Financial Analysis Of BCI Limited And Boral Limited Listed On ASX

Overview of BCI Limited and Boral Limited

BCI formerly the BC Iron Ltd is the iron ore development and mining firm listed in ASX. Its principal development activities comprise of exploration and development of the mineral projects, mostly on the iron ore deposits within Pilbara, west of Australia (BCI Limited 2017). It key strategies are maximizing value from the iron ore, creating presence in the base and gold metals as well as becoming a key influential player in the country both in industrial minerals and agricultural sector. Iron is the firm’s chief focus, with chief assets of Buckland and Iron Valley offering complementary mix of the current growth and earnings potential. On the other hand, Boral Limited is the international construction and building material firm whose headquarter is in Sydney (Investsmart 2018). Its core operations are construction materials and cement within Australia, bricks and roof tiles within US and Australia as well as plasterboard within Asia and Australia.

Item Reported on BCI and Boral Limited Latest Financial Statements 

Based on BCI Ltd statement of the owner’s equity there were a number of items reported. These items include contributed equity, reserves, and accumulated losses. The accumulated losses for the company comprised of the balance at the 30th June 2016, which was 165,005 million which was an increase from 79,955 in 2015. Another items included in this section was the profit generated within the year of around 5,669 million which yielded to comprehensive income of around 5,669 million (BCI Limited 2017). On overall, accumulated losses for the company in 2017 was 165,005 million a decrease from 170,674 million reported in 2017. Further, contributed equity items comprised of share issued of around 21,188 million and performance rights converted of around 80 million. On overall, the contributed equity for the company was 266,735 million in 2017 which was an increase from the amount reported in the previous year of around 242,467 million. It reserves comprised of performance rights converted of around -80 million, and share based payments of around 623 million. Generally, BCI total reserves was 5,426 in 2017 an increase from 4,883 million reported in 2016. The combination of the three items that is; reserves, accumulated losses and contributed equity yield to a total equity of 107,156 million in 2017 a significant increase from 76,676 million reported by 2016 (BCI Limited 2017).

The increase in reserve in 2017 would have been attributable to significant increase in the company share based payments from 53 million in 2016 to around 623 million reported by 2017. Decrease in the company accumulated losses on the other hand was attributable to introduction of profits for year ended 2017 which was not reported previously. Further, contributed equity increased over the past year due to introduction of share issued of around 24,188 million as well as performance right converted of around 80 million.

Analysis of Equity for BCI Limited and Boral Limited

On the other hand, based on Boral Limited owner’s equity statement, it is evident that several items were reported. These items were grouped into issued capital, retained earnings and reserves. Issued capital for Boral Limited comprised of share issuance under the capital raising of 2,018.9 million. On the other hand, items reported under retained profit comprised of dividends paid of 226.2 million and transferred of the other reserves to the retained earnings of 12.7 million. Reserves on the other hand comprised of share acquisition of 38.3 million, share-based payments of 11.3 million, acquisition of the non-controlling interest by the associates of 5.8 million as well as transfer of the other reserves to the retained earnings of 12.7 million.

Basically, issued capital for the company increased from 2,246.2 million reported in 2016 to 4,265.1 million reported in 2017. Further, Boral Limited reserves decreased from 162 million in 2016 to 19.3 million in 2017. The decrease was attributable to increase in total comprehensive income as well as increase in share acquisition. On the other hand, Boral Limited retained earnings increased from 296.9 million in 2016 to 1,156.1 million reported in 2017. The increase was attributable to increased total comprehensive income as well as net profit.

Debt and Equity Position of Both BCI Limited and Boral Limited

Based on the above highlight of some of the items reported on equity for the two companies, it is evident that Boral Limited equity increased over the past two years from 3,506.3 million in 2016 to around 5,440.5 million in 2017. The increase was attributable to the significant increase in its issued capital which is found to have increased with around 40% from the previous year (Boral Limited 2017). On the other hand, BCI Limited equity increased from 76,676 million to 107, 156 million in 2017. This is a clear sign that for the past two years BCI Limited had relatively higher equity amount compared to Boral Limited. Besides, the increase in BCI Limited equity is attributable to increase in the company contributed equity amount (BCI Limited 2017). Basically, based on these facts, it is evident that BCI Limited was at better stands in terms of equity compared to Boral Limited. This is due to the fact that BCI Limited equity was relatively high in the past two years compared to Boral Limited.

Further, BCI Limited total debts over the last two years experienced significant decrease. In essence, BCI Limited total debt decreased from 33,076 million in the year 2017 to around 17,332 million in 2017. The decrease is a good sign that BCI Limited is reducing what is well known financial risk through decreased debt burden. On the other hand, Boral Limited total debts increased over the past two years from 2,294.2 million to 3,873.1 million in 2017. The increase is a sign that the company is increasing its financial risk through increased debt burden. Basically, over the last two years, it can be stated that BCI Limited had relatively higher total debts compared to the Boral Limited. Nonetheless, despite BCI Limited having relatively high debts in comparison to Boral Limited, the decreasing trend in its total debt is a clear sign that the company is financially leverage or has relatively decreased risk compared to its counterpart.

Debt and Equity Position of Both BCI Limited and Boral Limited

Item Reported in the Cash Flows Statement of BCI Limited and Boral Limited

Based on BCI Limited cash flow statement, it is clear that there were a number of items which were reported within the three categories of its cash flow. In essence, it is evident that the items reported in BCI Limited were categorized into three; that is, the net cash from operations section, net cash inflow from investments and the net cash inflow from the financing actions.  The main items reported in the net cash from operation section include receipts from the customers of around 66,588. Receipt from the customers for the company decreased from 159,173 million in 2016 to around 66,588 million. Other item reported in this section was payments to the employees and suppliers of 55,320 million. The payments to the employees and suppliers decreased with a significant margin from 204,537 million in 2016 to 55,320 million by 2017 (BCI Limited 2017). Management fees received is the other item reported in the net cash from the operations section. BCI Limited management fees received decreased from 530 million in 2016 to around 15 million in 2017. Finally, there was interest received of 577 million. Interest received for BCI Limited decreased from 603 million in 2016 to approximately 577 million in 2017.  On overall, BCI Limited cash inflow from the operations decreased over the last two years from 44,231 million in 2016 to 11,860 million in 2017.

On the other hand, items reported it cash inflow from investment section comprised of the payment for the mine property and the development expense of 122. Payment for the mine property and the development expense decreased from 7,982 million in 2016 to 122 million in the year 2017. The second item reported in this section was payment for PPE. Payment for the plant and equipment for BCI Limited experienced a rapid decrease from 93 million reported in 2016 to 1,598 million which was reported in 2017. Another item reported in this section is payment for the exploration projects of 500. The amount for exploration projects increased from the previous year (BCI Limited 2017). On overall, BCI Limited net cash used for investment activities decreased from 8,075 million in 2016 to 2,220 million in 2017.

Further, items reported in the financing activities section comprised of proceeds from the issuance of the shares of around 24,189 million, repayment of borrowings of 1,966 million and repayment of the royalty rebate of 5,151 million. repayment of borrowings for BCI Limited decreased from 4,850 million in 2016 to 1,966 million by 2017 while its repayment of the royalty rebates increased from 2,575 million in 2016 to around 5,151 million in 2017 (BCI Limited 2017). On overall, BCI Limited net cash inflows from the financing action increased from negative 7,425 million in 2016 to roughly 17,072 million in 2017.

Cash Flow Analysis of BCI Limited and Boral Limited

On the other hand, based on Boral Limited cash flow statement, it can be noted that there are a number of items reported which are categorized into three; that is, cash from the operations, cash used in the investment activities as well as net cash from the financing events. In the cash flow from the operations section, a number of items are reported. The first item reported in this section is receipt from the customers of 4,583.3 million. Boral Limited receipts from the customers are found to have decreased with a slight margin from 4,635.7 million in 2016 to 4,583.3 million in 2017 (Boral Limited 2017). The second item reported in the section was payments to the employees and suppliers of 4,049.2 million. Boral Limited payments to employees and suppliers decreased slightly from 4,069.5 million in 2016 to 4,049.2 million by 2017. Dividends received is the other important item reported in the section. Dividends received for Boral Limited increased over the past two years from million 75.9 in 2016 to around 87.9 million in 2017. The other item reported in this section was interest received of 24.4 million. Interest received increased from 8.5 million in 2016 to approximately 24.4 million by 2017. Further, there was borrowing costs paid of 74.4 million. In essence, Boral Limited borrowing costs paid increased from 69.2 million in 2016 to 74.4 million in 2017. Another crucial item in the section was income tax paid of 41.8 million. Boral Limited income tax paid decreased over the past two years from 69.4 million to 41.8 million in 2017. Finally, restructure, integration and acquisition cost paid was the other item reported in the section. Restructure, integration and acquisition cost paid by Boral Limited increased from 34.5 million in the year 2016 to around 116.9 million by 2017. In general, Boral Limited cash offered by operations decreased in the last two years from 477.5 million in the year 2016 to 413.3 million by 2017.

In the investment activities section, a number of items were also reported. First, purchase of the PPE was reported in this section. Boral Limited purchase of the PPE increased from 320.3 million in 2015 to around 336.4 million by 2017. Secondly, there was purchase of the intangibles of around 3.7 million. Purchases of the intangibles for this company increased from 3.5 million in the year 2016 to around 3.7 million in the year end 30^th June 2017. Thirdly there was purchase of the controlled businesses and entities of 3,636.5 million. the company amount for purchase of the controlled business and entities increased from zero value to 3,636.5 million by 2017. Fourth there was cash acquired linking to the acquisition of the controlled entities of 74.8 million. The company cash acquired linked with acquisition of the controlled entities increased over the past years from zero to 74.8 million in 2017. Another item reported in the section was repayments of the loans by the associates of around 8.8 million (Boral Limited 2017). Boral Limited repayments of the loans by the associates for the past three years remained constant. Another important item reported in the investing activities section was proceeds on the disposal of the non-current assets of around 39.2 million. Proceeds on the disposal of the non-current assets decreased from 55.5 million reported in 2016 to 39.2 million reported in 2017. Finally, there were the proceeds on the disposal of the controlled associates and entities of around 122.5 million. In general, Boral Limited cash utilized in the investment increased from 259.5 million in the year 2016 to 3,731.3 million in the year 2017.  

In the financing activities sections a number of items are also reported. The first item reported in this section was capital raising the net of the transaction costs of around 2,018.9. The capital raising the net of the transaction costs increased from zero to 2,018.9 million in 2017. The increase was attributable to introduction of the capital raising net of the transaction costs. Secondly, there was on-market share purchase-back. The on-market share the buy-back for Boral Limited decreased from 115.4 million in 2016 to zero. The third item reported in this section was the dividends paid. Boral Limited dividends paid increased over the last two years from 154.2 million in 2016 to 226.2 million in 2017. Another item reported in the section were the proceeds from the borrowings of 1,803.6 million (Boral Limited 2017). Proceeds from the borrowing increased over the last two years from 2.2 million in 2016 to 1,803.6 million in 2017. Finally, there was the repayment of the borrowings for the company of around 489.3 million. Boral Limited repayments of the borrowings increased from 6 million in 2016 to 489.3 million in 2017. In general, Boral Limited cash provided by its financing activities increased over the years from 273.4 million in 2016 to 3,107.0 million.

Analysis of BCI Limited and Boral Limited Based on the Three Categories of the Cash Flows 

Based on the above analysis, it is evident that it is evident that for the past two years BCI Limited and Boral Limited experienced an increase trend in the cash inflow from the financing activities. This is evident by the movement of Boral Limited cash flow from the financing activities from 273.4 million in 2016 to 3,107.0 million while that of BCI Limited increased from negative 7,425 million in 2016 to roughly 17,072 million in 2017. Further, their cash flow from the operations were moving in different direction with Boral Limited indicating a negative movement from 477.5 million in the year 2016 to 413.3 million by 2017 while BCI Limited recorded a decreasing trend in this category from 44,231 million in 2016 to 11,860 million in 2017 (Boral Limited 2017). Finally, their cash utilized in investment activities were facing similar trend with BCI Limited recording a decreasing trend from 8,075 million in 2016 to 2,220 million in 2017 while Boral Limited reporting an increasing trend from 259.5 million in the year 2016 to 3,731.3 million in the year 2017.  

Comparative Analysis of BCI Limited and Boral Limited 

Based on the above analysis, it is evident that BCI Limited was in a better position to generate high cash flow both from its operations, from its investment as well as from its financing operations in comparison to Boral Limited. This is based on the fact that despite the decreasing trend in BCI Limited cash from operations, the company had relatively high cash inflow from these activities unlike its counterpart.

Items Reported in BCI Limited and Boral Limited Statements of the Other Comprehensive Income 

Based on BCI income statements, items reported in the other comprehensive income comprised of some items which might be at time be reclassified to income account or statement, variations in fair value of the cash flow hedges. The variation in fair value of the cash flow hedges increased from -2,706 to a negative value in 2017.

On the other hands, based on Boral Limited latest financial statements, it is evident that there were a number of items reported in the other comprehensive income statements. Some of the key items reported in this statements included items which might be reclassified or items classifiable concurrently to profit/loss account. These include the foreign current translation reserve transferable to the net income on the disposals of the controlled firms of -24.5 million. The amount for this item is said to have increased from 0 which was reported in the year 2016 (Boral Limited 2017). Another item reported in the statement is fair value adjustments on the cash flow hedges of around 2.6 million. Fair value adjustment on the cash flow hedges for Boral Limited increased from -7.7 million reported in 2016 to its current value of 2.6 million in 2017. The third item reported was net exchange variations from the translation of the foreign operations moved to the equity of -99.4 million. The amount for net exchange variation from the translation of the foreign operations moved to equity for Boral Limited decreased from -7 million in 2016 to -99.4 million in 2017. Finally, another item reported in this statement was income tax on all items which might be reclassified or items classifiable to the profit/loss account of -1.3. Income tax on the items classifiable to profit/loss account decreased from 10.4 million in the financial year 2016 to around -1.3 million by 2017. Generally the total of the other comprehensive income for Boral Limited in 2017 was 122.6 million.

Why the items are not reported in the Profit/Loss Statements 

The items are not reported in the profit and loss accounts since they are not yet realized. In fact they are reported since they have an impact on the organization’s balance sheet values; but this impact is not necessarily reported on organization profit/loss statement (Park, 2018).

How inclusion of the items could affect profit attributable to shareholders

In case, these items were reported in the profit/loss account, the profit attributable to the shareholders would have been affected significantly. In fact, it would have caused to abnormal increase in their profits attributable to the shareholders.

Whether the other comprehensive income ought to be included in evaluation of managers’ performance

The other comprehensive income statements could not be included in assessing performance of organization’s managers. This is based on the fact that it includes items excluded from the profit and loss account and therefore reducing volatility of the statement as value of the unrealized losses and gains keeps on decreasing and increasing (Park, 2018). Therefore, by using the statement it would expose the analyst to false or faulty decision regarding the organization’s managers’ performance (Kim, 2016).

The Tax Expenses in BCI and Boral Limited Financial Statements 

Basically, tax expenses entail income before tax then multiplied by a specific tax rate (Kim, 2016). In fact, some of the tax expenses reported in BCI financial statements include current corporate income tax expense and deferred tax expense.

Effective Tax Rate for the Two Companies 

Effective tax rate is usually computed by dividing income tax expenses by the EBIT (Feldstein, Dicks-Mireaux & Poterba, 2009). Therefore, in our case, effective tax rate for ANZ and NAB would be as shows below:

Effective tax rate for BCI ltd = 0/7,064 = 0%

Effective tax rate for Boral Limited was = 51.4/301 * 100 = 17.08%

Based on the above calculations, it is evident that Boral Limited had an effective tax rate of 17.08% in comparison to that one of BCI Limited which was 0%. This is a clear sign that Boral Limited was more effective in settling its tax obligations in comparison to BCI Limited.

Comments on the Deferred Tax Assets/Liabilities 

Based on BCI balance sheet statement, it is evident that the company had neither deferred tax assets nor liabilities over the past years. On the other hand, based on Boral Limited latest balance sheet statement, it is clear that the company had deferred tax assets of around 128.4 million in the year 2017. The amount for this item was 237.4 million in the previous year. Nonetheless, the company did not report any deferred tax liabilities over the last few years.

Whether There Was an Increase or Decrease in Deferred Tax Assets or Liabilities 

Given that BCI Limited had neither reported deferred tax liabilities nor assets, there is no justification on whether the value increased or not. The only justification that could be delivered is that the company neither reported deferred tax assets nor liabilities in the past years. On the contrary it is evident from Boral Limited statement that the deferred tax assets experienced a significant decrease from 237.4 million in 2016 to around 128.4 million by 2017. Nonetheless, since the company did not report any deferred tax liabilities it can be easily stated that no increase or decrease was observed for this specific item.

Cash tax is usually equals to = the book tax + upsurge in company’s deferred tax liabilities – increment in company’s deferred tax assets (Feldstein, Dicks-Mireaux & Poterba, 2009).

Therefore, cash tax amount for BCI Limited = 0 + (0) – (0) = 0

Cash tax amount for Boral Limited = 51.4+ (0) – (128.4-237.4) = 160.4

Cash Tax Rate for Both Companies

Cash tax rate is usually computed by dividing cash tax amount by the EBIT (Feldstein, Dicks-Mireaux & Poterba, 2009). Hence, in this scenario cash tax rate for the two companies would be as stated below;

Cash tax rate for BCI = 0/7,064 = 0%

Cash tax rate for Boral Limited = 160.4 /301 * 100% = 53.29%

Based on the above calculations, it is evident that Boral Limited had higher cash tax rate compared to BCI Limited. This evidenced by the fact that Boral Limited cash tax rate for the past year was 53.29% compared to 0% for BCI Limited.

The reason behind cash tax rate being different from book tax rate 

Cash tax rate is said to vary from book tax rate since the computation of the cash tax rate is based on original income tax expense plus the variation in the deferred tax asset and the company’s deferred tax liabilities (Feldstein, Dicks-Mireaux & Poterba, 2009).

Conclusion

To conclude, BCI Limited is found to be in a better position in terms of cash flow generations. In addition, based on the analysis, it can be stated that Boral Limited was more effective in settling its tax obligations in comparison to BCI Limited. Additionally, it can be concluded that BCI Limited was in a better position to generate high cash flow both from its operations, from its investment as well as from its financing operations in comparison to Boral Limited. This is based on the fact that despite the decreasing trend in BCI Limited cash from operations, the company had relatively high cash inflow from these activities unlike its counterpart.

References

BCI Limited. (2016). BCI Limited annual report 2017. Retrieved from: https://www.bciminerals.com.au/images/BC_Iron_Annual_Report_2016.pdf

BCI Limited. (2017). BCI Limited annual report 2017. Retrieved from: https://www.bciminerals.com.au/images/files/annual-report/BC_Iron_Annual_Report_2017.pdf

Boral Limited. (2017). Boral annual report 2017. Retrieved from: https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-2017.pdf

Investsmart. (2018). BLD General Information: Retrieved from: https://www.investsmart.com.au/shares/asx-bld/boral-limited

Park, H. (2018). Market Reaction to Other Comprehensive Income. Sustainability, 10(6), 1-13.

Feldstein, M., Dicks-Mireaux, L., & Poterba, J. (2009). The effective tax rate and the pretax rate of return. Journal of Public Economics, 21(2), 129-158.

Kim, J. H. (2016). Presentation formats of other comprehensive income after accounting standards update 2011-05. Research in Accounting Regulation, 28(2), 118-122.