Corporate Accounting: Financial Analysis of BHP, Rio, Ausdrill

This report provides a comprehensive analysis of the financial statements of three ASX-listed companies: BHP Billiton, Rio Tinto, and Ausdrill Limited. The analysis covers key areas such as debt and equity positions, cash flow statements, other comprehensive income statements, and corporate taxation. The debt and equity structures of each company are contrasted using debt-to-equity ratios, revealing their financial leverage. Cash flow statements are examined to understand the companies' operating, investing, and financing activities, highlighting trends in cash generation and usage. Additionally, the report explores the components of other comprehensive income and delves into the intricacies of corporate income tax accounting, including deferred tax liabilities and tax payments. The report concludes by summarizing the financial health and strategies of each organization based on the analysis of their financial statements.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE ACCOUNTING
Executive Summary:
The report is focused on analysing the various items listed in the financial statements of BHP
Billiton, Rio Tinto and Ausdrill Limited. The objective is to evaluate their cash flow position,
other comprehensive income statement, debt and equity positions along with corporate taxation.
The initial section of the report has emphasised on the debt and equity aspects of the three above-
mentioned organisations. After this, the cash flow positions of the organisations are evaluated
effectively. The next section has dealt with assessing the other comprehensive income statements
of the organisations. Finally, the report has shed light on evaluating the different aspects of
taxation of the organisations.

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Table of Contents
Introduction:....................................................................................................................................4
Equity and liability:.........................................................................................................................5
Question (i):.................................................................................................................................5
Question (ii):................................................................................................................................6
Question (iii):...............................................................................................................................7
Cash flow statement:........................................................................................................................8
Question (iv):...............................................................................................................................8
Question (v):..............................................................................................................................10
Question (vi):.............................................................................................................................13
Other comprehensive income statement:.......................................................................................14
Question (vii):............................................................................................................................14
Question (viii):...........................................................................................................................14
Question (ix):.............................................................................................................................14
Question (x):..............................................................................................................................15
Accounting for corporate income tax:...........................................................................................15
Question (xi):.............................................................................................................................15
Question (xii):............................................................................................................................16
Question (xiii):...........................................................................................................................17

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Question (xiv):...........................................................................................................................17
Question (xv):............................................................................................................................18
Question (xvi):...........................................................................................................................18
Question (xvii):..........................................................................................................................18
Conclusion:....................................................................................................................................19
References and Bibliographies:.....................................................................................................20

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Introduction:
The report intends to analyse the financial statements of three ASX listed organisations
functioning in the same industrial sector. The organisations chosen include BHP Billiton, Rio
Tinto and Ausdrill Limited, as they operate in the Australian mining sector. The report takes into
account the evaluation of the latest annual reports of the three organisations including the
assessment of segments such as equity and liability, other comprehensive income statement and
corporate income tax.
BHP Billiton is one of the leading mining companies in Australia, which is involved in
inventing, acquiring, developing and marketing natural resources globally. The main products of
the organisation include copper, petroleum, coal and iron ore. It has been founded in 1851 with
an employee base of 27,161 staffs (BHP 2018).
Rio Tinto is engaged in mining, finding along with processing mineral resources globally.
The organisation provides copper, aluminium, molybdenum, silver, industrial minerals, gold,
titanium dioxide, borates, iron ore, salt, uranium, metallurgical coal and iron ore. It is an Anglo-
Australian organisation established in 1973 with workforce of around 46,807 staffs
(Riotinto.com 2018).
Ausdrill Limited functions as a global mining services organisation. The main operations
include Drilling Services Australia, Contract Mining Services Africa, Equipment Services and
Supplies and other segments. The organisation is engaged in reverse circulation, rotary air blast,
diamond drilling, bores production and monitoring, surface hole drilling, rotary air blast and

5CORPORATE ACCOUNTING
others. The organisation is founded in 1987 having employee base of around 5,278
(Ausdrill.com.au 2018).
Equity and liability:
Question (i):
From the annual reports of the three chosen organisations, it is apparent that all of them
have certain equity items in their balance sheet statement.
As per the annual reports of Rio Tinto, there are three main equity items, which include
share capital, reserves and retained earnings. The share capital of the organisation has increased
from $4,174 million in 2015 to $4,360 million in 2017 owing to the rise in number of equity
shares. Increase in reserves could be observed from $9,139 million in 2015 to $12,284 million in
2017 owing to the increase in foreign currency translation reserve, hedge reserve and others
(Brigham et al. 2016). Finally, increase in retained earnings could be observed from $19,736
million in 2015 to $23,761 million in 2017, as it has managed to increase its profit over margin
over the years (Riotinto.com 2018).
For BHP Billiton, the main equity items include share capital, treasury shares, reserved
and retained earnings. No change could be observed in share capital from 2015 to 2017, as the
organisation has not issued additional equity shares in the market (Miller-Nobles, Mattison and
Matsumura 2016). Treasury shares are observed to decline significantly from $76 million in
2015 to $3 million in 2017, as it has minimised its share buyback strategy. Reserves are observed
to decline from $2,557 million in 2015 to $2,400 million in 2017 due to the fall in hedge reserve
and foreign currency translation reserve (Marshall 2016). Finally, retained earnings have fallen

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from $60,044 million in 2015 to $52,618 million in 2017 due to decline in overall profit level of
the organisation (BHP 2018).
In case of Ausdrill Limited, the three equity items include contributed equity, reserves
and retained earnings. Like BHP Billiton, no change could be observed in contributed equity of
the organisation due to no additional shares issued in the meantime. However, there are
significant fall in reserves over the three-year period. Finally, significant rise in retained earnings
could be witnessed from 2015 to 2017 due to considerable increase in profitability
(Ausdrill.com.au 2018).
Question (ii):
From the annual report of Rio Tinto in 2017, there is presence of both current and non-
current liabilities. The current liabilities include borrowings and other financial liabilities, trade
payables, tax payable and provisions comprising of post-retirement benefits. The total current
liabilities have increased mainly due to rise in trade payables. Non-current liabilities comprise of
borrowings and other financial liabilities, trade payables, deferred tax liabilities, tax payables and
provisions comprising of post-retirement benefits. However, non-current liabilities have
decreased owing to considerable decline in long-term borrowings and other financial liabilities
(Riotinto.com 2018). As a result, the total liabilities have decreased from 2015 to 2017 for Rio
Tinto.
In case of BHP Billiton, the current liabilities constitute of trade payables, interest
bearing liabilities, other financial liabilities, current tax payable, provisions and deferred income.
The current liabilities have declined from $12,853 million in 2015 to $11,366 million in 2017
due to fall in trade payables. On the other hand, the non-current liabilities include trade payables,

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interest bearing liabilities, other financial liabilities, deferred tax liabilities, provisions and
deferred income. There has been significant decline in non-current liabilities from $54,035
million in 2015 to $42,914 million in 2017, as interest bearing liabilities have declined
considerably. This has resulted in decline in total liabilities of the organisation in 2017 (BHP
2018).
According to the annual reports of Ausdrill Limited, current liabilities include trade
payables, borrowings; current tax liabilities and employee benefit obligations, which have
increased owing to increase in employee benefit obligations. The non-current liabilities include
borrowings, deferred tax liabilities and employee benefit obligations. The amount has declined
from $433,300,000 in 2015 to $408,852 million in 2017 due to fall in long-term borrowings
(Ausdrill.com.au 2018).
Question (iii):
In order to contrast the debt and equity position of the three organisations, debt-to-equity
ratio is deemed to be the most suitable measure.

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2016 2017 2018
-
0.20
0.40
0.60
0.80
1.00
1.20
0.77
0.98
0.87
1.07
0.95
0.87
1.04
0.90 0.88
Debt to Equity Ratio
BHP Billiton Rio Rinto Ausdrill Limited
From the above table and figure, it could be observed that all three organisations utilise
more debt capital rather than equity financing for meeting their capital needs. Out of these
organisations, the maximum amount of debt capital is used by Rio Tinto and Ausdrill Limited.
However, in terms of liabilities, Ausdrill Limited has the lowest liability amount compared to the
other two organisations. Thus, in terms of financial leverage, BHP Billiton has the lowest
amount of risk followed by Ausdrill Limited and Rio Tinto.
Cash flow statement:
Question (iv):
From the cash flow statements of BHP Billiton, the main items under operating cash
flows include dividends received, interest paid and interest received, income tax refund and
payment and changes in assets and liabilities. These cash flows have fallen considerably from
2015 to 2016; however, improvements could be observed in 2017. The investing cash flows of
the organisation mainly include purchase of property, plant and equipment, exploration expense,

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proceeds from asset sale and proceeds from divestment of operations, subsidiaries and joint
operations. The investing cash flows have fallen over the year mainly due to decline in purchase
of property, plant and equipment implying less investment on fixed assets (Gordon et al. 2017).
In case of financing cash flows, the significant items include proceeds from interest bearing
liabilities, settlements or proceeds from instruments associated with debt, repayment of interest
bearing liabilities, ordinary share proceeds, share purchase for staffs and others. These cash
flows have increased significantly in 2017 owing to lower proceeds generated from interest
bearing liabilities. However, the significant rise in operating cash flows have offset such increase
due to which increase in closing cash balance could be observed in 2017 (BHP 2018).
In case of Rio Tinto, the major items falling under operating cash flows include dividend
from equity-accounted units, consolidated operational cash flows, payment of net interest and
dividend and tax payment. These cash flows have increased considerably from 2015 to 2017
owing to increase in consolidated operational cash flows. The investing cash flows of the
organisation constitute of purchase and sale of fixed and intangible assets, disposals of
subsidiaries, joint ventures and subsidiaries, purchase and sale of financial assets acquisitions of
subsidiaries, joint ventures and subsidiaries. These cash flows have fallen from 2015 to 2017 due
to increased earnings from disposals made. The financing cash flows include payment of equity
dividends, proceeds from and repayment of borrowings, share repurchase and others. The main
reason that these cash flows have increased in 2017 is due to share repurchase and payment of
equity dividend. As a result, positive increase in cash balance could be observed in 2017
(Riotinto.com 2018).
For Ausdrill Limited, the main items falling under operating cash flows include customer
receipts, supplier payments, interest receipt and payment, income tax refund and payment along

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with receipt of management fee. These cash flows have decreased from 2015 to 2017 due to fall
in receipts from customers. The investing cash flow items primarily include payments for fixed
assets and investments, proceeds from fixed assets and business sale and others. The reason that
these cash flows have increased from 2015 to 2017 is due to considerable payment for fixed
assets, particularly, property, plant and equipment. The financing cash flow items include
repayment of hire purchase, secured borrowings and lease liabilities, dividend payment to
shareholders and proceeds from and repayment of unsecured borrowings. These cash flows have
decreased considerably due to repayment of secured borrowings. Due to this, increase in cash
balance could be observed in 2017 compared to 2016 (Ausdrill.com.au 2018).
Question (v):
BHP Billion:

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2015 2016 2017
-$15,000
-$10,000
-$5,000
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$19,296
$10,625
$16,804
-$13,154
-$7,245
-$4,161
-$8,276
$284
-$9,133
BHP Billiton
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
It could be observed from the above figure that the operating cash flows of the
organisation have declined from 2015 to 2017 and this denotes falling business income from
operational business functions (Khansalar and Namazi 2017). After this, the organisation has
decreased its investment over the years by minimising the payment of fixed assets. However, it
has incurred huge expenses for repaying interest bearing liabilities (BHP 2018).
Rio Tinto: