The primary purpose of this report is to critically analyse financial statements of two different corporations operating in the same industry and is said to have similar function level. However there are two different firms that are chosen for the report at hand are necessarily Ausdrill Limited and Rio Tinto Limited that participate in the functions of mining as well as extraction of particularly mineral resources. In particular, the current analysis takes into account annual reports of both the firms for assessing diverse components of financial statement and presents a comparative appraisal between the two identified firms with regard to reporting of specific elements in the yearly reports.
Ausdrill Limited is engaged in mining services and extraction of different minerals in the nation Australia. In essence, the primary functions of the firm include operations of the firm by means of Drilling Services Australia, Equipment Services and Supplies, Contract Mining Services Africa, and various other sections. In essence, the firm partakes in the process of the reverse circulation (also referred to as RC), drilling of diamond, air blast of rotary, as well as drilling actions of air core; procurement along with supply of exploration different equipment parts, together with consumables. Particularly, it also formulates, creates, and preserves blast hole, rigs for diamond drill, together with support along with ancillary kit (Ausdrill.com.au, 2018).
Rio Tinto Limited is another firm selected for the study under consideration. Rio Tinto Limited participates in the operations of searching, mining, as well as processing different mineral resources necessarily in the regions of Australia plus North America. This company mainly offers iron ore, diamonds, titanium dioxide, aluminium, copper, borates, salt, thermal, gold and metallurgical coal among many others. In essence, the business enterprise also functions in the regions of particularly Africa, South America, Asia and many parts of Europe (Riotinto.com, 2018).
The primary intention of the current report is to analytically evaluate yearly reports of both the business concerns for the period of past three years (2015 to 2017). The report presents thorough as well as comprehensive analysis of different components presented in the yearly pronouncements of the corporation. Essentially, there are certain important areas of concern that are taken into consideration in the yearly report of both the firms namely, stream of firm’s cash, employment of equity capital, system of treating tax as well as revelations (Schaltegger et al., 2017). Furthermore, analysis presented in the present report entails computations as regarding effective rate of tax along with other systems of enumeration of taxation.
The equity of owners reflects overall equity capital as well as retained income of the enterprise that is employed for financially supporting actions of the ventures (Griffin, 2015). As per the annual report declared for the period 2017 is taken into account for assessing equity of the owners of firms. Thorough study of the annual pronouncement of the firm Ausdrill Limited reveals equity of the owner consisting of share capital, reserves as well as retained earnings reflected in the balance sheet assertion. As such, equity contributed by the firm for the period 2017 is reflected to be $ 546,447,000. This figure is said to be identical as the figure that was reflected for prior period. Essentially, there is said to have no adjustment in the overall equity according to prior approximations and according to estimations of the year 2015. Also, the retained earnings registered for the firm indicates towards a proportion of profits that are reserved for either the purpose of investment in the corporation or else for the purpose of fulfilling different obligations of the enterprise for the future period (Bhasin, 2015). Basically, retained earnings of the firm Ausdrill Limited is said to have enhanced in comparison to prior year evaluation and the same is revealed to be $121444000. In addition to this, the approximation that is reflected for the period 2015 is recorded to be $38027000(Ausdrill.com.au, 2018). It can be said that there is an upward moving path that also reflects enhancement in firm’s retained income. The increase in retained income is because of enhancement in firm’s profitability and owing to improvement in operating framework of the business. In essence, reserves of the firm are reflected in negative that replicates accumulated loss of enterprises that are from previous period (Robinson et al., 2015).
Conversely, different components of firm’s equity are reflected in the yearly pronouncement of the business Rio Tinto Limited for the period 2017. The equity of Rio Tinto Limited contains equity share capital of the enterprise, retained income along with reserves. Equity capital points out towards funds that are employed by businesses for gratifying obligation of the enterprise (Lin et al., 2015). The figure on reserves presented in the balance sheet statement of the firm is observed to be positive that reflects that the firm has accrued earnings that the management of enterprise can utilize in any probable way. Thorough study of the financial statements of the firm shows that the share capital of the firm is registered to be USD 4140 million that has considerably augmented as compared to prior year. This increase in share capital is primarily on account of greater share issue during the period so as to obtain capital from the share issue (Riotinto.com, 2018). Also, retained earnings for the firm Rio Tinto Limited are recorded to be USD 23761 million during the period 2017. The retained earnings of the firm is observed to have enhanced due to amplification of level of profit generation capability of the firm. Basically, the annual report also reflects that profit reserves of business can be said to be suitable for fulfilling different requirements and obligation of the firm.
As suggested by DeFusco et al. (2015), structure of capital indicates towards the way a business concern funds overall business operations as well as growth by means of utilization diverse finance sources. In essence, debt arises mainly in the form of issue of bonds otherwise and notes payable for the long term period. On the other hand, equity can be categorised as common stock, retained earnings otherwise preferred stock. In essence, short term debt can be referred to as requirements of working capital that is taken into consideration can be considered to be a part of framework of capital (Mohanram et al., 2018).
Analysis of balance sheet pronouncement can help in analysis of capital framework of the firms. According to balance sheet statement of the firm Ausdrill Limited, debt capital is represented to be $385815000 for the period 2017 and $395019000 during the period 2016. This replicates that management of the firm repaid a specific portion of the loan during the present year. Analysis of firm’s equity capital shows that equity capital of the business has augmented during a particular period as presented in the balance sheet of the corporation. In particular, borrowings recorded for the firm during the period 2015 is observed to be $ 407,307,000 that is higher than approximation of the year 2016. Essentially, assessment for 3 year period divulges the fact that the administration of the firm has the intention to reduce overall debt of the firm and concentrates on implementation of greater amount of equity capital of the business (Ausdrill.com.au, 2018).
Analysis of the firm Rio Tinto, balance sheet of the firm for the period 2017 represents the borrowings of the firm that are registered to be $15148 million that is low than approximated figure shown in the period 2016 that is USD 17470 million. Particularly, borrowings of the firm for the financial year 2015 is reflected to be USD 21140 million that is over and above debt capital reflected for the period 2016 (Riotinto.com, 2018). Analysis of the registered figures reflects that management of the firm is making effort to enhance equity finances in the overall capital framework of the business concern. The administration of the firm Rio Tinto is striving to amplify equity capital of the corporation and is depending more on debt capital of the corporation (Henry & Robinson, 2015).
Thus, assessment of debt as well as equity capital that is utilized by both the firms helps in comprehending the fact that Ausdrill Limited is more dependent on debt for financing actions of the corporation. Again, in contrast, it can be said that administration of the firm Rio Tinto Limited is dependent to a greater extent on equity capital since the enterprise is trying to decrease debt capital that is utilized by the corporation. Nonetheless, in current scenarios, administration of the Rio Tinto is still utilizing higher amount of debt than equity proportion of the corporation.
The statement of flow of cash reflects position of cash of business enterprise and exhibits each action that is either inflow or else outflow of cash for the enterprise (Sridharan, 2015). The statement of cash flow of the enterprise Ausdrill Limited replicates that cash generated from operations of the business and cash disbursements by suppliers of business. Another important item of cash flow declaration is disbursement of income tax by the corporation during a specified period. In essence, net flow of cash from operations of the firm Ausdrill Limited is recorded to be $94,613,000 in the financial year 2017. The net flow of cash from operations is witnessed to have augmented from the figure $ 91,006000 presented during financial year 2016. Analysis of account on net stream of cash reveals that receipts from customer and pay-out to firm’s suppliers have amplified based on estimations for the financial year 2016 that illustrates that overall level of operations of the corporation has enhanced considerably. In addition to this, flow of cash from investing activities of Ausdrill Limited effectually stems from purchasing of PPE (plant, property as well as equipment) during the specific period (Ausdrill.com.au, 2018). In case of Rio Tinto, there is inward flow of cash from operational activities and the same is said to be higher during the period 2017 in comparison to the year ago period 2016. The cash inflow from operational activities of the firm is recorded to be $13884 million in 2017 whereas the same is recorded to be $8465 million in 2016.
As such, stream of outflow of cash from investment actions of the firm Ausdrill Limited is registered to be $ (-$101127) in the FY 2017 (Ausdrill.com.au, 2018). Basically, the outflow of cash registered in this segment suggests that the firm has made considerable investments for acquirement of assets/resources during the present year. On the other hand, outflows of cash from investment actions for the period Rio Tinto Limited for the firm are (-$2373 million) for FY2017 in comparison to (-$2104 million) for FY2016.
In addition to this, flow of cash from financing activities stem from varied reimbursement and settlement of firm’s hire purchase along with payment of dividends to shareholders of business concerns. This is observed to stand at -$6965000 during 2017 for the firm Ausdrill Limited in comparison to the year ago figure of -$47772000. This reflects a decline in outward flow of cash for the firm during the current year. On the other hand, for the firm Rio Tinto, the same is recorded to be (-$9141) million in 2017 in comparison to (-$7491) million in 2016. In this case as well, the outward flow of cash for financing activities is said to have increased during the current period (Riotinto.com, 2018).
|
Particular |
2015 |
2016 |
2017 |
|
Net cash flows from operating activities |
117936 |
91,006 |
94,613 |
|
Net cash flows used in investing activities |
-738 |
-60,853 |
1,01,127 |
|
Net cash flows used in financing activities |
-104693 |
47,772 |
6,965 |
|
Particular |
2015 |
2016 |
2017 |
|
Net cash flows from operating activities |
9383 |
8,465 |
13,884 |
|
Net cash flows used in investing activities |
-4600 |
2,104 |
2,373 |
|
Net cash flows used in financing activities |
-7670 |
7,491 |
9,141 |
Cash generated out of operations indicates towards increase in cash flow of both the firms. This refers to operational competence of the firm. However, comparative evaluation of financial statements show that the cash created out of operations of the enterprise Rio Tinto ltd is said to higher than that of the firm Ausdrill Limited. In essence, cash generated from investment actions of both the firms are documented shows both the firms has considered considerable amount of flows of cash associated to acquirement of property, plant as well as equipment and settlement of loans of the firms (Nobes, 2014). Again, net cash generated out of investment deeds by both the firms is revealed to be a negative figure. Also, cash generated out of financing actions of the firms take in loans settlements and payment of dividends that is disbursed by the corporation during the year 2017. The net cash generated are considerably higher for the firm Rio Tinto Limited as compared to the firm Ausdrill Limited (Riotinto.com, 2018).
The declaration of comprehensive income of a firm includes items that are not presented in profit/loss assertion of a firm. As per the annual report of the firm Ausdrill Limited, the statement of comprehensive earnings contains items that are extraordinary in nature namely, gains on exchange from various transactions that are linked to overseas operations. The comprehensive earning statement records profit amount $ 882,000. Also, it presents income from joint ventures undertaken by the enterprise. Moreover, gains stemming from revaluation of firm’s financial assets as well as gain from revaluation of PPE-property, plant as well as equipment are also taken into consideration (Sayari & Mugan, 2013). According to the annual report of the firm Tinto presented for the period of FY2017 reflects adjustments for taxation on benefits acquired from post retirement scheme and actuarial gains. In addition to this, this enterprise also presents gains from hedge of cash flow, profit/loss incurred for revaluation and sale of different variable securities of the corporation.
The items of the comprehensive earnings are normally presented separately and are not incorporated in the profit/loss statement as these items are extraordinary in nature and are linked to daily functioning of business. Warren et al. (2013) asserts that these items are reported to disclose different activities of firms and as these items are not presented in profit/loss announcement, it needs to be reflected in Comprehensive Statement for Income of the firm.
Based on analysis of annual report of the firm Ausdrill Limited, it can be said that primary basis of firm’s comprehensive earnings are gains from exchange upon translation of overseas operations. The gains from foreign exchange of the firm are documented as $ 882,000 (Ausdrill.com.au, 2018). As revealed in the annual report, the firm has borne losses on assets revaluation during the year. Again, on the other hand, the yearly statement of the firm Rio Tinto Limited demonstrates actuarial gains, adjustments of tax and deferred tax adjustment for post retirement advantages during the current year (Brusov et al., 2013). Also, the comprehensive statement of income presented also reflects gains from hedge of cash flow and gains from revaluation of sale securities on hand.
Thorough analysis of the annual reports of the two firms reflects that there are more items that are extraordinary in nature of the firm Rio Tinto Limited in comparison to the firm Ausdrill Limited. However, for both the firms, in case if the items are incorporated in the profit/loss assertion, then the net profit recorded for the firms will either amplify or drop (Chambers, 2014). Particularly, Ausdrill Limited’s net profit shall decline in case if different comprehensive items are included in the statement of Profit/Loss/ On the other hand, profits of the firm Rio Tinto Limited shall amplify if these items are incorporated in profit/loss statement (Riotinto.com, 2018).
Khan & Bradbury (2014) suggests that business performance need not be founded on comprehensive items that are presented separately in financial assertions firms. This is so because these items are necessarily extraordinary in nature and need not be recurring. Essentially, items that are presented in the comprehensive announcement of income are in general extraordinary in nature. For that reason, these items have the need to be taken into consideration for the purpose of decision-making of the enterprise.
The expenditure of the firm Ausdrill Limited incurred for income tax stands at $ 13,885,000 during the period 2017. This is said to have enhanced to some extent from the figure $ 4,581,000 documented for the previous period 2016 (Ausdrill.com.au, 2018).
The expenses for disbursement of income tax of the firm Rio Tinto Ltd documented in the yearly financial declaration of the firm for the period 2017 stands at $ 3,965 million as compared to the year ago figure of $ 1,567 million recorded during 2016.
The rate of effective tax indicates towards mean rate of tax at which firm’s profits of the enterprise are taxed. In this case, effective rate of tax enumerated is observed in the table presented above. The effective rate of tax for the firm Ausdrill Limited and Rio Tinto Limited reflected in table is registered to be 30.6% as well as 30.9% respectively. For that reason, it is evidently observed that effective rate of tax of the firm Rio Tinto Limited is more than the firm Ausdrill Limited.
Deferred Tax Assets/Liabilities
As suggested by Macve (2015), deferred tax/liabilities outline a major part of financial assertions of the business concern that is registered at the closing period of particularly books of accounts. In actual fact, the same is said to exert influence on income tax that is presented in profit/loss assertion. In particular, deferred tax assets of the firm Ausdrill Limited is recorded to be $4 36,372,000 for the financial year 2017 while the same is said to have dropped compared to prior period figure. Again, deferred tax liability of the firm enumerated to be $ 22,077,000 during the period 2017 is observed to have dropped in comparison to figure registered during the prior period (Ausdrill.com.au, 2018).
Conversely, Rio Tinto registers deferred tax asset worth $ 3395 million for the period 2017 and this is said to have decreased in association to prior period analysis. Analysis of statement reveals that deferred tax liabilities of the enterprise for the period 2017 is reflected to be 3682 million and it is said to have enhanced from the estimate of the prior period (Riotinto.com, 2018).
The causes behind incidence of deferred tax assets/liabilities are on account of temporary variance and permanent variation between accounting profit and tax profit of the enterprise (Needles et al., 2013). Again, another basis is essentially tax assets/liabilities carried forward from prior period.
Amount of Cash Tax and rate calculated for both the firms
The cash tax rate of the firm Rio Tinto is observed to be greater than the business concern Ausdrill Limited that is reflected in the figure presented that is 36.3% during the period 2017.
As suggested by Farshadfar & Monem (2013), the difference between rate of cash tax and book rate is cash tax that is approximated on present year basis whereas on the other hand book rate is approximated based on current as well as future period. Again, for the purpose of enumeration of rate of cash tax, enhancement in deferred liabilities as well as tax can necessarily be taken into account (Nurnberg, 2015). Essentially, burden of interest can direct to savings in tax that are again added back. Again, in working out rate of book tax, consideration of deferred tax asset/liability is not taken into consideration although it is considered in case of cash tax rate.
References
Ausdrill.com.au. 2018. Annual Reports :Ausdrill. [online] Available at: https://www.ausdrill.com.au/investors/annual-reports.html [Accessed 13 Sep. 2018].
Bhasin, M.L., (2015). Corporate accounting fraud: A case study of Satyam Computers Limited.
Brusov, P.N., Filatova, T.V. & Orekhova, N.P., (2013). Absence of an optimal capital structure in the famous tradeoff theory!. Journal of Reviews on Global Economics, 2, pp.94-116.
Chambers, R.L. ed., (2014). An accounting thesaurus: 500 years of accounting. Elsevier.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. & Runkle, D.E., (2015). Quantitative investment analysis. John Wiley & Sons.
Farshadfar, S. & Monem, R., (2013). The usefulness of operating cash flow and accrual components in improving the predictive ability of earnings: a re?examination and extension. Accounting & Finance, 53(4), pp.1061-1082.
Griffin, P.A., (2015). Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, pp.119-125.
Henry, E. & Robinson, T.R., (2015). Chapter 1. Financial Statement Analysis: An Introduction. CFA Institute Investment Books, 2015(2), pp.1-35.
Khan, S. & Bradbury, M.E., (2014). Volatility and risk relevance of comprehensive income. Journal of Contemporary Accounting & Economics, 10(1), pp.76-85.
Laux, R.C., (2013). The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383.
Lin, C.C., Chiu, A.A., Huang, S.Y. & Yen, D.C., (2015). Detecting the financial statement fraud: The analysis of the differences between data mining techniques and experts’ judgments. Knowledge-Based Systems, 89, pp.459-470.
Macve, R., (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Mohanram, P., Saiy, S. & Vyas, D., (2018). Fundamental analysis of banks: the use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), pp.200-233.
Needles, B.E., Powers, M. & Crosson, S.V., (2013). Principles of accounting. Cengage Learning.
Nobes, C., (2014). International classification of financial reporting. Routledge.
Nurnberg, H., (2015). Cash Flow Statement. Wiley Encyclopedia of Management, pp.1-7.
Riotinto.com. 2018. [online] Available at: https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 17 Sep. 2018].
Robinson, T.R., Henry, E., Pirie, W.L. & Broihahn, M.A., (2015). International financial statement analysis. John Wiley & Sons.
Sayari, N. & Mugan, F.C.S., (2013). Cash flow statement as an evidence for financial distress. Universal Journal of Accounting and Finance, 1(3), pp.95-102.
Schaltegger, S., Etxeberria, I.Á. & Ortas, E., (2017). Innovating corporate accounting and reporting for sustainability–attributes and challenges. Sustainable Development, 25(2), pp.113-122.
Sridharan, S.A., (2015). Volatility forecasting using financial statement information. The Accounting Review, 90(5), pp.2079-2106.
Warren, C., Reeve, J.M. & Duchac, J., (2013). Financial & managerial accounting. Cengage Learning.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download