Corporate Accounting: Financial Analysis of Rio Tinto, Altura Mining, and BHP Billiton

This report analyzes the financial aspects of Rio Tinto, Altura Mining, and BHP Billiton, including equities, liabilities, capital structure, cash flow statements, and accounting for corporate income tax.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the student
Name of the university
Student ID
Author note

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Executive summary
Purpose of the report is to analyse various financial aspects of 3 companies from mining
industry of Australia that is Rio Tinto, Altura Mining and BHP Billiton. It will focus on
equities and liabilities reported by the entities and changes in the amount thereon. It will
further highlight the capital structure of the companies and will also analyse the other
comprehensive income statement and cash flow statement. Moreover the report will focus on
accounting aspects of corporate income tax.

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Table of Contents
Introduction................................................................................................................................4
Equity and liabilities..................................................................................................................5
(i) Items of equity.............................................................................................................5
(ii) Items of liabilities........................................................................................................7
(iii) Comparative analysis of debt and equity...................................................................11
Cash flow statements................................................................................................................12
(iv) Items listed under cash flow statement......................................................................12
(v) Comparative analysis.................................................................................................13
(vi) Comparative analysis for explaining insights............................................................16
Other comprehensive income statement..................................................................................16
(vii) Items reported in other comprehensive income (OCI) statement..............................16
(viii) Reasons why the items not recognised under income statement...........................18
(ix) Comparative analysis.................................................................................................18
(x) Inclusion of comprehensive income for evaluation of manager’s performance.......18
Accounting for corporate income tax.......................................................................................19
(xi) Tax expenses.............................................................................................................19
(xii) Effective tax rate........................................................................................................19
(xiii) Deferred tax assets or liabilities.............................................................................19
(xiv) Increase or decrease in the deferred tax assets or liabilities..................................20

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(xv) Cash tax.....................................................................................................................20
(xvi) Cash tax rate...........................................................................................................20
(xvii) Difference among book tax rate and cash tax rate.................................................21
Conclusion................................................................................................................................21
References................................................................................................................................22
Appendix..................................................................................................................................24

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Introduction
Rio Tinto Plc. That was incorporated on 30th March 1962 is the leading metals and
mining entity in Australia. The major business of the entity is finding, processing and mining
of the mineral resources. Various segments of the entity includes Aluminium, Iron Ore,
Diamonds and copper, minerals and energy and different other operations. Materials from the
company are essential for making the modern life work and their economies assist the
communities to prosper and economies to grow. Further, through various innovations and
researches they help to meet the requirements of the society in changing as well as growing
the world. Moreover, they bring benefits to the people, to the communities under which it
operates and beyond (Riotinto.com 2018).
Altura Mining is the key player in the global market for lithium that is based in
Perth, Australia. It is leveraging the growing demand for the raw materials to manufacture
lithium ion batteries used in electric vehicles and for static usages. The entity is further
engaged in development and exploration activities and its segments include exploration
services, coal mining and exploration of minerals. Coal mining sector of the company is
involved in selling of coal. Further, the company is focussed on development and
construction of Pilgangoora Lithium project that is 100% owned by it and situated in Pilbara
region of Western Australia. Moreover, the company delivers drilling services to the
exploration and mining companies (Alturamining.com 2018).
BHP Billiton that was established in 2001 with the merger of Broken Hill, Proprietary
(BHP) and Billiton is one of the largest global resources and mining company that has more
than 100,000 employees in more than 25 nations. Headquarter of the company is in
Melbourne, Australia. It is among the largest producers for copper, aluminium, iron ore,
manganese, nickel, titanium, silver and uranium. Further, it is the 7th largest aluminium

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producer in the world. Aluminium portfolio of the entity includes bauxite refining for
producing alumina, bauxite production and smelting of the aluminium metal (BHP 2018).
Equity and liabilities
(i) Items of equity
Rio Tinto – listed equity items for the entity are as follows –
 Share capital – share capital is the fund that is raised by issuing shares for cash or
consideration. It is the long-term source for finance. Shareholders get share of
ownership in the company in return of their share holdings
 Share premium – it is the amount that is subscribed to for the new issue of shares
over and above its par value. It can be used only for specific purposes mentioned in
the bylaws of the entity (Marshall 2016).
 Other reserves – other reserves is the part of equity that excludes the basic share
capital part. Generally the other reserves includes specified part of the surplus fund
generated through various other sources like selling the shares at premium or upward
revaluation of fixed asset
 Retained earnings – it is the profit available with the company at the balance sheet
date and is decreased by the amount of any distribution made to the the stockholders
as a means of dividend. However, the amounts of retained earnings are also re-
invested in business or are maintained as reserve for particular purposes (Melloni, Lai
and Stacchezzini 2018).
Changes in the equity for Rio Tinto are shown as below –

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Retained earnings of the company have been changed owing to buyback of the shares
and payment of dividend from this amount. Share capital amount has been changed due to
share buyback.
Altura Mining – listed equity items for the entity are as follows –
 Contributed equity – contributed equity or the paid in capital is element of total equity
amount reported by the entity. However, it can be segregated as the separate account
under stockholder’s equity segment of balance sheet. In other words, it is the amount
contributed by the stockholders in return of ownership stake (Sarfaty 2015).
 Reserves – As described for Rio Tinto above
 Accumulated loss – retained earnings amount usually represent the credit balance
generated from the income accumulated over the specified time period. However, the
amounts of retained earnings are impacted by the amount of dividend distribution. If
the accumulated amount earning is in negative it decreases the amount of retained
earnings and make it negative which is also known as accumulated deficit or loss
(Reid and Myddelton 2017).
Changes in the equity for Altura Mining are shown as below –

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As shown above, amount of the issued capital has been increased due to equity
contribution and accumulated loss was due to dividend distribution made from retained
earnings.
BHP Billiton – listed equity items for the entity are as follows –
 Share capital – As described for Rio Tinto above
 Treasury shares – it is the share that is bought back by the company already issued
before. It lessens the outstanding shares of the entity in the open market. However,
there is no dividend right on the treasury shares and does not have any voting rights
(Sethi 2016).
 Reserves – As described for Rio Tinto above
 Retained earnings – As described for Rio Tinto above
Changes in the equity for BHP Billiton are shown as below –
Retained earnings of the company have been changed owing to the dividend payment
from this amount. Amount of reserves have been changed due to contribution from employee
and various other adjustments made for the employees.
(ii) Items of liabilities
Rio Tinto – listed Liability items for the entity are as follows –
 Borrowings and other financial liabilities – borrowing is raising money from another
party or financial institutions with the agreement that the money will be repaid at later

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date along with interest. Generally borrowings have specified maturity date based on
which it is classified as short term or long term.
 Trade and other payables – it is the amount billed to any entity by the suppliers for the
goods delivered or for the services consumed by it during the ordinary business
course (Titman, Keown and Martin 2017).
 Tax payable – it is the account recorded under current liabilities segment of the
balance sheet. It comprised of the taxes due to government within one year period of
time.
 Deferred tax liabilities – it is the tax assessed or due for current period but has not yet
been paid. It is recorded in the balance sheet if the company ensures that in future the
entity will pay more amount of of tax for any transaction taken place in the current
period.
 Provisions for post retirement benefits – it is related to the defined pension benefit and
various other post retirement benefits including the welfare and healthcare plans. It is
primarily based on the years of services provided by the employee and the
compensation he is entitled to (Waddock 2017).
Changes in the liability for Rio Tinto are shown as below –

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Borrowings have been reduced due to repayment of the amount and trade payables
amount have been changed due to payment of current portion of payables and accruals of
new payables. Further, provisions for the post retirement benefits have been increased due to
adjustments of currency translation and changes in the estimates.
Altura Mining - listed Liability items for the entity are as follows –
 Trade and other payables – As described for Rio Tinto above
 Borrowings – As described for Rio Tinto above
 Provisions – it is the amount that is set aside for possible but uncertain economic
liability of the company. It is the amount put aside for covering future liability.
 Liabilities classified under held for sale – generally sales are expected to be
completed within the time period of one year. Liabilities those are held for the
purpose of sale are generally measured at lower of carrying value of the proceedings
classified as held for sale and the fair value reduced by cost for sale (Warren and
Jones 2018).
Changes in the liability for Altura Mining are shown as below –

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Trade payables amount have been changed due to payment of current portion of
payables and accruals of new payables and borrowings have been reduced due to repayment
of the amount.
BHP Billiton - listed Liability items for the entity are as follows –
 Trade and other payable – As described for Rio Tinto above
 Interest bearing liabilities or borrowings – As described for Rio Tinto above
 Other financial liabilities – As described for Rio Tinto above
 Tax payable – As described for Rio Tinto above
 Provisions – As described for Altura Mining above
 Deferred income – it is the advance payment from the customers for services or goods
that have not yet been delivered. As per accrual basis of the accounting, recipient
reports this payment as liability (Watson 2015).
Changes in the liability for BHP Billiton are shown as below –

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Trade payables amount have been changed due to payment of current portion of
payables and accruals of new payables and borrowings have been reduced due to repayment
of the amount. Current tax payable has been increased due to increase in tax rate and
recognition of tax assets those were unrecognised during the previous year.
(iii) Comparative analysis of debt and equity
Debt equity are compared for analysing the leverage position of the company as it
determines the percentage of fund raised by the entity through borrowing and through own
fund that is equity. From the above table it can be determined that the debt equity position of
Rio Tinto and BHP Billiton is almost same as their capital structure are almost same.
However, debt component of Altura Mining in their capital structure is lower as compared to
other 2 companies. Hence, it can be stated that among the 3 companies Altura Mining is in
best position in leverage aspect (Maaloul and Zéghal 2015).

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Cash flow statements
(iv) Items listed under cash flow statement
From the cash flow statement of all the 3 entities considered it is identified that cash flow
statement is comprised of 3 segments – cash from operating activities, cash from investing
activities and cash from financing activities. Details for each component are as follows –
 Cash from operating activities – this segment includes all the cash created by entity
through operational activities. Operational cash flow includes the income or expenses
for interest, income tax or cash receipts from customers and cash paid to the suppliers
(Chang et al. 2014).
 Cash from investing activities – it represents the cash payments made as well as
received from purchasing or selling of non-current assets. It further includes the
payments for evaluating or exploring activities and amount received on account of
investments held for maturity (Pavlović and Bogdanović 2013).
 Cash from financing activities – it represents the cash payments made as well as
received from finance related activities. Various activities included under financing
activities are receipts from share issue after deducting the issue related expenses,
payment for lease or borrowings (Chang et al. 2014).
Changes in the items –
Rio Tinto – net cash utilised for investing activities is considerably went up from $ 2,104
million to $ 2,373 million. Changes took place due to purchase made of plant, property and
equipment amounted to $ 4,482 million in 2017 as compared to $ 3,012 million in 2016.
Further, cash used for financing activities went up from $ 7491 million to $9,141 million.
Increase took place due to purchase of own shares amounting to $ 2,083 million
(Riotinto.com 2018).

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Altura Mining – net cash utilised for investing activities is considerably went up from
$ 1714 thousand to $ 43,581 thousand. Changes took place due to purchase made of plant,
property and equipment amounted to $ 35,019 thousand. Further, cash generated from
financing activities went up from $ 25,848 thousand to $ 40,309 thousand. Increase took
place due to amount received from share issue (Alturamining.com 2018).
BHP Billiton – net cash utilised for investing activities is considerably went down
from $ 7,245 million to $ 4,161 million. Changes took place due to purchase made of plant,
property and equipment amounted to $ 4,252 million whereas in 2016 the amount was $
6,946 million. Further, cash generated from financing activities went down from $ 284
million to - $ 9,133 million. Reduction took place due to repayment of the interest bearing
liabilities increased from $ 2,788 million in 2016 to $ 7120 million in 2017(BHP 2018).
(v) Comparative analysis
Rio Tinto –
Particulars 2017 ($m) 2016 ($m) 2015 ($m)
Net cash used in operating activities 13,884.00 8,465.00 9,383.00
Net cash (used in) / provided by investing activities
-
2,373.00
-
2,104.00
-
4,600.00
Net cash provided by (used in) financing activities
-
9,141.00
-
7,491.00
-
7,670.00

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2017 ($m) 2016 ($m) 2015 ($m)
-15,000.00
-10,000.00
-5,000.00
-
5,000.00
10,000.00
15,000.00
20,000.00
Net cash used in operating a
ctivities
Net cash (used in) / provide
d by investing activities
Net cash provided by (used
in) financing activities
Cash flow from operating activities has been reduced from $ 9,838 million to $ 8,465
million during 2015 to 2016. However, it increased to $ 13,884 in 2017. Cash used in
investing activities as well as financing activities both follow the same trends as operating
activities that is reduced in 2016 and further increased in 2017.
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

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2017 ($'000) 2016 ($'000) 2015 ($'000)
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Net cash used in op
erating activities
Net cash (used in) /
provided by invest
ing activities
Net cash provided
by (used in) financi
ng activities
Cash flow from operating activities has been in increasing trend and increased to $
5,557 million from $ 2,954 million during 2015 to 2016. In the same way cash used in
investing activities as well as financing activities both are in increasing trend.
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

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2017 ($m) 2016 ($m) 2015 ($m)
-15,000.00
-10,000.00
-5,000.00
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Net cash flows
from operating act
ivities
Net cash (used in)
/ provided by inv
esting activities
Net cash provided
by (used in) finan
cing activities
Cash flow from operating activities has been reduced from $ 19,296 million to $
10,625 million during 2015 to 2016. However, it increased to $ 16,804 million in 2017. Cash
used in investing activities is in reducing trend and reduced from $ 12,154 million to $ 4,161
million over 2015 to 2017. However, cash from financing activities follow the same trends as
operating activities that is reduced in 2016 and further increased in 2017.
(vi) Comparative analysis for explaining insights
Comparing all the above mentioned companies cash flow pattern it can be stated that
Rio Tinto as well as BHP Billiton generated cash from the operating activities whereas Altura
Mining used cash for the operating activities. However, both Rio Tinto as well as BHP
Billiton used cash for the financing activities whereas Altura Mining generated cash from its
financing activities.
Other comprehensive income statement
(vii) Items reported in other comprehensive income (OCI) statement
Rio Tinto – other comprehensive income statement of the company includes the following –

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 Items those will not be reclassified in the profit and loss account – it includes various
items like actuarial losses or gains on account of post retirement benefit plan, tax
related to component of other comprehensive income and adjustments related to
deferred tax on the post retirement benefit plan (Weygandt, Kimmel and Kieso 2015).
 Items those will be reclassified in the profit and loss account subsequently – it
includes adjustments for currency translation, fair value movements for cash flow
hedge, losses or gains on revaluation of securities available for sale and tax related to
component of other comprehensive income (Eaton, Easterday and Rhodes 2013).
Altura Mining – other comprehensive income statement of the company includes the
following –
 Items those will be reclassified in the profit and loss account subsequently – it
includes alterations in the fair value of financial assets those are available for sale and
exchange difference on foreign exchange translation
BHP Billiton – other comprehensive income statement of the company includes the following
–
 Items those will be reclassified in the profit and loss account subsequently – it
includes the cash flow hedges, investments those are available for sales, exchange
difference on foreign exchange translation taken to equity as well as to income
statement and tax recognition
 Items those will not be reclassified in the profit and loss account – it includes re-
measurement of the gains or losses from pensions and medical schemes and the
reported tax within OCI (Eaton, Easterday and Rhodes 2013).

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(viii) Reasons why the items not recognised under income statement
OCI (Other comprehensive income) represents more detailed and open view of the net
income. Main purpose of OCI is reporting all operating as well as financial activities those
generally have impacts on the business interests of the owner. Further, items included under
OCI like actuarial gains or losses for defined benefit plan, gains or losses from foreign
operation translation, gains or losses from cash flow hedges and gains or losses from
investment in equity instruments. However, as these items cannot be recorded in income
statements they are recorded in OCI (Jordan and Clark 2014).
(ix) Comparative analysis
Total comprehensive income for the year for Rio Tinto has been increased from $
4,713 million to $ 11,939 million, comprehensive loss for Altura Mining it has been reduced
from $ 31,267 thousand to $ 5,236 thousand and comprehensive income for BHP Billiton is
increased from -$ 6184 million to $ 6,173 million.
However, if the comprehensive income is included in the income statement it will
enhance the amount of profits attributable to the company’s shareholders and if the
comprehensive losses are included in the income statement it will reduce the amount of
profits attributable to the company’s shareholders (Khan and Bradbury 2016).
(x) Inclusion of comprehensive income for evaluation of manager’s performance
Comprehensive income shall be included while evaluating the manager’s
performance. Reason behind this is that the comprehensive income includes the incomes or
losses made from items like foreign exchange translation, cash flow hedges and exchange
difference on foreign exchange translation that reflects manager’s ability to plan and estimate
the value of liabilities or assets from which gains can be made.

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Accounting for corporate income tax
(xi) Tax expenses
Rio Tinto – $ 3,965 million
Altura Mining – tax benefit of $ 534 thousands
BHP Billiton – $ 4,100 million
(xii) Effective tax rate
Effective tax rate = Income tax expense / Earning before tax
Rio Tinto – $ 3,965 million / $ 12,816 million = 30.94%
Altura Mining – not applicable as the company has tax benefit of $ 534 thousands and
negative earnings before tax.
BHP Billiton – $ 4,100 million / $ 10,322 million = 39.72%
Hence, BHP Billiton has the higher effective tax rate.
(xiii) Deferred tax assets or liabilities
Rio Tinto – Deferred tax assets amounting to $ 3,395 million and deferred tax liabilities
amounting to $ 3,628 million
Altura Mining – it has not reported any deferred tax assets or liabilities
BHP Billiton – Deferred tax assets amounting to $ 5,788 million and deferred tax liabilities
amounting to $ 3,785 million
Deferred tax assets or liabilities are reported by the entity for accounting the
temporary differences generated from tax bases of the liabilities and carrying values of the

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assets. However, it is reported only if it is likely that the future profit will be available for
adjusting or offsetting the differences (Laux 2013).
(xiv) Increase or decrease in the deferred tax assets or liabilities
Rio Tinto – DTA reduced from $ 3,728 million to $ 3,395 million and DTL increased from $
$ 3,121 million to $ 3,628 million.
BHP Billiton – DTA reduced from $ 6,147 million to $ 5,788 million and DTL reduced from
$ 4,324 million to $ 3,765 million
(xv) Cash tax
In the above table, book tax is the tax expenses under income statement and cash tax
is computed after adjusting the changes in DTA and DTL.
(xvi) Cash tax rate
Cash tax rate is computed through dividing amount of the cash tax by earnings before
interest, tax and amortization. It can be identified that cash tax rate for Rio Tinto is highest.

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(xvii) Difference among book tax rate and cash tax rate
Cash tax rate is the rate at which the entity pays tax to government and is calculated
on income reported in the tax return. However, book tax is the tax recorded in the company’s
financial statement. Hence, there is a difference in book tax rate and cash tax rate (Narotzki
2017).
Conclusion
It can be concluded from the above analysis that all the companies selected for this
particular report records various items of assets, liabilities and equity under the balance sheet.
Further, the cash flow statement is segregated into cash from operating activities, cash from
investing activities and cash from financing activities. However, if the leverage position of
the companies is considered, Altura Mining is in better position as compared to other two. If
the cash flow position is considered, Rio Tinto is in better position as compared to other 2
companies.

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References
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at: https://alturamining.com/ [Accessed 31 December 2018].
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https://www.bhp.com/ [Accessed 31 December 2018].
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allocation of internal cash flow. The Review of Financial Studies, 27(12), 3628-3657.
Eaton, T. V., Easterday, K. E., and Rhodes, M. R. 2013. The presentation of other
comprehensive income. The CPA Journal, 83(3), 32.
Jordan, C. E., and Clark, S. J. 2014. Reporting preferences under the comprehensive income
standard: Examining its use in practice. The CPA Journal, 84(5), 34.
Khan, S., and Bradbury, M. E. 2016. The volatility of comprehensive income and its
association with market risk. Accounting and Finance, 56(3), 727-748.
Laux, R. C. (2013). The association between deferred tax assets and liabilities and future tax
payments. The Accounting Review, 88(4), 1357-1383.
Maaloul, A. and Zéghal, D., 2015. Financial statement informativeness and intellectual
capital disclosure: An empirical analysis. Journal of Financial Reporting and
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Marshall, S., 2016. Fair trade, corporate accountability and beyond: Experiments in
globalizing justice. Routledge.

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Melloni, G., Lai, A. and Stacchezzini, R., 2018. Integrated reporting and narrative
accountability: The role of preparers. Accounting, Auditing and Accountability Journal, p.1.
Narotzki, D., 2017. Corporate Social Responsibility and Taxation: A Chance to Develop the
Theory.
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John Wiley and Sons.

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Appendix
Financial statements –
Rio Tinto –

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Altura Mining –

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BHP Billiton –

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