Comparative Analysis Of Financial Statements Of BHP Billiton And Altura Mining

Overview of BHP Billiton and Altura Mining

BHP Billiton that was formed through the merger of Billiton PLC and BHP Ltd in 2001 is one of the largest among the mining companies in world. The company is engaged in the production of steel, silver, iron, copper, oil, gas and aluminium. It is also interested in transportation and engineering works (BHP, 2018). The company has it’s headquarter in Melbourne, Australia. It is the biggest diversified resources entity carrying out its operation over 20 countries in the world. On the other hand, Altura mining is the Australian company that is involved in supply of the raw material for lithium. It is also engaged in the activities of development and exploration activities that includes study for feasibility completion for Pilgangoora Lithium project (Alturamining.com, 2018).

Owner’s equity  Equity items

BHP Billiton –

Looking into the annual report of the company for the year closing on 30^th June 2017 it has been identified that the owner’s equity of the company includes the following items –

• Share capital – share capital is the fund raised by the company in exchange of issuing the ownership interest in the entity in form of shares. It is the amount invested by the investors or shareholders of the company to be used in the business. While the company is formed if the only asset of the company is the cash invested by the shareholders, balance sheet of the company for the right side is balanced through the share capital (Melloni, Lai & Stacchezzini, 2018). It can be identified that the share capital of the company is segregated into share capital – BHP Billiton Limited and share capital – BHP Billiton PLC. However, for both types of share capital there is no change in amount in 2017 as compared to the year 2016. Amount of share capital – BHP Billiton Limited was US$ 1186 million for both the years and amount of share capital – BHP Billiton PLC was US$ 1,057 million for both the years.
• Treasury shares – the treasury share are the shares those are bought back by the entity by reducing number of outstanding shares in the open market. All the entities are allowed to issue equity capital through treasury shares legally (Marshall, 2016). It is found that the amount of treasury share is increased from – US$ 33 million to – US$ 3 million over the past years. Reason of changes in amount was purchase of shares by the ESOP amounting to US$ 108 million and exercising the employee contribution amounting to US$ 138 million.
• Reserves – reserve is the liquid asset held by the entity for meeting the future payments obligations or to meet any emergency requirements. Reserve of the company includes various items like share premium, translation reserve for foreign currency, reserve for employee share awards, reserve for financial assets hedging reserve and buyback reserve (Titman, Keown & Martin, 2017). Reserve of the company is in decreasing trend and it reduced from US$ 2,557 million to US$ 2,400 million during the year 2015 to 2017. The reason of reduction was reduction in the amount of reserve for employee share awards and translation reserve for foreign currency.
• Retained earnings – it is the net earnings remain with the entity after paying the dividend and the amount available for the purpose of reinvestment in the core business of the company to meet the debt obligation (Waddock, 2017). Retained earnings of the company have been increased from US$ 49,542 million to US$ 52,618 million. The reason of increase was increase in the amount of after tax profit for the company and reduction in the amount of dividend payment.

Altura Mining –

Looking into the annual report of the company for the year closing on 30^th June 2017 it has been identified that the owner’s equity of the company includes the following items –

• Contributed equity – it is the total equity amount recorded by any entity. It is single equity element and the investors are required to concentrate more on entire equity amount rather than concentrating on this single equity amount (Warren & Jones, 2018). The company’s contributed equity amount has been increased from $ 105,840 thousand to $ 146,556 thousand. The reason of increase was issuance of shares under vesting of the performance rights, share placement and share purchase plan.
• Reserves – reserve is the liquid asset held by the entity for meeting the future payments obligations or to meet any emergency requirements. Reserve of the company includes various items like reserves for performance and options, share premium and translation reserve for foreign currency (Maaloul & Zéghal, 2015). Reserve of the company is increased from – $ 240 thousand to $ 595 thousand during the year 2016 to 2017
• Accumulated losses – the accumulated losses are the negative form of retained earnings. It is recorded for the business losses and is compared to the capital accounts under balance sheet. The company’s accumulated losses have been increased from $ 84,333 thousands to $ 90,460 thousands. The reason of increase in the amount of loss was increase in the amount of after tax loss for the company over the years from 2016
• Comparative analysis for equity and debt

Items	Altura Mining	BHP Billiton
	Amount	Percentage	Amount	Percentage
Debt	$ 31,388.00	35.53%	$   54,280,000.00	46.39%

 

Looking into the debt and equity position of the company it has been identified that for Altura Mining 35.53% of the assets are financed through borrowing and 64.47% has been financed through equity. On the other hand, for BHP Billiton 46.39% of the assets is financed through borrowing and 53.61% has been financed through equity. Therefore, it indicates that financial position of Altura Mining is sounder as compared to BHP Billiton as it is dependent on outside sources for financial need.

Cash flow statement   Items reported in the financial statements

• Cash flow from the operating activities – this section under statement of cash flow delivers information related to the company’s cash generating abilities from its core activities. It includes net income, changes in the working capital and non-cash expenses like amortizations expenses or depreciation expenses (Chang et al., 2014). Main component of cash flow from operations are inventories, accounts receivable, accounts payable and depreciation. In ling-term aspect the company requires positive cash flow from operation if it wants to remain solvent. 
• Cash flow from the investing activities – it is the 2^nd section in statement of cash flow that records the cash flows associated with disposal and acquisition of the entity’s long term assets like property, equipment and plant, investment in the subsidiaries (Sarfaty, 2015). This is reported separately as it states the users of financial statements regarding whether the company is making investing in the resources that will result into increase of profits in the future period or the company is selling out its property already held.
• Cash flow from the financing activities – it is the net amount of fund generated by an entity in particular period of time for financing the business requirement. It includes repayment and issuance of the equity, dividend payments, repayment and issuance of the debt and obligations related to capital lease. Entities raise their required funds through issuing equity or borrowing debt and the amount with details are recorded in the statement of cash flow under investing financing activities (Pavlovi? & Bogdanovi?, 2013).

Changes in each item

Altura Mining – it has been found that the net cash used in the investing activities has been significantly increased from $ 1,714 thousands to $ 43,581 thousands over the years from 2016 to 2017. The main reason behind the increase was purchase of property, equipment and plant amounted to $ 35, 019 thousand (Watson, 2015). Further, cash provided by the financing activities increased from $ 25,848 thousands to $ 40,309 thousands. The reason of increase was receipts from the issuance of share amounted to $ 40,309 thousands as compared to $ 25,848 thousands for 2016 (Alturamining.com, 2018).

BHP Billiton – it has been found that the net cash used in the investing activities has been significantly reduced from $ 7,245 million to $ 4,161 million over the years from 2016 to 2017. The main reason behind the decrease was purchase of property, equipment and plant amounted to $ 4,252 million as compared to $ 6,946 million for 2016. Further, cash from the financing activities reduced from $ 284 million to – $ 9,133 million. The reason of increase was repayment of interest bearing liabilities amounted to $ 7,120 million as compared to $ 2,788 million for 2016 (BHP, 2018)

Comparative analysis of the cash flows

Equity and Debt Positions

BHP Billiton –

Particulars	2017 ($m)	2016 ($m)	2015 ($m)
Net cash flows from operating activities	16,804.00	10,625.00	19,296.00
Net cash (used in) / provided by investing activities	-4,161.00	-7,245.00	-13,154.00
Net cash provided by (used in) financing activities	-9,133.00	284.00	-8,276.00

From the comparative analysis of cash flows from various sources for BHP Billiton it is identified that the inflows from operations has been reduced from US$ 19,296 million to US$ 16,804 million during the time period from year 2015 to year 2016. However, the company was able to improve the operating cash flows and increased it to US$ 16,804 million. Cash used by the entity for investing purpose has been reduced from US$ 13,154 million to US$ 7,245 million and further to US$ 4,161 million during the time period of year 2015 to 2017. Net cash used by financing activities amounted to US$ 8,276 million for the year 2015 and US$ 9,133 million for the year 2017. However, the company generated some cash amounted to US$ 284 million for the year ended 2016 (BHP, 2018).

Altura Mining –

Particulars	2017 ($’000)	2016 ($’000)	2015 ($’000)
Net cash used in operating activities	-5,557.00	-4,054.00	-2,954.00
Net cash (used in) / provided by investing activities	-43,581.00	-1,714.00	-1,844.00
Net cash provided by (used in) financing activities	40,309.00	25,817.00	3,574.00

From the comparative analysis of cash flows from various sources for Altura Mining it is identified that the outflows towards operating activities has been increased from $ 2,954 thousand to $ 4,054 thousand and further to $ 5,557 thousand  million during the time period from year 2015 to year 2017. Cash used by the entity for investing purpose reduced from $ 1,844 thousand to $ 1,714 thousand during the time period of year 2015 to 2016 (Alturamining.com, 2018). However, due to purchase of plant, property and equipment amounting to $ 35,019 thousand the cash used for investing activities amounted to $ 43,581 thousand in 2017. Net cash provided by financing activities have been increased from $ 3,574 thousand to $ 25,817 thousand and further to $ 40,309 thousand during the time period from year 2015 to year 2017 (BHP, 2018).

Comparative analysis for providing insights

Comparing both the company’s cash flow status it can be identified that BHP Billiton generates cash from operating activities whereas Altura Mining is used the cash towards operating activities. Both the companies used cash for investing activities, however, for the yera 2015 and 2016 the usage for BHP Billiton was more and for 2017 Altura Mining’s usage for investing purpose was significantly high as compared to BHP Billiton (BHP, 2018). Further, BHP Billiton except for the year 2016 used cash for financing activities whereas Altura Mining generated cash from financing activities for all the 3 years under consideration.

Other comprehensive income statement Items reported in statement of other comprehensive income

BHP Billiton – items added by the company in statement of other comprehensive income are as follows –

• Items that are possible to be reclassified subsequently in the income statement that includes investments available for sales and cash flow hedges
• Fluctuation on exchange with regard to foreign operation translation taken to the equity
• Fluctuation on exchange with regard to foreign operation translation transferred to the income statement
• Recognition of tax within the other comprehensive income
• Items that may not be reclassified subsequently to income statement that includes the re-measurement losses or gains on medical schemes and pensions and recognised tax within other comprehensive income (Weyg&t, Kimmel & Kieso, 2015).

Altura Mining – items added by the company in statement of other comprehensive income are as follows –

• Items that are possible to be reclassified subsequently in the income statement that includes changes in fair value of the financial assets available for sale and differences on exchange with regard to foreign operation translation taken to the equity
• Reasons for not reporting the items in income statement

Other comprehensive income (OCI) is regarded as more expansive view for net income. It includes the net income as well as unrealized income like unrealized losses or gains on derivative and hedge financial instruments and losses or gains from the transaction of foreign currency that cannot be reported under the income statement. The main objective of OCI is to report all the financial and operating events those have the impact on the owner’s interest on the business. Though the income statement provides an overview of expenses and revenues and considered as an important statement it recognizes only the expenses incurred or income earned (Khan & Bradbury, 2016).  OCI further includes the following items –

• Actuarial losses or gains with regard to plans for defined benefits
• Losses or gains generated from foreign operation translation
• Effective portion of the losses or gains with regard to the hedging instruments under the cash flow hedges
• Losses or gains generated from investment in the equity instruments (Jordan & Clark, 2014)

Analysis of Cash Flows Statements

As the above items cannot be reported under income statement these are reported under OCI.

Comparative analysis

From analysis of the other comprehensive income statement for BHP Billiton and Altura Mining it is found that the amount of items that can be reclassified in the income statement is – US$ 59 million. On the other hand, amount of Altura Mining under same head is – $ 5,236 thousands.  Total amount of other comprehensive income for BHP Billiton is US$ 6,173 million whereas the same for Altura Mining is – $ 5,236 thousands. However, if the amount of comprehensive income or expenses is included under the income statement of the companies, the profit of BHP Billiton will be increased by US$ 6,173 million and losses of Altura Mining will be increased by – $ 5,236 thousands.

Inclusion of other comprehensive income for evaluating performance

Comprehensive income is the net income after taxation and is regarded as an important measure for analysing the efficiency of managers. It evaluates the management’s ability to transform the input into output (Sethi, 2016). Comprehensive income further analyse the manager’s ability to make gains from changes in the value of some liabilities and assets. Hence, other comprehensive income shall be included for evaluating performance of managers (Eaton, Easterday & Rhodes, 2013).

Accounting for corporate income tax  Tax expenses  

BHP Billiton – tax expenses for the company amounted to US$ 4,100 million and included current tax expenses amounted to US$ 4,288 million and deferred tax benefits amounted to US$ 188 million.

Altura Mining – tax expenses for the company amounted to – $ 534 thousands and included adjustments with regard to prior period items associated with current tax expenses.

Effective tax rate

BHP Billiton – amount of income tax expense for the company was US$ 4,100 million whereas the amount of earning before tax US$ 10,322 million. Therefore, effective tax rate = 39.72%

Altura Mining – amount of income tax benefit for the company was – $ 534 thousand whereas the amount of earning before tax was – $ 6,165 thousand. As the company had loss for the year, it had tax benefit rather than tax expenses.

Therefore, among 2 companies, BHP Billiton had higher rate of effective tax.

Deferred tax assets or liabilities

BHP Billiton – for the year ended 30^th June 2017, the amount of deferred tax assets recorded by the company in the balance sheet was US$ 5,788 million and amount of deferred tax liabilities was US$ 3,785 million.

Altura Mining – for the year ended 30^th June 2017, the company did not reported any amount under deferred tax assets or deferred tax liabilities.

Deferred tax assets or liabilities are recognized under the balance sheet to account for the temporary differences arising for the carrying value of the assets and tax bases for the liabilities. Deferred tax is recognized by the entity only if it is probable that the future tax profit will be obtainable from which the unused losses on account of tax and temporary differences allowed for deduction can be adjusted (Laux, 2013).

Other Comprehensive Income Statement

Increase or decrease in deferred tax assets or liabilities

BHP Billiton – deferred tax assets of the company has been reduced from US$ 6,147 million to US$ 5,788 million over the years from 2016 to 2017. On the other hand, deferred tax liabilities have been reduced from US$ 4,324 million to US$ 3,765 million.

Altura Mining – for the year ended 30^th June 2017 as well as 30^th June 2016, the company did not reported any amount under deferred tax assets or deferred tax liabilities. 

Cash tax

	BHP Billiton (US$m)	Altura Mining ($’000)
Book tax	4100	-534
Changes in deferred tax
Less: decrease in DTL	559	0
Add: decrease in DTA	359	0
Cash tax	3900	-534

In the above table, book tax is the amount of tax expenses recorded in the income statement and cash tax is calculated through adjusting the changes in deferred tax assets and liabilities over the year.

Cash tax rate

	BHP Billiton (US$ m)	Altura Mining ($’000)
Book tax	4100	-534
Changes in deferred tax
Less: decrease in DTL	559	0
Add: decrease in DTA	359	0
Cash Tax expense/(benefit)	3900	(534)
EBITA	11753	202
Cash tax rate	33.18%	Not applicable

In the above table, cash tax rate is computed through dividing the earnings before interest, tax and amortization by the amount of cash tax. However, as for Altura Mining the company had net loss and tax benefit, cash tax rate is not applicable for it.

Difference in cash tax rate and book tax rate

There is difference in cash tax rate and book tax rate as the cash tax rate is the rate at which the tax is paid to the government and it is calculated on the income reported under tax return. On the other hand, book tax is the taxes recorded on the financial statement of the company (Narotzki, 2017).

Conclusion

From the above discussion it is concluded that both the companies report various items like share capital, retained earnings and reserves under equity section of balance sheet. From the debt equity position of the companies it is found that cash flow statement of the companies it is found that Altura Mining’s position is slightly better as compared to BHP Billiton. Further, if the cash flow statement is considered it can be stated that BHP Billiton is in better position as it has operating income as against the operating loss of Altura Minings. However, cash tax rate of BHP Billiton is higher as Altura Mining had tax benefit for the year.

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