Comparative Financial Analysis: BHP Billiton vs. South32 (2015-2017)

This report presents a comprehensive financial analysis of BHP Billiton Limited and South32 Limited, both listed on the Australian Securities Exchange (ASX), based on their annual reports from 2015 to 2017. The analysis includes an executive summary, introduction of the companies, and a detailed examination of key financial statements. The report delves into the components of owner's equity, comparing share capital, retained earnings, reserves, treasury shares, and non-controlling interests for both companies. It also assesses their debt-equity positions, providing a comparative analysis of their financial leverage. Furthermore, the report examines the cash flow statements, dissecting operating, investing, and financing activities, and highlights significant changes and trends. The other comprehensive income statement is also discussed. The report concludes with a comparative analysis of the two companies' financial performance over the three-year period, offering insights into their strengths and weaknesses. References are included for all the sources used.

Accounting
Assignment

1
By student name
Professor
University
Date: 23rd Sep 2018.
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Executive Summary
This report consists of analysis of annual reports of 2 companies listed under Australian stock
exchange. Meaning of each item of cash flow statements along with each line item of equity for
2015, 2016 and 2017. The report compares equity and debt of both countries along with the
preparation of comprehensive income statement with income statement and discusses changes
in the comprehensive income statement. The reason behind including the above for evaluation
of the employees and comparative analysis of same over the analysed period is given. Finally
tax expenses, effective corporate tax rate, total taxes paid and deferred tax assets and liabilities
of both companies are included in corporate income tax accounting.
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Contents
Introduction......................................................................................................................................4
Analysis...........................................................................................................................................5
References......................................................................................................................................10
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Introduction
BHP Billiton Limited, world’s largest mining company is listed under Australian stock exchange
and deals in mining, metal and petroleum industry. Also listed under New York stock exchange,
London stock exchange, Johannesburg stock exchange and Financial Times stock exchange 100
operates globally and employs more than 65000 people. It is the third largest revenue earning
company in Australia (Alsagoff, 2010).
The other company analysed in this report is South 32 Limited which is listed under
Johannesburg stock exchange and London stock exchange along with the Australian stock
exchange deals in mining and metallurgy. The chief producer of zinc, nickel, aluminium,
alumina, silver, thermal coal, lead, manganese and cooking coal employees more than 15000
people.
Owner’s Equity
1. The money invested by the shareholders in the company is known as Owner’s Equity
which has higher returns in comparison to debt capital and is more risky. Distributable to
the shareholders this equity contains preference shares, equity shares, dividend, net profit
and different types of reserves (Giacomo, et al., 2013).
The components of equity can be described as follows:
 Share Capital: The money invested by the owners of the company is known as share
capital. These are generally traded in the market in the form of small denominations
called shares. An overall decrease in the shares of South 32 Limited was seen due to
the buyback of shares in 2017. The share capital of BHP Billiton Limited remained
same throughout the analysed period.
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 Retained Earnings: The total undistributed profits of the company which can be used
by the company for dividend distribution is known as retained earnings. South 32
Limited paid dividends for both 2016 and 2017 although the company faced huge
losses in 2016 which depreciated the already negative balance of retained earnings
but the same increased in 2017 because of the accumulated profits of $1231 Mn. BHP
Billiton also paid dividend in 2016 in spite of incurrence of losses which led to an
overall decrease in the balance of retained earnings. The company earned profits in
2017 and also paid dividends from the same (Durtschi, 2004).
 Reserves: Consisting of forfeited employees share awards, comprehensive income of
the year and employee share awards net of employee contribution and unexercised
awards, reserves are the undistributed profits of the company. Due to awards and
losses in comprehensive income statement, it decreased drastically in 2017 for BHP
Billiton Limited but remained almost constant for the remaining period. It also
remained constant for South 32 Limited throughout the analysed period (Antle &
Smith, 1985).
 Treasury Shares: Mainly allotted in the form of ESOPs or dividend reinvestment plan
to the employees, Treasury shares can be purchased by ESOP trusts which later on
pays to the employees. Treasury shares has decreased for BHP Billiton Limited over
the past 3 years due to which exercise of option by the employees is lower than
purchases made by ESOP trusts (Coate & Mitschow, 2017).
 Non- Controlling Interest: Shareholders having no control over the decisions of the
company and owns less than 50% shares are also known as Minority interest whose
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share of profits is calculated on the basis of net assets position. The minority
shareholder of South 32 Limited is very low at $1 Mn. whereas there is proportional
increase in Non- Controlling Interest as that of controlling interest and other
shareholders.
(Amt in US$M)
South 32 - Owner's Equity
Particulars 2015 2016 2017
Share Capital 14,958 14,958
14,74
7
Treasury Shares - (3)
(
26)
Reserves (3,557) (3,555)
(3,50
3)
Retained Earnings (365) (1,977)
(9
82)
Total attributable to equity
shares 11,036 9,423
10,23
6
Non-controlling interest (1) (1) (1)
Total Equity 11,035 9,422
10,23
5
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(Amt in US$M)
BHP Billiton - Owner's Equity
Particulars 2015 2016 2017
Share Capital
BHP Billiton
Ltd.
1,18
6
1,18
6
1,18
6
BHP Billiton
Plc.
1,05
7
1,05
7
1,05
7
Treasury Shares
BHP Billiton
Ltd.
(1
9) (7) (2)
BHP Billiton
Plc.
(5
7)
(
26) (1)
Reserves
2,55
7
2,53
8
2,40
0
Retained Earnings
60,04
4
49,54
2
52,61
8
Total attributable to equity
shares
64,76
8
54,29
0
57,25
8
Non-controlling interest
5,77
7
5,78
1
5,46
8
Total Equity
70,54
5
60,07
1
62,72
6
2. Analysis of 3 years debt equity position of the company shows that the companies have
maintained a lower debt proportion to protect the interest of shareholders in the company.
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South 32 Limited has maintained a lower debt proportion in debt equity ratio as shown
below:
(Amt in US$M)
South 32 - Owner's Equity
Particulars 2015 2016 2017
Debt Interest bearing liabilities
68
2
63
1
64
4
Other financial liabilities -
1
6 -
Total Debt
68
2
64
7
64
4
Equity
Equity attributable to BHP
shareholders
11,03
6
9,42
3
10,23
6
Non-controlling interests
(
1)
(
1)
(
1)
Total Equity
11,03
5
9,42
2
10,23
5
Debt Equity
ratio 6% 7% 6%
(Amt in US$M)
BHP Billiton - Debt and Equity Position
Particulars 2015 2016 2017
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Debt Interest bearing liabilities 27,969 31,768 29,233
Other financial liabilities 1,031 1,778 1,106
Total Debt 29,000 33,546 30,339
Equity Equity attributable to BHP shareholders 64,768 54,290 57,258
Non-controlling interests 5,777 5,781 5,468
Total Equity 70,545 60,071 62,726
Debt Equity ratio 41% 56% 48%
Cash Flow Statements
To give an idea of the line items an extract of cash flow statements of both companies is
provided below along with changes made in them:
i. Cash Flow from Operating Activities: Items that directly relates to the operations of the
company such as dividend received from other companies, payment to creditors, receipts
from customers, income tax paid, interest received and paid, etc. are recorded here along
with changes in current assets and liabilities of the company (Abdullah & Said, 2017).
For BHP Billiton Limited the operating cash flow was positive throughout the analysed
period. An increase in revenue from operation led to a net inflow from discontinued
operations in 2015. A positive trend in net cash inflow from operating activities is seen
for South 32 Limited but the magnitude was very less making BHP Billiton Limited the
industry leaders (Mubako & O'Donnell, 2018).
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ii. Cash Flow from Financing Activities: All the finances arranged by the company to do
business such as issue of share capital, payment of dividend and interest, issue of
preference shares and debt, redemption of shares, etc. are recorded here. In 2017, BHP
Billiton Limited repaid most of the debt and interest bearing liabilities of $ 7239 Mn.
raised in 2016. Although the company had a constant inflow and outflow throughout the
analysed period, a fall in the dividend payment for the company was seen for this period.
South 32 Limited raised debt, paid dividend and bought back equity shares in 2017 which
was missing in 2016.
iii. Cash Flow from Investing Activities: All Investing activities such as purchase sale of
Investments, Property, Plant and Equipment, Investment in Joint Ventures, Entities and
Subsidiaries, etc. are recorded here. For BHP Billiton Limited, inflow from sale of PPE
and exploration expenditure has increased during the years with a fall in the purchases of
plant and equipment and property (Mock, et al., 2018). South 32 Limited invested
$12734 Mn. as a part of BHP Demerger in 2015 in subsidiaries, operations, etc. but
investment in PPE has decreased. There was a huge fall in the cash outflow from
Investing Activities from $15165 Mn. to $454 Mn. in 2016 when compared to 2015.
Cash Flow Statement of BHP Billiton Limited
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