The report is prepared for analyzing the financial statements of the two companies listed on Australian stock exchange. Analysis is divided into four sub sections that is owner’s equity, cash flow statement, other comprehensive income statement and accounting for corporate income tax. Comparative analysis of financial statements of the chosen companies has been done for a period of three years. Such comparative analysis has been done for the separate financial statements such as cash flow statement, equity and debt position, statement of profit and loss and income statement. Azure minerals and Boral limited are the two companies operating in the material sector that have been selected from Australian stock exchange.
Azure mineral is the leading company of mineral exploration that is based in Australia that has developed its portfolio of based metal and high quality precious projects in Mexico. It was incorporated in year 2003 on 19th September. The principal focus of company is to explore the metals such as silver, gold, zinc and copper in Mexico. Capital structure of company is sound and its strong position helps in contributing to the progress of its mineral properties. Boral limited on other hand is the largest construction and building material group that was incorporated in year 1946 on 4th March. Company operates with its three important divisions comprising of material business in Australia that is well positioned and highly performing, growing and scaled building products and fast growing Boral interior linings with joint venture in Asia. Some of the external and economic factors have exposes the company to financial risk.
Analysis of owner’s equity of Azure minerals and Boral limited:
This section explains each items of equity of the chosen companies along with analyzing the change in figure giving explanation for same. The items of equity of Azure minerals limited and Boral limited comprise of contributed equity or issued capital, reserves and accumulated losses.
Issued capital- Issued capital forms a portion of authorized capital and is also known as contributed equity. It is the amount that is held by the shareholders in the form of stocks or equity (Eikeland & Skjærseth, 2016).
Reserves- Reserves forms that portion of the profits of company that is invested in business for particular purpose. Such profits are set aside for strengthening the financial position of company.
Retained earnings- Retained earnings are the amount that is left after making the payment of dividend and are used for reinvestment in the business.
It can be seen from the financial statement of Azure minerals limited that there has been consistent increase in value of issued capital from $ 51121569 in year 2015 to $ 65581982 in year 2016 and further to $ 73027947 in year 2017 indicating that the contributions from owner has been increasing. Reserves value is recorded at $ 3063288 in year 2015 compared to $ 2909495 and $ 3371670 in year 2016 and 2017 respectively. The figure depicts that reserve decreased in initial year of analysis and it increased in the current year. On other hand, the amount of accumulated loss has been increasing from $ 46656589 in year 2015 as against $ 52909974 and $ 59895515 in year 2016 and 2017 respectively.
Now, looking at the figures of Boral limited, it can be seen that the amount of issued capital stood at $ 2361600000 in year 2015 which decreased in year 2016 to $ 2246200000 and further increased to $ 4265100000 in year 2017. It is suggested by the figure that the issued capital amount has increased significantly in year 2017. Reserves value on other hand is recorded at $ 166200000 in year 2015 which increased to $ 162000000 in year and thereafter there has been considerable decline in value to $ 19300000 in year 2017. Retained earnings on other hand are recorded at $ 996300000 in year 2015 that has increased further to $ 1098100000 and $ 1156100000 in year 2016 and 2017 respectively. It indicates that there has been increasing reinvestment by company year on year (Boral.com, 2018).
The total amount of debt recorded in the annual report of Azure minerals stood at $ 49962 for two consecutive years that is 2015 and 2016 and thereby it increased to $ 67647 in year 2017. On other hand, the total amount of loan and borrowings for Boral limited in year 2017 and 2016 is recorded at $ 992800000 and $ 2163700000 indicating that the financial leverage of company has declined significantly. However, the amount of debt position of Boral limited is more that the Azure minerals indicating that former company is highly leveraged.
Total amount of equity of Azure minerals have been recorded at $ 15581503 in year 2016 compared to $ 16504102 indicating that equity position of company has enhanced. On other hand, for Boral limited, equity amount is recorded at $ 3506300000 in year 2016 and $ 5440500000 in year 2017 depicting that there has been increase in value due to increase in retained earnings and issued capital (Boral.com, 2018).
The cash flow statement has three components such as cash flows from operating activities, cash flow from investing activities sand cash flow from financing activities.
Items of cash flow from operating activities include interest received, payment to suppliers and employees, reimbursement of exploration expenditure and expenditure on mining interests. Expenditure of reimbursement is the amount that is incurred by the taxpayer for petroleum exploration. Expenditure incurred on mining interests is applicable to mining entities that focuses on the core interest areas of company (Koester et al., 2016).
It can be seen from the cash flow statement of Azure minerals limited that there has been increase in payment made to suppliers from $ 2135887 in year 2016 compared to $ 2469194 in year 2017. The amount of revenue generated declined considerably from $ 521936 in year 2016 to $ 132144 year 2017 with increased in interest revenue from $ 44922 to $ 146261. Expenditure on mining interest has reduced from $ 5915566 in year 2016 to $ 5849257 in year 2017. Therefore, due to such increase and decrease in the items, the total amount of net cash outflow from operating activities has increased. For Boral limited, there has been decrease in net cash provided by operating activities from $ 477500000 in year 2016 to $ 413300000 in year 2017. Such decrease in net cash is attributable to fall in receipt from customers from $ 4635.7 in year 2016 to $ 4583.3 in year 2017 and increase in cost paid for acquisition, restructure and integration. The payment made or cost incurred is more than increase in receipt along with interest and dividend received.
Now, looking at the figures of cash flow from investing activities for Azure minerals limited, it can be seen that the net cash outflow from investing activities of amount $ 1987175 in year 2016 and net cash inflow of amount $ 95222 in year 2017. This net cash inflow is attributable to reduction in acquisition payment made for projects from $ 1847931 in year 2016 compared to $ 26892 in year 2017. In addition to this, the payment made for equipment and plant ha reduced considerably from $ 192007 in year 2016 compared to $ 18076 in year 2017. Financial year 2017 also witnessed generation of proceeds from sale of project of amount $ 140190 (Azureminerals.com.au, 2018). However, there has not been any repayment of security bonds and proceeds from sale of equipment and plant.
For Boral limited, it can be seen that total amount of net cash used in investing activities has increased from $ 259.5 million in year 2016 compared to $ 3731.3 million in year 2017. This considerable increase in usage of cash in investing activities is attributable to purchase of controlled entities and business of amount $ 3636.5 million and acquisition of cash relating to the controlled entities and acquisition of amount $ 74.8 million. In addition to this, the disposal of associates and controlled entities has generated proceeds of amount $ 122.5 million. However, noncurrent assets disposal have generated proceeds that has reduced from 55.5 in year 2016 to 39.2 in year 2017.
The net cash flow from financing activities of Azure minerals has decreased from $ 14554099 in year 2016 compared to $ 7339880 in year 2017. It is indicated by the figure that the net cash inflow has reduced significantly and such reduction in cash inflow is attributable to fall in proceeds from ordinary shares issue from $ 15158375 in year 2016 compared to $ 7810085 in year 2017. Financial year 2017 did not record prepayment of ordinary share issue as against $ 93685 in year 2016. However, there has been reduction in cost of issuing shares from $ 697961 in year 2016 compared to $ 470205 in year 2017 respectively. Furthermore, the total availability of cash has increased from $ 9387160 in year 2016 compared to $ 9699949 in year 2017 respectively (Azureminerals.com.au, 2018).
Boral limited has recorded an increase in net cash provided by financing activities of amount $ 3107 million compared to net cash used in financing activities of amount $ 273.4 million in year 2016. Such increase in net cash provide from financing activities is attributable to raising of capital that is net of transaction cost of amount $ 2018.9 in year 2017. Moreover, the payment made for dividend has increased from $ 154.2 million in year 2016 to $ 226.2 million in year 2017. There has been increase in proceeds from borrowing to 1803.6 in years 2017 compared to $ 2.2 in year 2016. Nevertheless, the amount of borrowings repayment has increased from $ 6 million in year 2016 compared to $ 489.3 in year 2017 respectively. The amount of repayment has been offset by cash generated from other financing activities (Dyreng et al., 2017). Furthermore, the total amount of cash and cash equivalent is recorded at $ 452.1 in year 2016 compared to $ 237.8 in year 2017 indicating that the availability of cash in the current year has reduced.
Therefore, from the analysis of above figures pertaining to cash flow statement of tow companies, it can be inferred that cash and cash equivalent at the end of financial year is higher for Boral limited compared to Azure minerals limited.
The statement of comprehensive income accounts for different items compared to profit and loss statement. The comprehensive income statement record items such as comprehensive profit or loss, loss generated per share resulting from continuing operations that is attributable to Azure minerals limited owners. There is segmented presentation of loss generated into basic loss per share and dilute loss per share. Azure minerals have generated comprehensive loss of amount $ 103010 in year 2017 compared to $ 942519 in year 2016 (Azureminerals.com.au, 2018). Comprehensive income statement of Boral limited that includes the items that reclassified subsequently into the income statement. Such items include reserve of foreign currency translation that is transferred to net profit on controlled entities disposal, cash flow hedges on the fair value adjustment, differences in net exchange from foreign operation translation of foreign operations and reclassification of income tax item that is subsequently reclassified to income statement (Ljungqvist et al., 2017). Total amount of comprehensive income is recorded at $ 251.7 million in year 2016 compared to $ 174.3 million in year 2017 respectively.
The statement of profit and loss recognizes the expenses and income that is incurred or earned. Some adjustments relating to expenses and income that have not been realized yet are included in the comprehensive income statement. Other comprehensive income includes all the changes that are not allowed to be included in the statement of profit and loss. Any ongoing change in the fair value of assets of company is understood with the help of items presented in such statement (Eikeland & Skjærseth, 2016). On other hand, statement of profit and loss records the expenses and income that is incurred or received due to any activities. The performance of entity can be assessed by using other comprehensive income. Any gain arising from assets revaluation is not recorded in the statement of profit and loss because the equity of entity is directly impacted by such entry (Alstadsæter et al., 2017). Any results determine from profit and loss is included in the comprehensive income.
For managers and financial analyst, it is essential to understand the drivers of daily operations of company. Information available on comprehensive income helps in determining the future performance of company. However, the items of comprehensive income should not be solely used for determining the performance of company. It is so because such items might not recur in future and they form part of extra ordinary items that is reported separately in the financial report (Czerne et al., 2014). Therefore, a considerable amount of reliance is placed in the comprehensive income statement items for evaluation of financial performance of mangers and company as a whole.
It can be identified from the annual report of Boral limited that the amount of tax expenses for latest financial year 2017 and 2016 stood at $ 51.4 million and $ 35.6 million respectively indicating that the amount of tax expenses incurred has increased in the current year. For Azure minerals on other hand, it can be seen from profit and loss statement that company has not incurred any amount in the form of income tax expenses for consecutive financial years (Chen et al., 2015).
Since, Azure minerals have no provision for tax, there is no deferred tax assets and deferred tax liabilities that is recorded in the financial statement of company. In addition to this, there has not been any finance cost that is incurred in recent years and therefore, the cash tax amount comes to zero (Armstrong et al., 2015). Therefore, the effective tax rate for Azure minerals in recent years does not exist.
For Boral limited on other hand, the computation of effective tax rate is shown in the table below:
|
Computation of Effective Tax Rate |
||
|
$ |
$ |
|
|
Particulars |
Azure minerals |
Boral limited |
|
Income Tax Expense |
0 |
5,14,00,000 |
|
Earnings Before Tax |
-69,85,541 |
30,10,00,000 |
|
Effective Tax Rate |
0.00% |
17.08% |
The effective tax of Boral limited is computed at 17.08% for financial year 2017 compared to zero effective tax rate for Azure minerals limited.
Azure mineral does not have any deferred tax assets and liabilities recorded in the balance sheet for consecutive financial years. Boral limited has recorded deferred tax assets of amount of $ 237.4 million in year 2016 compared to $ 128.4 in year 2017 in the balance sheet (Boral.com, 2018). There has been reduction in the amount of deferred tax assets recorded in the balance sheet of Boral limited.
Deferred tax is the amount of tax that is payable in future. It is required by reporting entity to record deferred tax in accordance with the requirement of International accounting standard IAS 12. Recognition of deferred tax assets are done for carrying forward of any unused tax losses and temporary differences that is deductible. Any amount of deferred tax arising on account of recognized deficit or surplus is presented with the deferred tax liabilities or assets. The extent to which recognition of such deferred tax should be done that there will be availability of future taxable profits against which the utilization can be done (Cascino et al., 2015).
The amount of cash tax for both the companies is presented in the table below
|
Computation of Effective Tax Rate |
||
|
$ |
$ |
|
|
Particulars |
Azure minerals |
Boral limited |
|
Income Tax Provision |
$ – |
$ 5,14,00,000.00 |
|
Add: Increase in DTL |
$ – |
$ – |
|
Less: Increase in DTA |
-$ 10,90,00,000.00 |
|
|
Add: Taxes on Finance Costs |
$ – |
$ 1,52,10,000.00 |
|
Cash Tax amount |
$ – |
$ 17,56,10,000.00 |
|
EBIT |
$ 69,85,541.00 |
$ 35,17,00,000.00 |
|
Cash Tax Rate |
0.00% |
49.93% |
The total amount of income tax provision is recorded at $ 51.4 million in year 2017 with increase in deferred tax assets amount by $ 109 million. Finance cost is recorded at amount $ 50.7 million on which taxes has been applied at the rate of 30%. Therefore, the amount of cash tax is computed to be at $ 175.61 million. Amount of earnings before income and tax is recorded at $ 351.7 million and therefore, the cash tax rate is computed at 49.93% (Harford et al., 2017).
Estimation of cash tax rate is done on the basis of current year and book tax rate is estimated based on current as well as future year. Reporting entity considers increase in deferred tax liabilities and deferred tax assets for the calculation of rate of cash tax. This has the consequence of increasing the tax savings (Ball et al., 2015). On contrary to this, the rate of cash tax is incorporated in the computation of book tax rate.
Conclusion:
The current paper illustrates the comparative analysis of the financial statements of the companies listed on ASX namely boral limited and Azure minerals limited. Such comparison has helped in deducing the financial performance of companies using different aspects. Azure mineral has generated comprehensive loss for both the years compared to Boral limited that has generated comprehensive profit as depicted in the comprehensive income. Total amount of equity reported in the balance sheet of Boral limited is considerably higher than that of Azure minerals limited. Debt position of Boral limited on other hand indicates that the company is highly leveraged compared to Azure minerals limited.
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