Corporate Finance Project Report on CSL Limited and Cochlear Limited

This report evaluates the accounting treatment of CSL Limited and Cochlear Limited, focusing on their recording, presentation, disclosure policies, accounting standards, and framework. It also includes a comparative analysis of their equity statement, cash flow statement, and comprehensive income statement.

Running Head: Corporate Finance
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Project Report: Corporate Finance

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Executive summary
Corporate finance report has been prepared on CSL limited and COCHLEAR
LIMITED in order to identify the uniformity in the annual report of the company. the report
focuses on the recording, presentation, disclosure policies, accounting standards, framework
etc of the companies to measure that whether the proper accounting rules have been followed
by the company or not. After conducting the research on various items of the annual report
and their impact on the financial performance and position of the companies, it has been
concluded that the same rules and procedure are followed by both the companies in order to
give proper information to shareholders and set uniformity.

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Contents
Introduction.......................................................................................................................4
CSL limited and COCHLEAR LIMITED........................................................................4
Owner’s equity..................................................................................................................4
1. Items of equity statement.....................................................................................5
2. Comparative analysis...........................................................................................5
Cash flow statement..........................................................................................................6
3. Items in cash flow statement................................................................................6
4. Comparative analysis on broad categories...........................................................8
5. Comparative analysis among the companies.......................................................9
Other comprehensive income statement...........................................................................9
6. Items in comprehensive income statement..........................................................9
7. Reasons for not adding them in profit and loss a/c............................................10
8. Comparative analysis.........................................................................................10
9. Comprehensive income involvement.................................................................11
Accounting for corporate income tax.............................................................................11
10. Tax expenses in financial statement...............................................................11
11. Effective tax rate.............................................................................................12
12. Deferred tax liabilities and assets...................................................................12
13. Changes in deferred tax liabilities and assets................................................13
14. Cash tax amount.............................................................................................13
15. Cash tax rate...................................................................................................14
16. Difference among the cash and book tax rate................................................14
Conclusion......................................................................................................................14

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References.......................................................................................................................16

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Introduction:
Evaluation on the accounting treatment of an organization is one of the essential
aspects of the corporate finance. It is essential for an entity to follow the accouning standards
and principle to recognize, record and present the accounting figures in the financial
statement and annual report of the company so that a fair value could be conveyed to the
stakeholders of the entity (Romney, Steinbart, Zhang and Xu, 2006). If an organization
follows the proper rules of accounting standards then the comparison study could also be
done in proper way among the company and the competitor company.
In the report, the main final financial statements of CSL limited and Cochlear Limited
has been taken into the context to evaluate the study. The final financial statement, cash flow
statement, balance sheet, comprehensive income statement and taxation recording process of
the company has been evalauted and compared with each other to reach over a conclusion
about the performance of the company and the importance
CSL limited and COCHLEAR LIMITED:
CSL limited is an Australian multinational company which is specialized in
biotechnology. The company mainly researches, develops, manufactures and marketing and
sales the medical solution of various disease in the market. The main motto of the business is
to prevent the serious medical issues. The product area of the company includes blood
plasma, vaccines, derivatives, antivenin and the cell cultures which are used in various
medical issues preventions (Our company, 2018). The company has been founded in the year
of 1916 in order to prevent the serious medical issues.
Cochlear Limited researches, develops, manufactures and marketing and sales the
pharmaceuticals grade cannabis and hemp based nutra-ceuticals treatment and products for
the human and animal helath in the Australian market. It also provides its services in the
Switzerland and Slovakia. The company mainly involves in the hemp growing operations,
cannabidiol product sales activities etc. (Home, 2018). The company also offers branded
premium cannabis chocolate and beverage in the market to improve the health issues in the
market.
Owner’s equity:

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Owner’s equity of the business represent the total equity amount which has been
generated and retained by the company for the long term investment and to run the business
for a long period (Kaplan and Atkinson, 2015). The owner’s equity evaluation on CSL
limited and COCHLEAR LIMITED is as follows:
1. Items of equity statement:
The annual report of both the companies has been studied and evaluated and the
following result has been found:
Equity Items
CSL limited Cochlear Limited
AUD in million
2018-
06
2017-
06 Changes
2018-
06
2017-
06 Changes
Stockholders' equity
Share capital 173 169 2.37%
Contributed equity
-
4634.5
-
4534.3 2.21%
Reserves 224.2 294.2 -23.79% -33.8 -12.9 162.02%
Retained earnings 8490.2 7403.9 14.67% 471.6 387.1 21.83%
Total stockholder's
equity 4079.9 3163.8 28.96% 610.8 543.2 12.44%
(Annual report, 2018)
The above table represent the different items of both the companies which have been
recorded to present the total equity fund of the company. Share capital is the total funds
which have been raised by the company through issuing the shares in the capital market. The
share capital of Cochlear limited has been improved by 2.37% in 2018. Further, the
contributed equity depicts the total cash which has been raised. In case of CSL limited, the
2.21% decrement has been seen in the equity position because of internal changes.
Further, the reserves are the amount which is keep by the business aside for the
betterment of the business and to save from any sudden consequences. In both the companies,
the reserve amount has bee decreased because of the better industry level. Further, the
retained earnings depict the retained amount from the profit level for the future uncertainties
of the business (Fernandes, Lynch and Netemeyer, 2014). This level has been improved by
both the companies through reducing the dividend payout %.
2. Comparative analysis:

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Further, the study has been done on capital structure level of both the companies. In
order to identify the capital structure position, debt equity level has been compared. The
below table depict about debt/ equity position of the companies:
Equity Items
CSL
limited
Cochlear
Limited
AUD in
million 2018-06 2018-06
Long term
debt 4779.9 258.4
Equity 4079.9 610.8
Debt / Equity 117.16% 42.31%
(Annual report, 2017)
The table represent the 11.7.16% debt against the equity position of CSL limited and
42.31% debt level in case of Cochlear Limited. The CSL limited is focusing on the debt level
more to improve the funds. It impacts higher risk position of the company. Though, the cost
position of the company gets lower (Du and Girma, 2009). Further, in case of Cochlear
Limited, the company mainly focuses on the equity funds to reduce the risk level of the
company. It represents that Cochlear Limited is required to improve the debt level a bit and
CSL limited is suggested to reduce the debt level.
Cash flow statement:
Cash flow statement of the business represents the total cash inflow and cash outflow
position which has been generated by the company in particular time period (Deegan, 2013).
The evaluation on cash flow statement on CSL limited and COCHLEAR LIMITED is as
follows:
3. Items in cash flow statement:
Both the companies are operating in the same industry and thus the most of the items of
the cash flow statement of both the companies are similar. Below are the screenshot of annual
report of both the companies which represent the cash flow items of the company:

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Figure 1: Statement of cash flow of CSSL limited
(annual report, 2017)
Figure 2: Statement of cash flow of Cochlear
(annual report, 2017)
Both of these images represent the different items of cash flows of both the companies.
The cash receipts from customers, interest received and paid, cash paid to suppliers, income
taxes paid, grant received etc are few items which are related to the daily activities and main

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operations of the business and thus it has been represented under the operating cash flows of
the company. In case of Cochlear, the revenue level has been improved along with that the
supplier amount and the taxes of the company has also been improved with a great level
which has affected the operating level of the business. In case of CSL limited, the huge
increment has been seen in the receipts from the customers due to which the payment has also
been improved but the growth rate on revenue is higher because of the huge demand of the
products in the market (Kieso, Weygandt and Warfield, 2010).
Further, the payment for the new PPE, sales of PPE, payment for acquisition and
intangible assets, payment for other financial liabilities and assets are few items which are
related to the resources and the investment of the business because it affect the business for
long term and thus it has been represented under the investing cash flows of the company. In
case of Cochlear and CSL limited, the great changes have been seen in the cash flows
because of the less investment by Cochlear and huge investment by CSL limited.
Lastly, the issue of new shares in the market, payment of dividend, repayment of
borrowings, issue of debt, share brought back etc are few items which are related to the
capital position and investment position of the company in the market and thus it is
represented in the financial activities head of cash flow statement (Annual report, 2017). In
case of Cochlear and CSL limited, the great changes have been seen in the cash flows
because of fewer changes into the capital structure position of the companies.
4. Comparative analysis on broad categories:
Further, the study has been done on the main categories of the cash flow statement of
both the companies. In case of Cochlear Limited, great increment has been seen in operating
cash flows of the business with an improved growth rate in last 2 years because of higher
turnover and great demand of the products in the market. The investment level has been
improved by the company because of investment in new PPE (Annual report, 2017). The
financial activities of the business have been compared further and an increment in the cash
outflow of the business has been seen.
CSL limited
AUD in million 2018-06 2017-06 2016-06
Net cash used for operating activities 1902.1 1246.6 1090.9
Net cash used for investing activities -1534.1 -862.9 -965.4
Net cash provided by (used for) financing -371.5 -103.4 -115.8

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activities
(Annual report, 2017)
In case of Cochlear Limited, great increment has been seen in operating cash flows of
the business because of higher turnover. The investment level has also been reduced by the
company to manage the cash position and reduce the liquidity level of the business. The
financial activities of the business have been compared further to identify the changes into
company and a great decrement has been seen in the company because of repayment of
borrowings and huge dividend to the shareholders.
Cochlear Limited
AUD in million
2018-
06
2017-
06
2016-
06
Net cash used for operating activities 258.1 259.8 185.1
Net cash used for investing activities -55.4 -135.6 -50.1
Net cash provided by (used for)
financing activities -232.7 -108.3
-
130.89
(Annual report, 2017)
5. Comparative analysis among the companies:
On the basis of the comparison on both the companies, it has been found that the
increment in the operating cash flow of CSL limited is 52.58% which is quite higher than
cochlear limited. Further the investing level explains the better position of Cochlear limited in
order to improve the cash level of the company and the financing activities brief increased
cash outflow of both the companies (Annual report, 2018). Though, the level of Cochlear
limited is lower. It explains that the overall cash position of CSL limited is better.
CSL limited Cochlear Limited
AUD in million 2018-06 2017-06 Changes 2018-06 2017-06 Changes
Net cash used for operating
activities 1902.1 1246.6 52.58% 258.1 259.8 -0.65%
Net cash used for investing
activities -1534.1 -862.9 77.78% -55.4 -135.6 -59.14%
Net cash provided by (used
for) financing activities -371.5 -103.4 259.28% -232.7 -108.3 114.87%
(Annual report, 2017)
Other comprehensive income statement:

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Comprehensive income statement of the business represents the items which have not
been shown in the income statement of the business. The evaluation on Comprehensive
income statement on CSL limited and COCHLEAR LIMITED is as follows:
6. Items in comprehensive income statement:
Both the companies are operating in the same industry and thus the most of the items of
the comprehensive income statement of both the companies are similar. Below are the
screenshot of annual report of both the companies which represent the comprehensive income
statement items of the company
Figure 3: statement of comprehensive income CSL
(Annual report, 2018)
Figure 4: statement of comprehensive income Cochlear
(Annual report, 2018)
7. Reasons for not adding them in profit and loss a/c:
The comprehensive income statement items are those items which cannot been
represented in the income statement of the business because of the fact that those items have
not taken place because of the daily operations and main activities of the business as well as

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the business is not responsible for such expenses (Higgins, 2012). Though, these factors
affect the financial statement and profitability level of the business at huge level.
8. Comparative analysis:
The comparison study has been performed on both the companies in order to measure
the overall changes into the profitability position of the company. Through identify the items
and figures of the both the companies, it has been found that CSL limited’s profit position has
been affected much.
Comprehensive income statement Items
CSL limited Cochlear Limited
AUD in million 2018-06 2018-06
Defined benefit plan actuarial -0.2
Foreign currency translation differences -96.9 3.7
Effective portion of changes in fair value of cash
flow hedges, net of tax
-19.4
Net change in fair value of cash flow hedges
transferred to the income statement, net of tax
-8.6
Net change in fair value of available for sale
financial assets, net of tax
29.6 0.1
Other comprehensive loss, net of tax -67.3 -24.4
(Annual report, 2018)
If the above items were added in the income statement of the company then it could
affect on the performance of the managers of the company and the overall financial
performance of the company while measuring the internal performance.
9. Comprehensive income involvement:
The items and figures of the comprehensive income statement should not be added
while measuring the manager’s performance because managers do not play any role in the
profits and losses from the comprehensive income statement item and the involvement of
these items could manipulate the overall result of the company.
Accounting for corporate income tax:
The corporate income tax is the amount which is paid by the company for the
government against their operations in the country. The corporate income tax rate of

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Australia is 30%. However, because of various internal operations, the cash tax rate and
effective tax rate of the business get affected.
10. Tax expenses in financial statement:
The two companies, CSL limited and COCHLEAR LIMITED’s annual report has been
studied and it has been found that the income tax paid by the company for the financial year
2018 is as follows:
Tax amount
CSL
limited
Cochlear
Limited
AUD in million 2018-06 2018-06
Income tax
expenses 552.3 94.7
(Annual report, 2018)
It expresses higher income tax expenses of CSL limited because of higher profits and
turnover of the company.
11. Effective tax rate:
The effective tax rate of the business represents the actual tax which has been paid by
the company against the earnings before tax of the company. The effective tax rate of
Cochlear Limited is higher than the CSL limited. The below table describe the effective tax
rate of both the companies:
Effective tax rate
CSL
limited
Cochlear
Limited
AUD in million 2018-06 2018-06
Income tax
expenses 552.3 94.7
EBT 2281.2 340.5
Effective tax rate 24.21% 27.81%
(Annual report, 2018)
12. Deferred tax liabilities and assets:

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Deferred tax assets and liabilities represent the difference among the actual tax
expenses of the business and the amount which has been paid by the business to the
government. Deferred tax assets represent the higher amount which has been paid to the
government than the actual incurred expenses of the business and the deferred tax liabilities
represent the lower amount which has been paid to the government than the actual incurred
expenses of the business (Morris, 2017). In case of both the companies, Cochlear Limited is
higher than the CSL limited, the deferred tax liabilities and assets of the business are as
follows:
Deferred tax assets and liabilities
CSL
limited
Cochlear
Limited
AUD in million 2018-06 2018-06
Deferred tax assets 401.3 80.7
Deferred tax
liabilities 193.7 8.1
The changes have occurred into both the businesses because of the difference among
the actual tax expenses of the business and the amount which has been paid by the business to
the government.
13. Changes in deferred tax liabilities and assets:
The changes into the Deferred tax assets and liabilities have been compared with the
past year data of that particular company to identify the level of changes of both the
companies. On the basis of the evaluation, it has been found that the deferred tax asset of CS
has been lowered and liability has been improved in 2018. And in case of cochlear limited,
both the assets and liabilities has been improved (Bradley, 2017).
Changes in Deferred tax assets and liabilities
CSL limited Cochlear Limited
AUD in million
2018-
06
2017-
06 Change
2018-
06
2017-
06 Change
Deferred tax
assets 401.3 496.5
-
19.17% 80.7 66.6 21.17%
Deferred tax
liabilities 193.7 138.2 40.16% 8.1 5.8 39.66%

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14. Cash tax amount:
The cash tax amount of both the companies has been calculated through identifying the
exact amount which has been paid by the company for that particular period in cash to the
government (Brigham and Ehrhardt, 2013). In order to identify the cash tax amount of the
companies, the changes into the deferred tax assets have been added and the changes into the
deferred tax liabilities have been deducted from the actual income tax expenses of the
business. The calculations of both the companies of cash tax amount are as follows:
Cash tax amount
CSL
limited
Cochlear
Limited
AUD in million 2018-06 2018-06
Book Income tax expenses 552.3 94.7
ADD: Increment in the deferred tax
assets -95.2 14.1
Less: Increment in the deferred tax
assets 55.5 137.7984
unleveraged cash taxes 401.6 -28.9984
15. Cash tax rate:
Cash tax rate has further been calculated through dividing the cash tax amount by EBT
level of the business to measure the total tax rate which has actually been paid by the
business and it has been found that the cash tax rate of CSL is higher and cochlear limited has
not paid any tax amount (Dagwell, Wines and Lambert, 2011).
Cash tax amount
CSL
limited
Cochlear
Limited
AUD in million 2018-06 2018-06
Book Income tax expenses 552.3 94.7
ADD: Increment in the deferred tax
assets -95.2 14.1
Less: Increment in the deferred tax
assets 55.5 137.7984
unleveraged cash taxes 401.6 -28.9984

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EBT 2281.2 340.5
Cash tax rate 17.60% -8.52%
16. Difference among the cash and book tax rate:
The book tax rate of both the companies are 30% while the cash tax rate of CSL limited
and Cochlear Limited is 17.60% and -8.52%. It express that the actual amount which has
been paid by the business is quite lower than the book tax rate of the business (Hu, Percy and
Yao, 2015).
Conclusion:
The study has been presented on two Australian companies, CSL limited and
Cochlear Limited to understand the concepts of the accounting treatment of various figures in
the annual report of the company. After conducting the report, it has been found that both the
companies are following the same standards and the policies to record the accounting figures
the annual report and the financial statement of the business.
After conducting the research on various items of the annual report and their impact
on the financial performance and position of the company, it has been concluded that the
overall position of the business is CSL limited is better because of the higher turnover
position and the better financial strategies of the business. It is important for each of the
business to be transparent and follow the material concept to disclose all the relevant
information in the annual report of the business.

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References:
Annual report. 2017. Cochlear Limited. [online]. Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_COH_2017.pdf
[accessed 19/9/18].
Annual report. 2017. CSL Limited. [online]. Available at:
https://wcsecure.weblink.com.au/pdf/CSL/01896392.pdf [accessed 19/9/18].
Annual report. 2018. Cochlear Limited. [online]. Available at:
https://www.cochlear.com/43d56bcc-d510-4a20-ab70-6208fa5af77e/en_annualreport2018_c
ochlear2018annualreport_5.69mb.pdf?
MOD=AJPERES&CONVERT_TO=url&CACHEID=ROOTWORKSPACE-
43d56bcc-d510-4a20-ab70-6208fa5af77e-mkRS5RK [accessed 19/9/18].
Annual report. 2018. CSL Limited. [online]. Available at:
https://www.csl.com/-/media/csl/documents/annual-report-docs/csl-ltd-annual-report-2018-
full.pdf [accessed 19/9/18].
Bradley, S., 2017. Inattention to Deferred Increases in Tax Bases: How Michigan Home
Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-
66.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory and practice. 4th ed,
USA: Engage Learning.
Dagwell, R., Wines, G., and Lambert, C. 2011. Corporate accounting in Australia. 2nd,
Australia: Pearson Higher Education AU.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
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China (No. 2009.03). Research paper/UNU-WIDER, 87 (1), pp.53.
Fernandes, D., Lynch Jr, J.G. and Netemeyer, R.G., 2014. Financial literacy, financial
education, and downstream financial behaviors. Management Science, 60(8), pp.1861-1883.
Home. 2018. Cochlear Limited. [online]. Available at: https://www.cochlear.com/intl/home
[accessed 19/9/18].

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Our company. 2018. CSL Limited. [online]. Available at: https://www.csl.com/ [accessed
19/9/18].
Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence
from Australian companies. Corporate Ownership and Control, 13(1), pp.930-939.
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Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An
Evaluation of FASB's Attempt at Standards Simplication. Journal of Accounting and
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Romney, M.B., Steinbart, P.J., Zhang, R. and Xu, G., 2006. Accounting information systems.
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