Corporate Accounting: Evaluation of Income and Cash Flow Statements

Corporate Accounting

EXECUTIVE SUMMARY
The study-report summarizes thorough evaluation of relative information contents of income-
statement as well as cash-flow statement with aim to assess how these statements are useful for
investors. Moreover, study conducts critical analysis of consolidated cash-flow-statements of
three companies Santos Ltd, BHP Ltd and Funtastic Ltd to assess the actual comparative
performance of such corporations during period 2017 to 2019 with aim to explore different
financial aspects of each corporation, their strengths and identify which company is most
preferable for lending.

Contents
EXECUTIVE SUMMARY.......................................................................................................................2
INTRODUCTION.....................................................................................................................................4
MAIN BODY.............................................................................................................................................4
Part A......................................................................................................................................................4
Part B.......................................................................................................................................................7
CONCLUSION........................................................................................................................................30
REFERENCES........................................................................................................................................32

INTRODUCTION
Each organization needs to do some sort of accounting. This is essential for assess the financial
state of the company. Accounting, also regarded as bookkeeping, encompasses the selection,
examination, assessment, evaluation, presentation and distribution of financial details
(Schaltegger, Etxeberria and Ortas, 2017). There are several forms of accounting. Corporate
accounting is also one of them. It's better suited for corporations. Corporate accounting copes
with procedures like compiling cash-flows statements, tax returns, income statements and much
more. It may be employed to control specific business operations like acquisition, amalgamation
as well as the development of consolidated reports. The study-report covers different aspects of
corporate accounting in two distinct parts. The first part evaluates basic contents of cash-flow
statement & income-statement as to assess why these contents are useful for
stakeholders/investors. While other part evaluates consolidated-cash flow statement of
mentioned companies as to assess their real performance and identify other relevant aspects.
MAIN BODY
Part A
Reviewing information stated in income statements and cash-flows statements.
Financial statements of a company are compiled records which reflect the corporation 's
corporate practices and finance reports. Financial statements are audited by government bodies,
auditors, agencies, etc. as to ensure compliance and for accounting, finance or investment
objectives. The financial statements therefore mainly involve: balance-sheet, income statement
(P&L a/c) and Cash-flow statement. Financial statements of corporation provide investors with a
portrayal of all activities which go into the firm, where each transaction leads to its performance.
A cash-flow statement considered to be most insightful among financial statements since it
reflects cash created by the company in three major ways — via operations, investments and
financing (Liu, Zeng and An, 2017). The amount of such three segments is considered net cash
flows. Here is thorough review of contents and information of income and cash-flows statement:

Income statement- The income statement is accounting statement which displays how profitable
the company has been over the fiscal period. This indicates company's profits, minus
company's expenses and other losses. Here is review of information-content of income-
statement, as follows:
Sales/turnover: Sales turnover is the money earned by the corporation from the selling of
products. In finance, the words "selling" and "revenues" are sometimes used interchangeable
terms to describe same thing. this is necessary to remember that income does not always equal
cash earned. A proportion of sales may be charged in cash as well as a part may be charged out
on credits by means like trade receivables accounts. Sales revenue is displayed on income
statement both as gross sales figure or net-revenues.
Cost-of-goods sold: Usually referred to "COGS," which shows how much it takes to create all
the products/services company has provided to customers. COGS only include direct costs such
as materials, wage costs and transport costs (Hoang and Joseph, 2019).
Gross Profit: This is amount of what business get after deducting overall COGS from
turnover/sales. Gross profit demonstrates how profitable the company is, considering direct
costs, but prior considering overhead costs. This is a basic indicator of how effective a company
is.
General expenses: also refers to as operating expenses which include leases, banking & Internet
banking fees, machinery expenses, advertisement & promotional expenses, promotions, and all
other spending will require to keep running.
Operating earnings: This shows how profitable the company is after considering internal costs,
which company have more influence over, but prior to considering external costs, such as
mortgage interest rates and taxation, which company have little control over.
Net Profit: this figure which shows actual profitability status and net profit sum remain after
considering all business expenses.
Cash-flow Statement: A cash balance statement lays down the multiple kinds of cash-inflows
and cash-outflows (as well as cash-equivalents) which a corporation experiences which is
perhaps one most significant financial statements corporation can produce. understanding how to

compose and analyze cash flows statement is fast and efficient. this can let manager and other
stakeholders better see how corporation generates or expenses cash, how much cash is expended
or raised, which can give useful insights into the corporation 's finances. Here below is
evaluation of information-content of cash-flow statement, as follows:
Cash-flows through Operating Activities: The net sum of funds in or out of a corporation's day-
to-day operating activities is considered Cash Flow through Operations. There are operating
revenues and non-cash items like depreciation incurred (Harring, Jagers and Matti, 2019).
Because operating results are diminished through non-cash items like depreciation and
amortization) they have to be applied back to operating income in order to determine cash flows.
cash flow through operations is essential indicator since it shows the investor about the
profitability of the existing business strategy and activities. In long term, cash generation from
operations would be revenue inflows in return for the company to be sustainable and account for
usual outflows through investment and financing activities.
Cash through Investing Activities: Investment operations involve both forms and applications of
cash through investments made by a corporation. Buy or disposal of an assets, loans provided to
or obtained, or other payouts relating to mergers or acquisitions shall be specified in this section.
In brief, shifts in infrastructure, assets, investments are related to cash through investing.
Generally, cash changes through investment are "cash out" object, since cash is utilized to
purchase new machinery, buildings, or shorter-term assets like sellable securities. Conversely,
whenever a corporation relinquishes an asset, deal is perceived to be a cash in as to
determine cash from investments.
Cash through Financing Activities: Cash through financing operations requires channels of funds
from customers or financial institutions, and also the usage of cash provided to stakeholders.
Collection of dividends, buyback payments including redemption of the primary debt
(mortgages) are specified in this section (Warren and Jones, 2018). Adjustments of cash through
financing are regarded as cash in" if money is collected and cash-out if dividends are taken out.
Therefore, when a corporation sells bonds to public, the corporation collects cash financing; but,
when interests is accrued to bondholders, corporation reduces its capital.
Significance of income statement for investors:

Investors consider company's income statement to assess the performance of a business over
period. Investors watch at patterns in business expenditures and profits when the document
breaks down employee sales and expenditures. If a corporation is not prosperous or if the
earnings transition year over year, income statement allows them to know where sum is flowing.
The details regarding earnings per share is another crucial aspect for investors. That sum that a
corporation will pay to its shareholders on every share, if company paid out most of net profits as
dividends. Companies should not have to render such payments, however, and they generally
reinvest the cash back into company rather than paying this to shareholders. When a corporation
pays dividends to investors, the income statement would indicate how much corporation has paid
out.
Significance of cash flow statement for investors:
This allows investors to utilize information about company’s past cash-flows to forecast potential
cash-flows on that to based their investment choices (Ioannidis, 2019). It demonstrates
improvements in balance sheet and assists in the review of operations, acquisition and financing
operations. This gives insights into the liquidity including solvency of company and is crucial to
the sustainability and success of every company. This indicates the financial condition of the
organization over a span of time. This allows to provide information on cash-generating
capacities of the key operations of the organization. Stockholders and investors prefer to
contrast Cash-Flow Statements of several firms as they allow them to disclose the consistency of
their revenues. This helps to make the appropriate decision for them. Given that the corporation
has certain longer-term financial commitments, Cash Flow Statement helps investors and lenders
to assess the probability of redemption. It could be utilized to forecast accurately the pace,
quantities and volatility of potential cash flows.
Part B
1.Examination of cash flow of each company.
(a) Major source and uses of cash of each firm.
BHP limited:

Santos limited-