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So in 2010 I undertook an analysis of BHP [here is the link to the original] reproduced below:

BHP is my proxy stock for getting short China, due to their supplying the basic resources to China that is fueling their infrastructure build-out with inflationary Yuan.

The capitalization ratios are good, no real problems here, the problems all occur elsewhere. The elsewhere is in the profitability.

%Profit margin……..5yrs Av………Current…..36%…….24%
%Earned on Capitalization………….4.6%…………………2.2%

Deteriorating. China, Germany, Japan are the big manufacturing bases. China is probably the only one that has continued to order vast amounts of resources, everywhere else is quiet. If China is a bubble, which I maintain that it is, then the popping of the China bubble will collapse BHP’s earnings.

The profit margins are not only contracting, they are also being manipulated. The COG has lagged Revenues very badly, this is always a very bad sign, and tends to suggest that Inventories are being held back from costing. When we look at inventory figures, they are growing faster than sales, they are jumping alarmingly, suggesting fudged figures.

Combine the rising Inventory picture with the slowing Receivables picture and you have further confirmation that something dodgy is taking place. Again rising Revenues, with falling Receivables, something is just not right.

In contrast to this poor picture, Cash from Ops/Operating Income ratio’s have improved. Cash from Finance is less, which is good. How then are they improving in this area? Again most likely from improper accounting of Inventories.

Management in the meantime have increased in a surreptious manner their compensation. SG&A has $2,231,000 that is purely discretionary in nature – where’s it gone? Hmmmm. Also a further $1,727,000 from CapEx, again, where’s it gone? Discretionary funds are accounted for under their line entries, but contradict cross-checks against other line entries leaving a trail.

One valuation method:
[i] Total Return Value = [earnings growth + yield] / P/E
[i] Total Return Value = [(-1.8%) + 2.1%]/94 = 0.00

Intrinsic Value = $27.63
Current Share Price = $79.00
Overvalued by some 65%

 And the current chart:
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