Assessment of Cash Flow Statement of Three Companies

This report assesses the cash flow statement of Funtastic Ltd, BHP Ltd, and Santos Ltd. It analyzes the sources and applications of cash, trends in cash flows, and the ability of the companies to generate cash. The report also discusses the importance of cash flow statements for investors.

Corporate Accounting

Abstract
Present report provides detail assessment of cash flow statement of three companies i.e. Funtastic
Ltd, BHP Ltd. and Santos Ltd. Income Statement assists the company to identify their revenue,
expenses, and net profit or loss throughout the particular time. Cash flow statement prepared by
the company to know the actual position of the cash, with respect to the operational aspects,
investment aspects, and financial aspect. Further, Income Statement as well as financial
statement is very useful for the investors, by which they can analyze the performance of
company and make proper investment decision. The study revealed that BHP Ltd. and Santos
Ltd are financially strong in comparison to Funtastic Ltd.

Table of Contents
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
Part B...............................................................................................................................................6
Answer 1......................................................................................................................................6
Answer 2....................................................................................................................................16
Answer 3....................................................................................................................................18
Conclusion.....................................................................................................................................18
References......................................................................................................................................20

INTRODUCTION
Every company prepares the financial report for assessment of the financial performance of the
company. With this aspect, statement of cash flow is significant part of the financial statement of
the company (Reid, and Myddelton, 2017). Given study revolves around the content of
information provided in the statement of cash flows. Further, importance of statement for the
investors is also prescribed in this report. Along with this, report describes the several matters
related with the inflows and outflows of cash of three companies, namely Funtastic Limited,
BHP Limited, and Santos Limited. By observation of the cash flow statement, various aspect like
sources of cash in each firm, trend of cash flow, capability of the companies to generate the cash,
items which affect the cash flows, dividend trend, and others matters evaluated.
PART A
The income statement is prepared by the company for the ascertainment of profitability. It assists
the company to measure the performance by identification of the revenue, direct expenses, and
indirect expenses over specific period of time (Saleh, 2017). It also considers the non-cash
expenses incurred by company such as depreciation. Along with this, performance of the
company in the coming years and the capability of generating the cash flows of company also
determine by the income statement. It consists of the revenue, which are generated form core
business activities or other income (Wolf, Nabin, and Bhattacharya, 2018). It is considered as top
line. Further it takes into account the expenses, along with resulting Income or loss during a
particular time because of earning activities. The information content of profit and loss account
is as follows –

Operating revenue and expenses – it is refers as gross revenue, which consist of inflows of cash
and other enhancement of the assets of company. Expenses consist of outflow of the cash and
other expenses incurred in relation with assets or liabilities. Further, cost of goods sold, research
and development expenses, depreciation and amortization, and selling and organizational
expenditure are included in the information content of expenses (Miao, Teoh, and Zhu, 2016).
Non-Operating Revenue and Expenses – it consists of revenue or profit from non-operating
business, such as income from rent. Further, in the non-operating expenses, the expenses
incurred by the company for non-operating expenses such as payment of interest, borrowing cost
and others (Campbell & et.al 2019).
Along with the above aspects, Income statement is significant part of financial statement. It is
very useful for the investor, as they can assess the financial performance of the company relating
to particular period. It clearly states about the profit or loss of a company. They can identify
whether the company can carry out its operations in a well manner in the future. Thus, the above
information can be only found in the Income Statement, therefore it is very useful (Gordon &
et.al 2017).
Moreover, cash flows statement of the company shows the exact amount of cash inflow and cash
outflow of the company. It is prepared by the company for the identification of liquidity of the
funds, viability for the short term period, and for the ascertainment of its position to make the
payment of its bill to the seller (Clubb, 2015). In the statement of the cash flows three are three
main activities, which are described as below –

Cash flow from operating activities – it analyze the cash flow of the entity from the net profit or
losses, and make the reconciliation of the net profit or loss from the real cash received or paid by
the entity from the operating activities (Alfonso & et.al 2018).
Cash flows from investing activities – it shows the how much money is received by company
from sale of investment and how much money used by the company for buying the investment
(Donleavy, & et.al 2018).
Cash flows from financing activities – it shows about the cash inflow and outflow from the
financing activities of the business such as cash avail because of issue of debenture, cash inflows
from borrowing by bank or financial institutions and others (Gordon &et al. 2016).
Cash generation capability of the entity can be ascertained by the statement of cash flows,
therefore investor can determine the amount of cash generated by entity by observation of the
statement of cash flows. Further, this investor can also analyze whether the cash flows belong
from the operating activities, investing activities, and financing activities separately (Weber,
2018). An investor can observe how the company spends its cash. Along with this, key
performance indicators also identified by the evaluation of the inflows and outflows of cash.
Therefore, it is very useful for investors while making the investing decision.
PART B
Answer 1
Major sources and application of cash in each firm
In the case of Funtastic Limited, company generates the cash from receipt from the customers,
interest and other income; cash received from the issue of shares, cash from borrowings. In the

year 2018, the company generated cash by sale of an international subsidiary. Further, the
company utilizes its cash for payment to supplier, interest and another cost of finance, buying of
assets, cost incurred forthe issue of shares and another cost (Ketz, 2016).
In case of BHP Limited, company generated cash by receipt from customers, dividend, interest
and other income, sale of assets, interest bearing liabilities. The company utilizes this case for
payment to supplier, interest payment, purchasing of the assets, expenditure on exploration, and
repayment of the liabilities (Baik, & et al. 2016).
In the case of Santos Limited, cash generated by the company from receipt of customers,
dividend, the tariff of the pipeline, sale of assets, borrowings and another receipt. The company
utilizes this cash for payment to supplier, cost of borrowing, buying of assets, royal and excise
payment, repayment of liabilities, and other payment.
The trend of cash flows from continuing operations for each firm
Table 1 Funtastic Limited
Particulars 2018 (in AU $ 000) 2017 (in AU $ 000) 2016 (in AU $ 000)
Cash flows from
operating activities
(continue)
(10182) (2750) (7329)
Table 2 BHP Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Cash flows from
operating activities
(continue)
17561 15876 9840

Table 3 Santos Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Cash flows from
operating activities
(continue)
1578 1248 840
In the case of Funtastic Limited, there are no inflows of cash, even the outflow of cash from
operating activities is an increasing trend. Further, in the case of BHP Limited, the trend of cash
flows is upward from operations. In case of Santos Limited, from the operational activities, the
trend of cash flows is upward side, which is due to increase in the receipt from customers, and
another receipt from operations (Lewellen, and Lewellen, 2016).
Cash flows from the operation is more than or less than net income and reasons for the
difference
Table 4 BHP Limited
Particulars 2018 (in US $M) 2017 (in US $M) 2016 (in US $M)
Net Income 14751 11137 1791
Cash Flows From
Operations
18461 16804 10624
For BHP Limited, cash inflows from operations are more than the net income of the profit. In the
computation of the net income of the company, non-cash expenses such as depreciation,
amortization, and impairment of assets also considered. However, while computation of the cash
inflows, the non-cash expenses in not taken into account because of no outflow of cash. This is
one of the reasons behind the increment in the cash flows as compared with the net income.
Along with this, change in working capital like current assets and current liability is not

considered in the profit and loss account, and the same is considered in the cash flow statement,
which makes the difference in the cash flows from operations and net profit of the company
(Kraft, and Schwartz, 2015).
The ability of the company to generate sufficient cash from operations in order to accomplish
obligation relating to its capital expenditures
Table 5 Funtastic Limited
Particulars 2018 (in AU $ 000) 2017 (in AU $ 000) 2016 (in AU $ 000)
Cash flows from
operating activities
(10182) (2750) (7329)
Capital Expenditure
of company
Payment for plant and
equipment
145 888 884
Payment for other
intangible assets
281 540 325
On the basis of the above table, there are no cash inflows generated by the company from its
operations. Therefore Funtastic Limited is not capable for the payment of capital expenditure out
of its operations.
Table 6 BHP Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Cash flows from
operating activities
18461 16804 10625
Capital Expenditure
of company
Purchases of
property, plant and
equipment
4979 3697 5707
Exploration
expenditure
874 966 752
Other investing 141 153 20

By considering the above data, it has been observed that the firm has enough cash by which it
can make the payment of its capital expenditure.
Table 7 Santos Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Cash flows from
operating activities
1578 1248 840
Capital Expenditure
of company
Exploration and
evaluation assets
66 146 128
Oil and gas assets 490 483 500
Other land, buildings,
plant and equipment
10 5 4
Acquisitions of oil
and gas assets
10 49 18
Acquisition of
subsidiary, net of
cash acquired
1933
Costs associated with
the acquisition of
subsidiaries
10
Borrowing costs paid 6 6 20
In the year 2018, there is a shortage of cash for making the payment of capital expenditure. In the
year 2016 and 2017, the company has enough cash by which it can make the payment of capital
expenditure.
Cash flow from operations covers both the capital expenditures and the dividend payments made
by the firm
Cash flows from operating activities does not cover the long term capital expenditure, as it is
considered as one-time activity as investing activity. Therefore in the operating activities, the

capital expenditure is not included. Further, the payment of the dividend is regarded as the
financing activity of the business; therefore in the operating activities, it is also not considered.
Excess cash from operations and investment of cash and sources by which company can pay
dividend and capital expenditure
Utilization of surplus cash depends on the condition of the company. The company can make the
investment in the securities by which it can gain the return in terms of dividend or interest.
Further, if the company is more leveraged, then the company should pay the debt which has a
higher rate of interest. Along with this, it can also give incentives to its employees to raise
encouragement.
The company can raise the new funds from the external sources for the payment of capital
expenditure. The further company can also utilize the proceeds generated from the sale of assets
for purchasing of the new assets. For the payment of dividend, the company can utilize their
retained earnings and reserve. However, if the company follow the residual dividend policy, then
it can pay the dividend which out of the fund which is remaining after the application in the
capital project.
Whether the firm uses working capital as a source of cash or uses of cash
In the case of BHP Limited, the company uses the working capital as a source of cash other than
cash and cash equivalent as a source of cash and uses of cash. Increment in the current assets
such as sundry debtors, inventory, bills receivable and others are considered as an outflow of
cash, and the reduction in the current asset is considered as inflow of the cash. Similarly, the
increment in the current liabilities such as trade payables, short term borrowings and others are
regarded as inflow of the cash and reduction in the current liabilities is considered as an outflow

of the cash. The BHP Limited uses the working capital such as debtors and receivables,
Inventories, Trade and other payables, provisions and other assets and liabilities as a source of
cash and application of the cash.
Major items which impact on the cash flows
The cash flows of the company are affected by the credit period of the company. it is the time
period within which the customers make the promise to the company for the payment of the
goods or services availed by them. Therefore, the credit period and the credit policy is one of the
aspects which impacts on the cash flows of the company (Kim, & et al. 2016). Further, the
change in the long term investment of the company also significantly affects the cash flows. For
instance, if the company sells out the assets in cash to buying any asset for cash, then in such
case, cash affects accordingly. Further, trade receivable, payable, current assets and liabilities
also make the impact on cash flows of the company (Bäuerle, and Grether, 2015).
Trend of dividend in each firm
Table 8 BHP Limited
Particulars 2018 (in US $M) 2017 (in US $M) 2016 (in US $M)
Dividend Received 709 636 301
Dividend Paid 5220 2921 4130
Table 9 Santos Limited
Particulars 2018 (in US $M) 2017 (in US $M) 2016 (in US $M)
Dividend Received 6 12 12
Dividend Paid 73 43

In the case of Funtastic Limited, the company did not pay or receive any dividend. further, for
BHP Limited, the dividend received by the company is an increasing trend. As compared with
the year 2016, in the year 2018, the amount of dividend is almost twice. It suggests that the
company made the investment in a good manner. Further, the dividend paid by the company is in
a fluctuating trend. Further, in the case of Santos Limited, the trend of the dividend received by
the company is in decreasing. In the year 2016 and 2017, the amount of dividend is constant, but
in the year 2018, it is just half as compared with the previous year. Further, the dividend paid by
the company is in increasing trend. In the year 2018, there was no dividend paid by the company.
The trend of net borrowing in each firm
Table 10 Statement of net borrowing of Funtastic Limited
Particulars 2018 (in AU $ 000) 2017 (in AU $ 000) 2016 (in AU $ 000)
Proceeds from
borrowing
2630 3647 7457
Repayment of the
commercial bill
(1000)
Net Borrowing 2630 3647 6457
Table 11 Statement of net borrowing of BHP Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Proceeds from
borrowing
528 1577 7239
(Settlemet)/ Proceeds
from debt related
instrument
(218) 36 156
Repayment of
interest-bearing
liabilities
(4188) (7144) (2781)
Net Borrowing (3878) (5531) 4614

Table 12 Statement of borrowing in case of Santos Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Proceeds from
borrowing
1193 783
Borrowing cost paid (194) (254) (226)
Repayment of
borrowing
(220) (2442) (147)
Net Borrowing 779 (1913) (373)
By considering the above table, the net borrowings of Funtastic Limited was in increasing trend.
Further, the trend of the BHP limited and Santos Limited was in fluctuating.
The trend in the working capital account
Table 13 Statement of the working capital in case of BHP Limited
Particulars 2018 (in US $ M) 2017 (in US $ M) 2016 (in US $ M)
Trade and Other
Receivables
[phone]
Inventories (182) (687) 521
Trade and Other
Payables
719 512 (1272)
Provisions and other
assets and liabilities
7 (333) (316)
Change in Working
capital
(118) (241) 320
The above table shows that, in the year 2018, there is an enhancement in the current assets of the
company as compare with its liability. However, it is less as compared with the previous year.
Thus it shows the decreasing trend of the working capital, as if current asset increases, then the
working capital of the company definitely increase.

Answer 2
The financial strength of each company
Inflows and outflows of cash is represented by the entity through the statement of cash flows. It
enables a manager as well as banker to view operations of the company from a cash perspective
in order to assess the extent of smoothness with which operations are conducted and the manner
in which money is spent. Cash flow relating to operational activities represents cash relating to
core operations of the business, as the same is available for reinvestment and for growth of the
business. The positive cash flow from operational activities represents the financial strength of
the company. It means the company is generating higher cash inflow from operating activities in
comparison to the amount spend for specified activities. In case any business fails to generate
positive operating cash flow than it is required to rely on outside resources in order to sustain for
long term
.
Table 14 Operating cash flows (AU$ 000)
Particular 2018 2017 2016
Net Operating Cash
Flow (Funtastic Ltd.)
-10182 -2750 -7329
Net Cash Flow from
investing activities
(BHP Ltd)
18461 16804 10625
Net Cash Flow from
financing activities
(Santos Limited)
1578 1245 840

It can be accessed from the analysis of net operating cash flow of three companies that BHP Ltd.
is financially strong in comparison to the other two companies as it has higher operating cash
flow. Higher operating cash flow represents that company is having sufficient funds for its
operations and is not dependent on outside financing options to accomplish its operations with
smoothness (Bäuerle, and Grether, 2015). Thus, it can be accessed that as BHP Ltd. and Santos
Ltd is having positive operating cash flow, which represents that company is having adequate
funds for its operations. Even increasing trend has been accessed both companies, i.e. BHP and
Santos Ltd., which represents that companies are able to manage funds in accordance with the
expansion of business with time. Negative operating cash flow represents that company is
spending more cash in comparison to cash generated from business activities. Thus, it can be
concluded that Funtastic Ltd is financially weak as outflows from the operational activities of
company more than inflows of activity.
Answer 3
By considering the above analysis, BHP limited is selected for lending purpose. The closing
balance of the cash and cash equivalent of the company is more as compared with Funtastic
Limited and Santos Limited. Further, cash generated from the operational aspects of the entity is
excess even after the application of its capital expenditure. This suggests that the company can
lend money. Therefore, it is selected for lending purpose.
CONCLUSION
By considering the above analysis, it has been observed that the company and the users of
financial statement can get various information by the observation of the profit and loss account

and statement of the cash flows of company. It has been concluded that net income or loss can be
ascertained by the Profit and Loss account of the company. Further, Statement of the cash flows
assist in identification of the inflows and outflows of the cash from operational aspects, financial
aspects, and investment aspects.

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