Analysis Of Financial Statements For Altura Mining And Rio Tinto

Equity Items Listed in the Balance Sheet

Altura Mining is an ASX listed company based in Perth, Australia and carries on the business of lithium. It is engaged in exploration and development of coal mining and minerals. The company is fulfilling the increasing demand of raw material required for manufacturing lithium ion batteries. It is focussed on developing and constructing its 100% owned lithium project Pilgangoora located in Pilbara, Western Australia (Alturamining.com, 2018).

Incorporated on 30^th March 1962, Rio Tinto became the leading mining and metal company in Australia. It’s major business is finding, mining and processing of mineral resources. It has various segments like Iron Ore, Aluminium, minerals and energy, Diamonds and copper. The company assists in meeting the society’s requirement through different researches and innovations and help the world to grow (Riotinto.com, 2018).

Established during 2001 through merging of Broken Hill, Billiton and Proprietary, BHP Billiton became the biggest mining and global resources organization. It is 7^th biggest producer in world for aluminium and considered as the largest producer of manganese, copper, nickel, aluminium, iron ore, titanium, uranium and silver (BHP, 2018).

(i) Equity items

Altura Mining – equity items listed in the balance sheet of the company are as follows –

• Contributed equity – contributed equity that is also known as paid in capital is the component of total equity recognised in the balance sheet of the company. Another way of reporting the contributed equity is to record it under the head shareholder’s equity as a separate account. It represents the contributed amount of shareholders for share of ownership in the company (Titman, Keown & Martin, 2017).
• Reserves – reserve is considered as an equity component that does not consider the part of basis share capital. It represents the surplus accumulated through various sources including revaluation reserve that is upward revaluation of the assets or issuance of share at premium (Maaloul & Zéghal, 2015).
• Accumulated loss – generally the amount of retained earnings that is the accumulated earnings are used for distributing dividend. If the account balances of accumulated earning shows negative figure the amount of retained earnings will also represent negative balance that is reported as accumulated loss.

Changes in equity for the company is as follows –

 

Issued capital amount went up owing to the contribution of equity and changes in the amount of accumulated losses were owing to the distribution from the retained earnings.

Rio Tinto – equity items listed in the balance sheet of the company are as follows –

• Share capital – fund raised through share issuance in consideration for cash or other form is known as share capital. In investing into the company through purchasing the shares the shareholders becomes the part owner of the company. it is considered as the long term source of raising funds.
• Share premium – share premium is the value of share exceeding its par value. Share premium amount can be used only for some particular purposes mentioned in the company’s bylaws (Marshall, 2016).
• Other reserves – as described for Altura Mining
• Retained earnings – retained earnings is the surplus amount available at the date of balance sheet and the amount of retained earnings is reduced with the distribution of dividend to the shareholders (Reid & Myddelton, 2017).    

Changes in equity for the company is as follows –

 

Retained earnings amount changed for dividend payment and share buyback. Amount of reserves changed for share buyback.

BHP Billiton – equity items listed in the balance sheet of the company are as follows –

• Share capital – as described for Rio Tinto
• Treasury shares – it is the issued share that the company bought back. It reduces the number of share outstanding in open market for any entity. Treasury shareholders are not entitled to get dividends and are not entitled to voting rights (Sarfaty, 2015).
• Retained earnings – as described for Rio Tinto
• Reserves – as described for Altura Mining

Changes in equity for the company is as follows –

 

Reserves amount reduced as various employee related payment and adjustments made from the reserve amount. Retained earnings amount changed for dividend payment

(ii) Liability items

Altura Mining – liquidity items listed in the balance sheet of the company are as follows –

• Trade and other payables – trade and payable is the amount payable by the company to the supplier for purchase made by it or service consumed by the company.  
• Borrowings – raising finance through financial institutions like bank or 3^rdparty is known as borrowings. In case of borrowing it is agreed that the borrowed money along with interest will be repaid in future period. Based on the maturity date borrowing is segregated into long term and short term (Waddock, 2017)
• Provisions – the amount set aside for meeting the estimated but uncertain future liability is known as provisions. Provision amount can be utilised for meeting future obligations.
• Liabilities held for sale – liabilities held for selling purpose are measured at carried value of the liabilities held for sale and faire value of the liability less disposal cost, whichever is lower.

Changes in liability for the company is as follows –

 

Borrowing reduced due to repayment and increased for new borrowings. Trade and other payable increased for accruals of new payable amount.

Rio Tinto – liquidity items listed in the balance sheet of the company are as follows –

• Borrowing and other financial liabilities – As explained for Altura Mining
• Trade and other payables – As explained for Altura Mining
• Deferred tax liabilities – DTL is the tax that is due for the current period or assessed for the current period, however the payment for which has not yet been made. If it is certain that the company will pay more tax in future for the transaction of current period the company will record the DTL in balance sheet.
• Tax payable – it represents the tax payable to the government during one year period and is recorded in the current liabilities (Warren & Jones, 2018).
• Provision for the post retirement benefits – it includes different post retirement benefits and defined pension benefits. Post retirement benefits include health care plans and welfare plans. The employees are entitled to the benefits based on the years he / she served the company.

Changes in liability for the company is as follows –

Liquidity Items Listed in the Balance Sheet

 

Borrowing reduced due to repayment and increased for new borrowings. Trade and other payable increased for accruals of new payable amount. Long – term provision including post retirement benefits increased owing to the adjustments of changes in estimates and currency translation.

Altura Mining – liquidity items listed in the balance sheet of the company are as follows –

• Trade and other payables – As explained for Altura Mining
• Borrowings or interest bearing liabilities – As explained for Altura Mining
• Other financial liabilities –
• Tax payable – As explained for Rio Tinto
• Provisions – As explained for Altura Mining
• Deferred income – it is the advance payment received from customers for the services that is not yet to be provided. Receiver records this amount as liability under actual basis of accounting.  

Changes in liability for the company is as follows –

 

Current tax payable increased as the rate of tax has been increased and the unrecognised tax asset amount of last year. Borrowing reduced due to repayment and increased for new borrowings. Trade and other payable increased for accruals of new payable amount.

(iii) Comparative analysis of debt and equity position

Debt –equity amount –

 

Debt-equity percentage –

 

Comparative for debt and equity is carried out for assessing the solvency position of the company. High proportion of debt indicates that the company is highly leveraged and its solvency is exposed to risk of interest payable on high amount of borrowing. It can be recognised from the above table that if the debt-equity position of all the companies are compared it can be stated that Altura Mining is in safest position as major portion of its capital is raised through equity. On the other hand the debt –equity position of Rio Tinto and BHP Billiton do not have much difference. They are moderately leveraged.

(iv) Listed cash flow items

Cash flows statement of all the companies generally comprised of 3 items – (i) cash flow from operating activities (ii) cash flow from the financing activities and (iii) cash flows from investing activities. Facts of each head are mentioned below –

• Cash flow from operating activities – it represents all the cash generated from the operational activities of the company. It includes expenses as well income from interest, payment to suppliers, receipts from customers, adjustments for depreciation and income tax.
• Cash flow from the financing activities – this section reflects the cash paid and received from financial activities. It includes amount received from share issue less associated expenses and payment made towards borrowing or lease (Chang et al., 2014).
• Cash flows from investing activities – this section reflects the cash paid and received from investment activities like purchase or sale of fixed assets. Further, the amount involved with investment held for maturity also included in this section.

Changes in each item of the cash flows statement –

Altura Mining – cash used for investing activities significantly increased to $ 43,581,000 from $ 17,14,000. Increase in the amount was contributed to purchase of fixed asset like plant, equipment and property for the value of $ 35,109,000. Cash generated though financing activities increased to $ 25,848,000 as compared to previous year’s $ 40,309,000 due to the amount received from issuance of shares.

Rio Tinto – Cash used towards financing activities increased to $ 9,141 million as compared to previous year’s $ 7,491 due to buyback of shares for the value of $ 2,083 million. Cash used for investing activities significantly increased to $ 2,373 million from $ 2,104 million. Increase in the amount was contributed to purchase of fixed asset like plant, equipment and property for the value of $ 4,482 million (Pavlovi? & Bogdanovi?, 2013).

Debt-Equity Ratio

BHP Billiton – cash used for investing activities significantly reduced to $ 4,161 million from $ 7,245 million. Reduction was due to fewer amounts expensed for purchase of fixed asset like plant, equipment and property in 2017 as compared to previous year. Cash expensed though financing activities was $ 9,133 million as compared to previous year’s cash generation for the amount of $ 284 million due to the increase of value for interest bearing obligations.

(v) Comparative analysis  

Altura Mining –

 

Cash flow from the all the activities had improving trend. However, except for financing activities cash flow from other 2 activities are in negative.

Rio Tinto –

 

Cash flow from operating activities increased to $ 13,884 million as compared to $ 9,383 million for 2015. However, except for operating activities cash flow from other 2 activities are in negative.

BHP Billiton –

 

Cash flow from operating activities increased to $ 16,804 million as compared to $ 19,296 million for 2015. However, except for operating activities cash flow from other 2 activities are in negative.

(vi) Comparative analysis selected for explaining insights

Looking into the insights of the company’s cash flow pattern it can be explained that Altura Mining generated cash through financing activities whereas BHP Billiton as well as Rio Tinto both spent cash towards financing activities. On the other hand, Altura Mining spent cash towards operating activities whereas BHP Billiton as well as Rio Tinto both generated cash from operating activities (Melloni, Lai & Stacchezzini, 2018).

(vii) Reported items under other comprehensive income (OCI)

Altura Mining – Reported items under other comprehensive income for the company are as follows –

• Items subsequently to be reclassified under profit and loss statement – under this, changes in the fair value of the financial assets available for sales and exchange difference generated through foreign exchange transaction are included (Watson, 2015).

Rio Tinto – Reported items under OCI for the company are as follows –

• Items subsequently to be reclassified under profit and loss statement – it represents gains or loss from securities available for sale, cash flow hedges and its fair value changes, tax recognition and exchange difference generated through currency translation
• Items subsequently not to be reclassified under profit and loss statement – it represents the items related to post retirement benefits and gains or losses associated with that, tax associated with OCI and adjustments for deferred tax related to benefit plan for post retirement period (Jordan & Clark, 2014).

BHP Billiton – Reported items under OCI for the company are as follows –

• Items subsequently not to be reclassified under profit and loss statement – re-measurement of losses or gains from medical schemes and pensions are included under this. Further, it includes the amount of tax reported under OCI
• Items subsequently to be reclassified under profit and loss statement – it represents investments available for sale, cash flow hedges, tax recognition and exchange difference generated through foreign exchange transaction reported under income statement and equity both (Khan & Bradbury, 2016).

(viii) Why items of OCI are not reported in the profit and loss statement

Main objective of preparing the OCI is recording all financial and operating activities those have impacts on the decision of the financial users. OCI reveals open and more detailed view of income statement or net income. Further items those can be included under OCI such as investments available for sale, cash flow hedges, tax recognition and exchange difference generated through foreign exchange transactions cannot be included in profit and loss statement (Khan & Bradbury, 2016).

(ix) Comparative analysis of items reported under OCI

It was found through analysing the other comprehensive income statement of 3 companies that the comprehensive loss for Altura Mining is reduced to $ 52,36,000 from $ 31,267,000. Comprehensive income of Rio Tinto significantly went up to $ 11,939 million as compared to $ 4,713 million for previous year. Comprehensive loss amounting to $ 6,184 million was changed to profit amounting to $ 6,173 million. If the amount of income related to accounting heads those are recorded under comprehensive income if included under profit and loss statement or income statement it will increase the profit attributable to shareholders of the company. On the contrary, if the amount of related to accounting heads those are recorded under comprehensive losses if included under profit and loss statement or income statement it will reduce the profit attributable to shareholders of the company (Weygandt, Kimmel & Kieso, 2015).

(x) Including comprehensive income for evaluating the manager’s performance

Cash Flow Statement

Comprehensive income represents various items such as investments available for sale, cash flow hedges, tax recognition and exchange difference generated through foreign exchange transactions determines the ability of the managers regarding their capability of planning and estimating values for assets and liabilities from the entity can be benefitted or for which the entity needs to make payment to fulfil the obligation. Hence, it plays important role while assessing the manager’s ability. Therefore, comprehensive income must be considered for evaluating the manager’s performance (Weygandt, Kimmel & Kieso, 2015).

(xi) Tax expenses recorded in financial statement of 2017

Altura Mining – tax benefit amounting to $ 534,000

Rio Tinto – tax expenses amounting to $ 3,965 million

BHP Billiton – tax expenses amounting to $ 4,100 million

(xii) Effective rate of tax

Effective tax rate is calculated as –

Effective tax rate = Income tax expense / Earning before tax

Altura Mining – effective tax rate for this entity is not applicable as instead of tax expenses it has tax benefit amounting to $ 534,000 and negative earnings before tax.

Rio Tinto’s effective rate of tax = $ 3,965 million / $ 12,816 million = 30.94%

BHP Billiton’s effective rate of tax = $ 4,100 million / $ 10,322 million = 39.72%

Therefore, BHP Billiton has the highest effective rate of tax at 39.72%.

(xiii) Deferred tax assets or deferred tax liabilities

Altura Mining – the company did not recorded any deferred tax assets or deferred tax liabilities for the year ended 2017.

Rio Tinto – Deferred tax assets of the company recorded for $ 3,395 million and deferred tax liabilities recorded for $ 3,628 million for the year ended 2017.

BHP Billiton – Deferred tax assets of the company recorded for $ 5,788 million and deferred tax liabilities recorded for $ 3,785 million for the year ended 2017.

Any company recognizes deferred tax assets or deferred tax liabilities in its financial statement for the amount of temporary differences created through carrying value of assets and tax bases of liabilities. Further, the company recognizes the deferred tax assets or deferred tax liabilities if and only if it is certain that the company will have future profit to offset or adjust the temporary differences (Laux, 2013).

(xiv) Increase or decrease in deferred tax assets or liabilities reported by the entities

Rio Tinto – amount of deferred tax assets dropped to £ 3,395 million as compared to $ 3,728 for previous year. Amount of deferred tax liabilities went up to $ 3,628 million as compared to $ 3,121 million for previous year.

BHP Billiton – amount of deferred tax assets dropped to $ 5,788 million as compared to $ 6,147 million for previous year. Further, amount of deferred tax liabilities dropped to $ 3,765 million as compared to $ 4,324 million for previous year (Sethi, 2016).

(xv) Cash tax 

Other Comprehensive Income Statement

Cash tax is calculated though adjusting the changes in the deferred tax amount with the amount of book tax. Details of cash tax computation for the entities are as follows –

 

(xvi) Rate of cash tax

Rate of cash tax is calculated through dividing the cash tax amount by the amount of earnings before interest, tax and amortisation. Details of cash tax rate computation for the entities are as follows –

 

From the above table it can be determined that the rate of cash tax is highest for Rio Tinto.

(xvii) Difference of cash tax rate from the book tax rate 

The tax rates are different as the cash tax rate implies the tax rate at which the entity is required to pay tax to the government and it is calculated on the amount of income represented in the tax return. On the other hand, book tax rate implies the amount of tax reported in the financial statement of the company. Therefore, both rates of tax are different (Narotzki, 2017).

Conclusion 

From the above facts and discussion it can be concluded that different items of income, expenses, assets and liabilities are reported in the financial statement of the companies mentioned above. Items of equities and liabilities include different items like share capital, retained earnings, reserves, borrowings, and trade payables. On the other hand, the cash flows statement represents cash used or generated from operating activities, financing activities and investing activities. 

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