Corporate Accounting: Importance of Income Statement and Cash Flow Statement for Investors

Corporate Accounting

EXECUTIVE SUMMARY
This study summarises the in-depth assessment of relative details contained in income
statement and cash-flow-statement, with goal of determining how such statements are beneficial
for company investors. In addition , study covers a critical review of company's consolidated
cash-flow statement of three organisations named as: Santos Ltd, BHP Ltd and Funtastic Ltd,
as to determine actual comparison of performance of such entities over period from year 2017 to
year 2019, with intention of exploring the multiple financial key elements of each entity, its
capabilities and determining which entity is most favoured for lending.

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

INTRODUCTION
Every corporate entity requires to do certain kind of accounting process. This is pertinent for
determining the financial status of the large corporations. Accounting, commonly considered as
bookkeeping process, includes the collection, analysis, evaluation, reporting as well as
dissemination of financial records. There are variety of ways of conducting accounting process.
Corporate accounting process is one of those. It's best suited to large corporations. This
performs procedures such as preparing cash-flow statement, different tax-returns, financial
statements etc. It can be used to manage basic business processes such as takeover,
amalgamation and the production of integrated reports (Harring, Jagers and Matti, 2019).
The analysis report discusses the various dimensions of the corporate accounting
process in two separate parts. First section assesses the fundamental details contained in cash
flow statement and income statement for purpose of assessing how why these details are
beneficial to stakeholder groups / investors. While another part analyses consolidated cash-flow
statements of the businesses involved in order to determine their actual output and to determine
other related elements.
MAIN BODY
Part A
Reviewing information stated in income statements and cash-flows statements.
The organisation 's financial statements relates to structured reports that represent corporation 's
operating activities and fiscal records. Corporation's financial statements are reviewed by
government authorities, compliance officers, auditors etc. in attempts to insure conformity with
the requirements of accounting, financing or investment. These statements thereby include:
balance-sheet, income statements (P&L a/c) including cash-flows statement. The business entity
's financial statements offer stakeholders with an summary of all operations carried out by the
organisation, whereby every transaction contributes to its ultimate performance (Ioannidis,
2019).
Company's cash-flow-statement is recognised as most informative among the
entity's financial statements as it depicts the cash-fund generated by the entity in three key
aspects — through operations, making investments and through financing. The aggregate of

these segments is recognised to be net amount of cash-flows. This is a comprehensive
examination of the components and specifics of the statement of cash-flow and income-
statement:
Income statement: It is financial statement prepared by entities that demonstrates how financially
viable/profitable the corporation is in particular year. This illustrates profits sum of the entity
reduced by costs/expenses of the entity and certain other losses. It is analysis of the information-
contents of income-statement described here:
Sales / revenues: Sales turnover amount is the revenue earned by business through the
selling products or providing services. In financial term, "sale" and "earnings" are often used
usually associated expressions to explain the same matter. It is important to note that earnings
also aren’t necessarily equivalent to the amount of money gained. A component of revenues may
be paid in cash and also a proportion might also be paid in credit facilities by virtue of business
debtors. Sales revenues are presented on the income statement as either overall gross sales
figures and as overall net sales.
Cost-of-goods sold: normally alluded as "COGS," that indicates how long it costs to
make products / provide services that the corporation has offered to its consumers. COGS just
involves direct expenses such as supplies, wages costs and transport.
Gross Profit: This is the figure indicating what the corporation could earn/get after reimbursing
total COGS from the revenues/sales. Gross profit reveals how efficient in terms of profit
generation the business is, factoring direct expenses, but before consideration of
overheads expenses. This is an effective indicator of how productive a corporation is.
General expenses: commonly considered as operating expenses include rentals, brokerage &
Internet banking charges, machine/tools expenses, ads & advertising costs, marketing, and any
other cost that may be needed to continue operating.
Operating earnings: These illustrates to what extent financially viable the organization is,
post considering operational cost, over which corporation has more leverage, but before
contemplating external costs like borrowing interest and tax payments, over which organisation
has little controlling on.

Net Profit: such amount indicates the real profitability position and net profits amount, remains
after consideration of all enterprise expenditures.
Cash-flow statement: This statement sets out the various forms of cash-inflows as well as cash-
outs (as well as cash-equivalents) that can be obtained by a entity and is probably one of the most
substantial financial reports of business. Comprehending how to compile and evaluate the cash-
flow statement is relatively easy and productive (Liu, Li, Zeng and An, 2017). This will make it
convenient for executives or other investors to determine how the company is earning or invests
capital, how many extra money is invested or generated, that could provide important input into
the organisation's financial. The following is the analysis of the information-contents of cash-
flow statement, here below:
Cash-flows via operating activities: The total amount of money inside or outside day-to-day
affairs of a company is known to be Cash-flows from operations. Operating profits and non -
monetary factors such as depreciation are generated. As operating earnings are decreased by non-
cash products such as depreciation including amortisation, these need to have added back to
operating profits in attempt to quantify cash flows. This is a pivotal metric as it displays investor
the efficiency of the current operating strategy and practices.
Cash via investment activities: In company Investment activities include both modes and cash
uses via investments undertaken by organisation. The buying or sales of assets, guarantees given
or received or other payments pertaining to mergers and acquisitions are defined under this
heading. In short, improvements in equipment, infrastructure and finances are attributed to cash
via investment. Ordinarily, monetary shifts from investments are "monetary out" as money is
used to buy new equipment, properties, or shorter-period assets such as marketable shares.
Likewise, if a company relinquishes an asset, the sale is considered to be a monetary sale for the
purpose of assessing the monetary value of the investment.
Cash via financing operations: These operations includes pools of funding through investors or
financial institutions, as well as the use of money offered to investors. Sum of distribution as
dividend, repurchase payments, including the repayment of principal debts (mortgage interest)
are listed in this heading. Cash variations by financing being perceived to be cash into "whenever

cash is raised and cash outs when dividends are obtained. Thus, whenever a company sells
securities to public, company receives cash financing; however when interest is paid to debt
holders, the organization decreases its capital-fund.
Significance of income statement for investors:
Investors foresee the organization’s income statement report to measure the profitability status of
a firm over a period of time. Investors are looking for trends in company spending and earnings
as the paper breaks down revenue and expenses of employees. If a company is not stable or if
profits are transitioning year-on-year, income statement lets it to realize where the money is
actually flowing. The specifics of EPS are another crucial component for investors/stakeholders.
The portion that an entity would pay towards its shareholders with every share if the entity pays
most of net-income as dividends. Corporations do not, though, have to make those payments as
well as usually reinvest their cash back into enterprise instead of just pay it all back
to company's securityholders. When a company offers dividends to their shareholders,
this statement will show how much entity has paid.
Significance of the cash flow statement for investors:
This tends to help existing and potential investors/shareholders to use the corporation 's previous
cash-flows details to estimate future cash-flows on the basis of their investments choices. It
exhibits improvements within balance sheet and aids in the analysis of projects, investments and
financing processes. This does provide insights into actual liquidity including that of solvency
of business, which is critical to the survival which performance of each business. This shows the
financial state of the company over a period. This enables information about cash-generating
ability of the organisation's main activities to be given. Investors/shareholders tend to
compare Cash-Flow statements of number of firms by allowing them to reveal the constancy of
their overall revenues. It enables to making the proper decision about them. Considering that the
entity has some longer-term financial liabilities, Cash-Flow Statement allows investors and
lending institutions to determine the likelihood of recovery. It can be used to reliably predict the
speed, quantity and variability of future money flows (Warren and Jones, 2018).

Part B
1.Examination of cash flow of each company.
(a) Major source and uses of cash of each firm.
BHP limited: