -- and for that, I need to work out the cost of sale. I swear I tried... Given the statement, how do I do that? – Merc Feb 11 '18 at 12:26
  • I think adding a nice way to work out the cost of sale of a business using nature of expense (BHP in this case) would be a fantastic addendum to this answer. It's obviously something well searched, judging from the upvotes... – Merc Feb 11 '18 at 12:28
  • Addendum question: I studied accounting (just 'Accounting information for business decisions') and am having trouble reading "real" financial reports. Is there a textbook that will guide me through it? Discovering things bit by bit is just so time consuming... – Merc Feb 11 '18 at 12:32
  • I added a screenshot of note 5 by BHP – Merc Feb 11 '18 at 12:41

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.