The aim of this report is the analysis of the financial statements of three Australian Securities Exchange (ASX) listed companies having operation in the same industry. For this reason, the three selected ASX listed companies are CSR Limited, Newcrest Mining Limited and Boral Limited. It needs to be mentioned that these three companies operate in the materials sector of Australia. This report considers the analysis of the latest annual reports of these three companies that includes the analysis of the segments like equity along with liability, cash flow statement, other comprehensive income statement and corporate income tax.
CSR Limited is a major Australian company operates in the material industry of the country and the company involves in the production of building products. CSR Limited operates low cost manufacturing facilities along with a strong distribution network for providing services to their customers across Australia and New Zealand. This company is also a joint venture participant in the globally cost competitive Tomago aluminium smelter that is loacated near Newcastle, NSW (csr.com.au 2018).
Newcrest Mining Limited (Newcrest Mining) is regarded as the largest gold producer of Australia along with one of the largest gold mining companies all over the world. The company maintains and operates a portfolio of principally low cost, long life mines along with a strong pipeline of brownfield and greenfield exploration projects. The business portfolio of Newcrest Mining includes operating mines (newcrest.com.au 2018).
Boral Limited is regarded as a leading Australian company that deals with the building products and construction materials. The company provides employment to more than 25,000 employees and contractors. Boral Limited operates through three main business divisions; they are high-performance along with well-positioned material business of Boral Australia, a fast-growing joint venture in Asia that is USG Boral and Boral North America that includes the business for growing business products (boral.com 2018).
It can be seen from the annual reports of these three companies that each of them has certain items under ‘Equity’ in the balance sheet.
It can be observed from the annual reports of CSR Limited that there are three items under equity; they are Issued Capital, Reserves and Retained Profits. As per the annual reports, decrease in issued capital is there from 2016 to 2018; that is from $1040.1 million to $1036.8 million to $1036.2 million; and the reason is the decrease in the number of issued share. Decrease in reserves can be seen in CSR Limited from 2016 to 2018; and the reason for this decrease in the presence of hedge reserves, foreign currency translation reserve and others. Lastly, increase in retailed profit in CSR Limited can be seen from 2016 to 2018 due to the increase in the overall profitability of the company (csr.com.au 2018).
The three items under equity of Newcrest Mining are Issued Capital, Accumulated Losses and Reserves. Minor decrease is there in the value of issued capital from the year 2016 to 2018; and the reason is the decrease in the number of issued shares. After that, accumulated losses register decrease from 2016 to 2018 as the company has started paying their losses. Negative reserves can be seen for Newcrest Mining over these three years (newcrest.com.au 2018).
In case of Boral Limited, the items are Issues Capital, Reserves and Retained Earnings. Massive increase can be seen in issued capital from 2016 to 2018 as the company has issued more equity shares for capital requirements. After that, reserves decreases from 2016 to 2017 and it also increases in 2018. Increase in profitability leads to the increase in retained earnings for the company from 2016 to 2018.
As per the annual report of CSR Limited, the company has reported current and non-current liabilities. Current liabilities include payable other financial liabilities, tax payable and provisions; and it increases from 2016 to 2017; and decreases 2017 to 2018. Non-current liabilities include payable, borrowings, other financial liabilities, provisions, deferred income tax liabilities and other non-current liabilities. Decrease in non-current liabilities of CSR Limited can be seen from 2016 to 2018 (csr.com.au 2018).
According to the annual reports of Newcrest Mining, the items under current liabilities are trade and other payable, borrowings, provisions, current tax liability and other financial liabilities (Heikal, Khaddafi and Ummah 2014). The company has registered decrease in current liabilities from 2016 to 2017 and 2017 to 2018. Decrease can also be seen in non-current liabilities that include borrowings, provisions, deferred tax liabilities and other financial liabilities (newcrest.com.au 2018).
As per the annual reports of Boral Limited, the items under current liabilities are trade creditors, loans and borrowings, financial liabilities, current tax liabilities, employee benefit liabilities, provisions and liabilities held as sale. These liabilities increases in 2017 from 2016; and decreases in 2018. The major items under non-current liabilities are loans and borrowings, financial liabilities, provisions, employee benefit liabilities and other liabilities. Increase in this liability can be seen from 2016 to 2018 (boral.com 2018).
Debt to Equity ratio is a major tool for the comparison of debt and equity position of the companies.
Table 1: Debt to Equity Ratio
(Source: Soeroso 2013)
It can be observed from the above table as well as figure that all these three companies use more proportion of debt capital than the equity capital for the fulfilment of their capital requirements. Among these three companies, both CSR Limited and Boral Limited use more amount of debt capital as compared to Newcrest Mining. In addition, among these three companies, Newcrest Mining has the highest amount of liabilities followed by Boral Limited and CSR Limited. In addition, Boral Limited has the highest amount of equity followed by CSR Limited and Newcrest Mining (Safitri 2013).
According to the Statements of Cash Flows of CSR Limited, the main items under cash flows from operating activities are receipts from the customers, payments to suppliers and employees, interests received, income tax payment and dividends and distributions received; and this cash flows increases from 2016 to 2017 and decreases from 2017 to 2018. Cash flow from investing activities include purchase of property, plant and equipment and other assets, control entities and businesses; and proceeds from PPE sales, acquisition cost and loans and receivable advanced. This cash flows increases from 2016 to 2017 and decreases from 2017 to 2018. The items under cash flow from financial activities of CSR Limited are buy back of on-market share, new drawdown of borrowings and payment of dividend, interest and finance costs. Amount of cash used in this head increases from 2016 to 2017 and again decreases in 2018 (csr.com.au 2018).
In case of Newcrest Mining, increase and decrease in cash flow from operating activities can be seen from 2016 to 2017 and 2017 to 2018 respectively. The major items under this head are interest received along with the payment of interest and income tax. Net cash used in investing activities increases from 2016 to 20178; and the major items under this are purchase of PPE, construction expense of the assets, expenditure for exploration and evaluation, proceeds from the sales of PPE, payments for investments and others (Brooks and Mukherjee 2013). Lastly, Newcrest Mining has decreased the amount of net cash used in financing activities from 2016 to 2018. The major items under this head are proceeds from borings, repayment of borrowings, payment for treasury shares and the payment of dividends (newcrest.com.au 2018).
In case of Boral Limited, the main items under the cash flow from operating activities are receipts from customers and interests and payments for suppliers and employees, borrowing costs, restructuring and acquisition costs. It decreases in 2017 from 2016 and increases in 2018 from 2017. After that, the major items under the cash used in investing activities are purchase of PPE, intangibles and controlled entities; proceeds from non- current assets disposal and disposal of control entities; and repayment of loans. The items under cash used in financial activities are dividend payment, capital raising, proceeds from and repayment of borrowings. Massive increase in this cash outflow can be seen in 2017 from 2016 and it again decreases in 2018 (boral.com 2018).
CSR Limited
Table 2: Comparison of Heads to Cash Flows of CSR Limited
(Source: Shamsudin and Kamaluddin 2015)
It can be seen from the above that there is increase in net cash from operating activities for CSR Limited from 2016 to 2018; and it indicates the increased income of the company from operating business activities. After that, the company has increased their investment in 2018 from 2016 for certain purposes like purchase of PPE, controlled businesses and others. It is observable from the above that CSR Limited used huge cash in 2017 for the payment of dividends (csr.com.au 2018).
Table 3: Comparison of Heads to Cash Flows of Newcrest Mining
(Source: Akhmetshin and Osadchy 2015)
As per the above table and figure, net cash flow from operating activities decreases in 2018 from 2017 due to the large payments for interests and income tax. After that, increased investment can be seen by the company from 2016 to 2018 due to purchase of PPE and others. Decrease in financing activities can be seen from 2016 to 2018 due to the non-payment of borrowings (newcrest.com.au 2018).
Boral Limited
Table 4: Comparison of Heads to Cash Flows of Boral Limited
(Source: Weber 2018)
As per the above table and figure, increase in net cash from operating activities can be seen in 2018 from 2017 due to receipts from customers along with dividend and interest payments. In addition, Boral Limited invested huge amount in 2017 due to the purchase of controlled entities. Due to major repayment of borrowings and dividend payment, there is an increase in net cash used in financing activities (boral.com 2018).
Based on the comparative analysis of these three companies, it can be said that Newcrest Mining has the highest amount of cash flow from operating activities; and the reasons are the huge receipts from customers along with dividend received. It can also be seen that all of these companies has majorly invested in the purchase of PPE, intangibles and others along with the acquisition of new businesses. All these aspects together leads to major investments by these three companies. In addition, all these three companies have made large payments for dividend, interests and finance costs that contributed towards the increase in cash outflow in these three companies (Bhandari and Iyer 2013).
According to the annual reports of CSR Limited, the company has reported other comprehensive income and expenses net of tax in the statement of other comprehensive income statement like hedge profits, hedge loss, exchange difference, income tax benefits, non-controlling interest and others (csr.com.au 2018).
As per the annual report of Newcrest Mining, the recorded items are other comprehensive income or loss, cash flow hedges, investments and foreign currency translation like exchange gains or losses on transactions of foreign operations, net investment hedge and others (newcrest.com.au 2018).
Boral Limited has reported certain items like net profit, other comprehensive income along with some specific items like ne exchange difference, foreign currency translation, fair value adjustments and income tax on items (boral.com 2018).
It can be seen that these companies have not recorded the above-mentioned items in their income statement due to the fact that they are extraordinary in nature and the companies do not use them in order to conduct their daily business operations. After that, the companies unitize them for the disclosure of the business activities during the period. These reasons restrict the companies in reporting them in the income statement and thus, they are recorded in the comprehensive income statement (Armour, Burkhauser and Larrimore 2013).
It can be seen from the annual reports of these three companies that all of them have included cash flow hedges in their comprehensive income statement. As per the comprehensive income statement of these three companies, Boral Limited has registered the highest amount of total comprehensive income followed by CSR Limited and Newcrest Mining. It can also be observed that all these three companies have included foreign currency translation related transactions in the statement of comprehensive income. All these three companies have attributed their other income to both non-controlling interest and shareholders of the companies (Eaton, Easterday and Rhodes 2013).
It can be seen from the annual reports of these three companies that the extraordinary items under the comprehensive income statements are highest in case of Newcrest Mining followed by Boral Limited and CSR Limited. For these reasons, in case these items are included or added in their income statements, the net income of these companies would be affected as they would either be increased or decreased. In case of Newcrest Mining, there would be decrease in the net income of the company in case they are added in the income statement. Hence, the profitability of the companies would be affected (Black 2016).
In this context, it needs to be mentioned that the performance of the business organizations must not be reliant on the comprehensive items of the businesses due to the fact that they are reflected characteristically in the annual reports of the companies. In addition, it can also be seen that these items are extraordinary in nature and they are not periodic in nature. In addition, the included items under the comprehensive income statements are primarily extraordinary in nature. Hence, in the presence of all these aspects, the managements of the companies must not consider them in the decision-making process of businesses (Mechelli and Cimini 2014).
The annual reports of the companies include the amount of tax expenses for the businesses for the present as well as previous year. According to the 2018 Annual Report of CSR Limited, the income tax expenses of the company for the years 2018 and 2017 are $81.3 million and $61.7 million respectively. Thus, increase in tax expenses can be seen for CSR Limited in 2018 (csr.com.au 2018).
As per the 2018 Annual Report of Newcrest Mining, the income tax expenses of the company for the years 2018 and 2017 are $118 million and $164 million respectively. Hence, it can be seen that there is decrease in the tax expenses of the company in 2018 from 2017 (newcrest.com.au 2018).
According to the 2018 Annual Report of Boral Limited, the income tax expenses of the company for the years 2018 and 2017 are $37 million and $49 million respectively. Thus, decrease in tax expenses can be seen in the company in 2018 from 2017 (boral.com 2018).
The calculation of the effective tax rate of CSR Limited, Newcrest Mining and Boral Limited is shown below:
The average tax rate of the companies signifies the average tax rate of them as the companies use them for taxing the business profits. The calculation of the effective tax rate of these three companies can be obtain from the above. It can be seen from the above table that Newcrest Mining has the highest effective tax rate (Evers, Miller and Spengel 2015).
It needs to be mentioned that deferred tax assets and the deferred tax liabilities are regarded as the crucial aspects for the financial reporting of the organizations and the companies have the obligation to report both deferred tax assets and liabilities in the relevant financial statements at the end of the year (Laux 2013). It can be seen from the annual reports of CSR Limited, Newcrest Mining and Boral Limited that all of these three companies have reported about their deferred tax assets and liabilities in the statement of financial position along with the notes to the financial statements. It needs to be mentioned that the companies record their deferred tax assets and liabilities due to the presence of provisional difference between the accounting profit and taxation profit. Another reason for the inclusion of both deferred tax assets and liabilities are the brought forward of the tax assets or liabilities in the current year from the past year (Kasipillai and Mahenthiran 2013).
According to the 2018 Annual report of CSR Limited, the reported deferred tax assets in 2018 and 2017 are $151.8 million and $201.2 million respectively. Thus, decrease in deferred tax assets can be seen. CSR Limited has reported $7.4 million as the deferred tax liabilities in 2018 and the company did not have any deferred tax liability in 2017 (csr.com.au 2018).
As per the 2018 Annual Report of Newcrest Mining, the reported deferred tax assets by the company in 2018 and 2017 are $69 million and $80 million; thus, decrease in this asset is evident. After that, the company has also reported $1007 million and $1087 million as deferred tax liabilities in 2018 and 2017 respectively. Hence, decrease can also be seen in this case (newcrest.com.au 2018).
According to the 2018 Annual Report of Boral Limited, $69.6 million and $76.5 million are the reported deferred tax assets of the company in 2018 and 2017 respectively. It shows decrease in this assets. After that, $39.5 million and $73.9 million are the deferred tax liabilities reported by the company in 2018 and 2017 respectively. It shows decrease in this liability (boral.com 2018).
As per the above table, CSR Limited has the highest cash tax rate among these three companies.
The principal reason for the difference between book tax rate and cash tax rate is that the companies estimate the cash tax rate based on the present year. However, the projection of book tax rate is done based on current and coming year. At the time of the calculation of cash tax rate, it is needed to consider the deferred tax assets and deferred tax liabilities along with the weight of interest and these can lead to tax saving. The calculation of book tax ate does not need any of these considerations (Edwards, Schwab and Shevlin 2015).
Conclusion
It can be seen from the above discussion that all these companies that are CSR Limited, Newcrest Mining and Boral Limited have major reliance on debt capital for the purpose of raining the required capital for their business. At the same time, it can also be seen that all of these three companies receive major cash amounts from their customers where these companies invest huge amount for the purchase of PPE, intangibles and new businesses. The above discussion also indicates towards the fact that these companies do not include the extraordinary items of comprehensive income in the income statements as they are not directly related to the daily business operations of them. The taxation part shows that the companies are needed to consider deferred tax assets, deferred tax liabilities and finance costs at the time of the calculation of cash tax rate.
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