Financial Performance Analysis Of Rio Tinto, Fortis Metals Group, And BHP Billiton
Equity Analysis
The financial performance of Rio Tinto, Fortis metals group, and BHP Billiton has been analyzed in the assessment. Moreover, the assessment also evaluates different segments of the annual report to determine the current financial position of the selected companies. The companies are under the Mining industry, which is one of the major contributed to the GDP of Australia. Furthermore, adequate analysis has been conducted on comprehensive income statement, equity, cash flow statement, liability, and corporate income tax of the selected companies. This analysis has relatively helped in identifying the level of income that can be generated by the organizations over the period of time.
The components of the equity consists of reserves, retained earnings, share capital, non-controlling interest, and treasury shares. These identified components directly indicate the total equity capital of the organization, which is reported in its financial statement. Furthermore, the share capital is the overall investment that has been contributed by the investors of the organization. Moreover, reserves of the organization consist of the income that has been generated over the period of time. Furthermore, the non-controlling interest consists of the ownership position that does not contribute in the management decisions, while the returns of the organization are income that has been generated over the fiscal years (Watson 2015). The reserve, share capital, and retained earnings of Rio Tinto have increased during the past three years. However, retained earnings, reserves and non-controlling interest of both BHP Billiton and Fortescue metals group has declined during the past three years.
The annual report comprises of liability section, which segregates the Current liabilities and noncurrent liabilities of the organization. Current liabilities directly comprises of all the relevant expenses of the organization, which will be conducted within the financial year. Moreover, the non-current liabilities comprises of obligations that needs to be paid in the long run. The current liabilities hold example such as trade payables and current tax payable, which needs to be paid by the organization within the fiscal year. Additionally, the non-current liabilities directly hold the interest bearing liabilities, which needs to be paid by the organization in the long run (Ni and Van 2015). The annual report of Rio Tinto and Fortescue metal limited has directly indicated that the current liabilities has increased in the past 3 years, while relevant production is seen in BHP Billiton. In addition, the non-current liabilities of Rio Tinto and Fortescue metal group have declined during the past three years while BHP Billiton has witnessed an increment.
|
Debt to equity ratio |
2017 |
2016 |
2015 |
|
BHP Billiton |
0.510 |
0.636 |
0.460 |
|
Fortescue Metals Group |
0.459 |
0.805 |
1.270 |
|
Rio Tinto |
0.314 |
0.402 |
0.535 |
Liability Analysis
The values depicted in the above table directly highlight the debt to equity ratio of the selected companies. After evaluating, the calculation that could be identified that left composition of Rio Tinto and Fortescue metals group has declined exponentially during the past 3 years. Moreover, an increment in the debt-to-equity ratio of the organization has been witnessed, which does not portray any kind of negative signals for the organization.
After evaluating the annual report of all the three selected companies, the cash flow statement can be adequately analyzed by identifying its operating activities, investing activities, and financing activities. The financing activities of the organization directly highlight the changes in lease, bond issue, dividend payments, other finance cost, and share issue by the organization. Moreover, the investing activities of the organization highlight the investments in property, plant, and equipment, which have been transacted during the financial year (Agrawal and Cooper 2017). The operating activities highlight the cash inflows and outflows of the organization that has been conducted during the financial year. Hence, the cash equivalent value of BHP Billiton and Rio Tinto has been witnessed to increase during the past 3 years. On the other hand, relevant decline in the cash position of Fortescue metal group has been witnessed during the past 3 years.
|
Rio Tinto in Million |
2017 |
2016 |
2015 |
|
Operating activities |
13,884.0 |
8,465.0 |
9,383.0 |
|
Investing activities |
(2,373.0) |
(2,104.0) |
(4,600.0) |
|
Financing activities |
(9,141.0) |
(7,491.0) |
(7,670.0) |
|
BHP Billiton in Million |
2017 |
2016 |
2015 |
|
Operating activities |
16,804.0 |
10,625.0 |
19,296.0 |
|
Investing activities |
(4,161.0) |
(7,245.0) |
(13,154.0) |
|
Financing activities |
(9,133.0) |
284.0 |
(8,276.0) |
|
Fortescue Metals Group in Million |
2017 |
2016 |
2015 |
|
Operating activities |
4,256.0 |
2,446.0 |
2,037.0 |
|
Investing activities |
(715.0) |
(358.0) |
(726.0) |
|
Financing activities |
(3,282.0) |
(2,863.0) |
(1,235.0) |
The values conducted in the above table highlights the amounts of operating activities, investing activities and financing activities of the three organizations. The calculations conducted in the above table directly highlight the current cash flow conditions of the organization. The financing activities of all the three companies have a relatively declined during the past three years, as witness in the above table. However, improvement in the investment activities of BHP Billiton and Fortescue metal group has been witnessed, while values of Rio Tinto have declined. Furthermore, the operating activities of both Rio Tinto and Fortis metal group have increased during the past 3 years, while decline in the values of BHP Billiton is witnessed.
The analysis of the cash flow statement directly helps in identify that the financial position of Rio Tinto and BHP Billiton has improved during the past three years. On the other hand, the cash flow position of Fortescue metals group has been witnessed during the past fiscal years. Furthermore, the operating activities of Rio Tinto have increased during the financial years, whereas decline in the Investing activities of BHP Billiton has been seen during the financial years. The analysis of Fortescue metal group cash flow statement indicates an increment in the expenses of finance and investing activities, which has negatively affected the cash flow position of the organization (Lee and Parker 2014).
Debt to Equity Ratio
The comprehensive income statement of Rio Tinto is adequately identified in the above figure, which indicates a decline in its income during the financial year of 2017 as compared to 2016. The Other comprehensive income of the organization has declined from the levels of 619 million to 6 million in 3 years, which directly indicates that the current revenues of the organization has declined.
The other comprehensive income of BHP Billiton is stated in the above figure where an increment in the income has been detected from 2015 to 2017. The other comprehensive income of the organization has increased from the values of -136 million in 2015 to -49 million in 2017. Increment in the values of other comprehensive income is due to the rising profits generated from the continuous and discontinued operations of the organization. The total comprehensive income in 2016 was negative which was due to the excessive expenses conducted by the organization.
The annual report of Fortescue Metal group indicates that there is no other comprehensive income of the organization, as depicted in the above figure.
The other comprehensive income of the organization is listed in the annual report of the organization, while it is not depicted in the income statement. The company takes this measure, as the other comprehensive income is not the actual source of its revenue. The income that is depicted in the other comprehensive income statement is generated from the different measures conducted by the organization for reducing the risk from loss. Hence, the organization cannot enlist the income that is generated from alternative methods used by the company to reduce the losses as the source of its income (Maas, Schaltegger and Crutzen 2016). This is the main reason why the other comprehensive income of the company is not listed as a direct source of income in the income statement.
After analyzing the annual report of the three selected companies, the other comprehensive income can be evaluated. The analysis has directly indicated that there is no other comprehensive income of Fortescue Metal Group, as depicted in the annual report. The evaluation has directly indicated that increment in other comprehensive income of BHP Billiton selectively decline losses from -136 million in 2015 to -49 million in 2017. From further evaluation, it could be identified that other comprehensive income of Rio Tinto has declined from the levels of 619 million in 2015 to 6 million in 2017. After evaluating the comprehensive income of the three companies, it could be identified that Rio Tinto has adequately utilized its resources to minimize the negative impact of losses from its income.
Cash Flow Statement Analysis
Yes, the other comprehensive income can be evaluated to understand the performance of the management, as it directly highlights the actions that were taken to mitigate the problem of the organization. Other comprehensive income statement highlights the measures that were taken by the management for curbing the losses incurred from operations. The measures taken by the management in improving the other comprehensive income of the organization directly highlights its effectiveness. Hence, adequate evaluation on the capability of the management for reducing the risk and maximizing the income can be evaluated with the help of other comprehensive income statement (Kravet 2014).
The annual report of a three-selected company directly highlights the adequate tax expense that has been included during the financial. Moreover, BHP Billiton Tax expense value of 4,100 million is in 2017, which is higher than the value of 3,965 million paid by Rio Tinto. Furthermore, Fortescue metal group has only paid a tax expense of 874 million in 2017, as depicted is the annual report. The above values of cash expenses directly mentioned in the annual report that is paid by the organization for the financial year of 2017. The income tax paid and the actual income tax is relatively different for the organization, as income tax is based on cash basis but the income statement is linked with accrual-based system.
|
Effective tax rate for 2017 |
|||
|
Particulars |
Rio Tinto in Million |
BHP Billiton in Million |
Fortescue Metals Group in Million |
|
Income tax expense |
3,965 |
4,100 |
874 |
|
Earnings before tax |
12,816 |
6,222 |
2,967 |
|
Effective tax rate |
30.94% |
65.90% |
29.46% |
The effective tax rate for 2017 is calculated in the above table, which is relatively different for all the three of selected organization. The calculations has directly highlighted that BHP Billiton has paid the highest level of taxes during the financial year. On the other hand, Fortescue metal group pays the lowest tax, which is at the levels of 29.46%. Moreover, Rio Tinto only pays 30.94% in tax rate, as depicted in the annual report.
The deferred tax liability of BHP Billiton is at 3,765 million in 2017, while the deferred tax asset is at the levels of 5,788 million. Moreover, Rio Tinto’s deferred tax liability is 3,628 million for 2017 and deferred tax asset is 3,395 million. Nevertheless, Fortescue Metals has deferred tax liability of 685 million for 2017, while the company has witnessed no deferred tax asset. BHP Billiton accumulates the highest level of deferred tax liability and deferred tax asset in comparison to other organization. The high accumulation of deferred tax asset and liability directly highlights current net cash position of the organization, as the values indicate the payments that are due to adequate authorities (Schaltegger, Burritt and Petersen 2017).
Other Comprehensive Income Statement Analysis
After evaluating the annual reports it could be identified that the deferred tax liability of 40 used metal group has increased from 167 million to 685 million in three years. Furthermore, the same increment in before tax liability is seen by Rio Tinto, which has witnessed an increase of 507 million in its deferred tax liability. Moreover, BHP Billiton deferred tax assets and liabilities have declined during the past three financial years. Hence, after evaluating the annual report of all the three organization, it could be identified that only BHP Billiton’s overall deferred tax Assets and liabilities has declined during the past 3 years.
|
Book Tax Amount computation:- |
|||
|
Particulars |
Rio Tinto in Million |
BHP Billiton in Million |
Fortescue Metals Group in Million |
|
Taxation |
3,965.0 |
4,100.0 |
874.0 |
|
Add: Deferred Tax Liabilities increase |
507.0 |
(559.0) |
57.0 |
|
Less: Deferred Tax Assets increase |
(333.0) |
(359.0) |
– |
|
Add: Finance Costs Tax |
497.4 |
429.3 |
144.9 |
|
Book Tax amount |
5,302.4 |
4,329.3 |
1,075.9 |
|
Earnings before income and tax |
14,474.0 |
11,753.0 |
3,450.0 |
|
Book Tax Rate |
36.6% |
36.8% |
31.2% |
The book tax rate and amount is directly calculated in table for all the three organization during the financial year of 2017. From the overall calculation it could be detected in that BHP Billiton and Rio Tinto pays the highest book tax rates. Furthermore, the calculations conducted in the above table also highlight that Fortescue Metal group is the lowest tax rate as per the book value (Peters and Romi 2014).
|
Cash Tax Amount computation:- |
|||
|
Particulars |
Rio Tinto in Million |
BHP Billiton in Million |
Fortescue Metals Group in Million |
|
Taxation |
3,965.0 |
4,100.0 |
874.0 |
|
Add: Deferred Tax Liabilities increase |
507.0 |
(559.0) |
57.0 |
|
Less: Deferred Tax Assets increase |
(333.0) |
(359.0) |
– |
|
Add: Finance Costs Tax |
513.0 |
943.0 |
142.3 |
|
Cash Tax amount |
5,318.0 |
4,843.0 |
1,073.3 |
|
Earnings before income and tax |
14,474.0 |
11,753.0 |
3,450.0 |
|
Cash Tax Rate |
36.7% |
41.2% |
31.1% |
The cash tax rate of the 3 organizations is calculated in the above table, where the values are derived from their annual reports. According to the cash tax rate, BHP Billiton pays the highest Tax amount, as per the financial report. In addition, Rio Tinto is the second highest cash tax rate of 36.7%, while Fortescue metal group only pays the cash tax rate of 31.1%.
The calculation, which is conducted by the organizations directly, highlights cash tax rates and book tax rate. This calculation eventually highlights that Book tax rate is calculated is the help of the actual Australian tax rate of 30%. On the other hand, the cash tax rate is calculated using the effective tax rate of the organization. From the evaluation, it is detected that the book tax rate is only higher for Fortescue metal group, whereas cash tax rate is higher for both Rio Tinto and BHP Billiton.
Conclusion:
The financial performance of all the organization has been adequately conducted in the assessment, which highlights its current financial position in the sector. Adequate evaluation has been conducted on the cash flow statement, equity, other comprehensive income, cash flow statement, and liability of the organizations for the past three fiscal years. Hence, from the evaluation it is detected that organizations have followed the Corporation Act adequately in formulating the annual report. The evaluation of the current book rate and tax rate of the organization is adequately conducted to highlight the actual tax payments that have been done during the fiscal year.
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