Analysis of Financial Position of Neptune Marine Services Limited and Paringa Resources Limited

This assignment analyses the financial position of Neptune Marine Services Limited and Paringa Resources Limited, two companies operating in the same industry and listed on the ASX stock exchange. The analysis includes debt-equity, comprehensive income statement details, and cash flow elements to evaluate which company is more viable.

Audit Assignment

1
By student name
Professor
University
Date: 20 the Sep 2018.
Executive Summary
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For this assignment we have selected two companies which are listed in the Australian
stock exchange and we have also analysed their annual reports. The primary objective of this
assignment is to comment on the overall financial position of both the companies which are
operating in the same industry and are rivals to one another. We have analysed various elements
of the financial statements like debt-equity, comprehensive income statement details as well as
the elements of cash flow. The purpose of this assignment is to evaluate which company is more
viable.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Owner’s Equity............................................................................................................................................4
Cash Flow Statement...................................................................................................................................7
Other comprehensive income statement..................................................................................................11
Accounting for Corporate Income Tax.......................................................................................................13
References.................................................................................................................................................16
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Introduction
In the given assignment two companies have been selected that belongs to the same industry so
that important opinions can be framed on them, NEPTUNE MARINE SERVICES LIMITED
and PARINGA RESOURCES LIMITED. Both the above-mentioned companies are listed on the
ASX stock exchange and belong to the marine sector (Andiola, Lambert, & Lynch, 2018).
Neptune Marine Services Limited is a leading company in the provision of integrated services
which also involves various services apart from inspection, repair and maintenance solutions to
the oil and gas and the various other sectors of marine as well as renewable energy sector. The
Company has its headquarters in Perth. The Company is also involved in the provisioning of
various other services as a complete solutions package and individual solutions. The other
services which are provided by the Company to the clients includes total solution package also.
The services provided by the company covers the requirement solution needs which are basic
needs of the companies (Appelbaum, Kogan, & Vasarhelyi, 2018). The various heads under
which the company is registered as a corporate are Subsea UK, IMCA, Subsea Energy Australia
and the Petroleum Club. As per the requirement of this assignment we have downloaded the
annual report of the company and discussed the various aspects which are considered as
important in detail.
Paring Resource Limited is also a very famous energy providing company which is based in
United States. It is considered as one of the largest and the biggest producer of both types, that is,
largest and the lowest coal cost manufacturing regions in the United States. It is involved in the
exploration of US marine oils (Axelsen, Green, & Ridley, 2017). The company is also involved
in providing various other kinds of services which are related to high complex energy. This
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company is involved in the development of one of the greatest existing large-scale underexplored
blocks of premium quality coal which lays out a direct access to the Ohio river, this block is the
Buck Creek Mining Complex. The company is engaged in the provision of several unique kinds
of services. We have downloaded the annual report of the company and analysed the several
important aspects which are related to the equity and various other elements are also discussed in
this assignment (Bailey, Collins, & Abbott, 2017).
Analysis
There exists a healthy competition between both the companies. We have discussed below
various significant points relating to the specific elements:
Shareholders’ Equity:
Shareholders’ Equity, in general terms, means the total amount of equity fund in a company.
This equity belongs to the shareholders of the company. That is the reason because of which the
shareholders are considered as the owners of the company. The company raises funds with the
help of issuing share to the outsiders. The company generally raises funds through issuance of
shares when it does not want to increase its debt equity ratio, and moreover, the risk involved
with such kind of investment is low in comparison to funds raised through debts and other
instruments. The liabilities are limited to the amount of investment made by the shareholders in
the company, in case of public listed companies (Bumgarner & Vasarhelyi, 2018). The company
generally pays returns to the shareholders in the form of interests / dividends at the discretion of
the board of directors. Wealth maximization of the shareholders is the primary objective of the
companies. We have discussed the various elements which are included in the shareholder’s
equity and below-
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 Equity Share Capital – Equity share capital of a company is the total amount of face
value of the shares issued to the shareholders of the company. The shares are generally
issued either at discount or premium and even sometimes at par. In case of public listed
companies there are various provisions to be followed which are laid down by stock
exchange also. There are various sub heads under this head like authorized share capital,
subscribed share capital, issued share capital and paid up share capital. In case of Paringa
Limited, the number of share issued by the company is 102 million shares and no change
in the overall structure of the equity shares of the company has been noticed. In case of
the other company, i.e., Neptune Limited, no change in the overall equity structure have
been observed either, but the company is involved in making share based payment to the
employees of the company which are paid at fair value, from which we can observe the
involvement of equity element in such share based payment to the employees
(Bumgarner & Vasarhelyi, 2018).
 Retained Earnings – Retained earnings are the accumulated amount of earnings of a
company till date. The retained earnings are reported in the annual report for the entire
period of a company’s existence. The company may accumulate the profit of every year
instead of distributing the same among the members, i.e., the shareholders. The retained
earnings increase the worth of a company. When the amount of retained earnings is
negative it is called accumulated losses, which occurs when the company is incurring
losses instead of profits (Fukukawa & Mock, 2011). The existence of retained earnings
affects the dividend paying capability of a company. In case of Paringa Resources, we
have observed that there were huge losses incurred by the company, due to which the
company did not pay any dividend to its shareholders during the year. In case of Neptune
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Limited, we have witnessed that the company has paid interim dividend during the year
but has not paid annual dividend, since the company has accumulated losses. This is
considered the reason behind non- declaration of annual dividend to the shareholders.
 Other Free Reserves- Free reserves are general reserves which the company can utilize
for any purpose since no specific elements are attached to these reserves, hence the name
free reserves the various things included in the free reserves are the number of shares
forfeited, share premium received etc. In case of both the companies no such free
reserves were created since in case of both the companies there were accumulated losses
and losses were incurred in the current year as well (Garon, 2018).
 Non-Controlling Interests – Non- controlling interests are minority interests, in simple
terms, these are number of shares held by other shareholders of the subsidiary of the
holding company. We have observed in case of both the companies that both the
companies were involved in acquisitions under business combinations, in respect of
which there were certain non-controlling interests of the subsidiaries of the above
companies in their annual report.
(Amount in US $ million)
Paringa Resources - Owner's Equity
Particulars 2017 2016
Equity
81,19
4
32,83
3
Reserves 457 -
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1389
Accumulated Losses
-
15,12
1
-
15,12
1
Total Equity
66,53
0
16,32
3
From the above tabular representation, we can observe that Paringa Resources have
issued share during the year since there is an increase in the Equity of the company.
There are accumulated losses and the amount of reserves has increased during the year as
compared to the last year (Heminway, 2017).
(Amount in US $ million)
Neptune Limited - Owner's Equity
Particulars 2017 2016
Equity
273,5
40
273,5
40
Reserves
-
15725
-
13722
Accumulated Losses -
200,1
-
187,0
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64 19
Total Equity
57,65
1
72,79
9
From the above representation, we can observe that in case of Neptune Limited, there were no
changes in the equity of the company from the last year. There is an increase in the accumulated
losses of the company as compared to the previous year since the company has incurred loss
during the year and there is a change in the reserves of the company (Kachelmeier, Schmidt, &
Valentine, 2018).
2) There are various sources through which the companies can raise funds, these includes debt
and equity. The element of risk is high in case of debt, but the rate of return is more. In case of
equity the risk involved is less and returns are also stable. We have analysed the debt-equity
position of both the companies and we have observed that there were efforts on the part of the
company for debt reduction along with the efforts to enhance the shareholders’ position in the
company.
(Amount in US $ million)
Neptune Limited - Owner's Debt-Equity Position
Category Description 2016 2017
Debt
Interest bearing
Debts
15 465
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Total Debt 15 465
Equity
Equity
attributable to
shareholders of
57,65
1
72,79
9
Total Equity
57,65
1
72,79
9
Debt-Equity ratio 1% 1%
(Amount in US $ million)
Paringa Resource Limited - Owner's Debt-Equity Position
Category Description 2016 2017
Debt
Other Financial
Liabilities
3750 1500
Total Debt 3750 1500
Equity
Equity attributable
to shareholders of 60,575 16,323
Total Equity 60,575 16,323
Debt-Equity 1% 9%
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ratio
We have observed a lot of differences in the debt-equity positions of both the companies based
on the information above. The position of Paringa Resources is higher than that of Neptune
Limited. The total amount of debt of Neptune Limited is higher than that of Paringa Resources.
Thus, we can say that the position of Neptune is more balanced in respect of raising funds as
compared to Paringa.
Statement of Cash Flows:
The cash flow statement is a statement which reflects the cash movement during the financial
year. it provides the various transaction which involves cash, thereby stating the actual position
of cash as at the year end. It reflects the liquidity position of the company in respect of income
earned, that is, cash inflow and cash outflow which is as per the relevant provisions of the
Australian Accounting Standards and the Corporation Act 2001 (Kachelmeier, Schmidt, &
Valentine, 2018). The three major segments of the cash flow statement are discussed below-
 Cash flow from Operating Activities.
This covers the inflow and outflow of cash from operating activities; these are the transactions
which occur in the ordinary course of business. These have the effect of either increasing or
decreasing the overall amount of cash of the company. Some instances of these types of
transaction includes payment of cash to creditors, cash receipt from debtors, operating expenses
which are paid in cash, interest payment and various other current liabilities etc. In case of
Paringa Resources, there is negative cash flow from operating activities since the company has
made payment of large amount to its creditors and in case of Neptune Limited there is positive
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cash flow from operating activities (Kangarluie & Aalizadeh, 2017). The company is also
engaged in various operating activities that involves cash receipts from customers, receipt of
interest, payment of interest, payment of income tax, payment to suppliers, and all the operating
activities taken together has resulted in a positive cash flow of $4,940 and that is not the case in
respect of the Paringa Resources Limited.
 Cash Flow from Investing Activities.
These are those activities which involves cash inflow and cash outflow from various investing
activities of the company when they are have funds remaining idle or if they want to enhance
their business operations on an overall basis. The various kinds of activities which are included
under this head are purchase of securities, investment in securities and other joint ventures etc.
We have observed that Neptune Limited has purchased some plants and properties and have
disposed some of them during the year (Knechel & Salterio, 2016). During the year, the
company has also purchased some intangible assets. Hence, the cash flow from the activities is
negative amounting to $916.
Paringa Resources Limited has also purchased certain properties, plants and equipment’s and the
company has also made payment for deferred considerations. During the year the company has
also paid for exploration of the assets evaluation for the company. The net cash flow from the
investing activities in this case is $8575 which is negative. Hence in case of both the companies
there are negative cash flow from investing activities.
 Cash Flow from Financing Activities.
These are the activities which involve cash inflow and outflow from financing activities that are
of capital nature and affect the financial position of the company. Certain such transactions are
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issues of shares or debentures, repayment of long-term debt, debenture redemption, payment of
interest, receipt of interest etc (Lessambo, 2018). In case of Neptune Limited, the company, there
is payment of dividend and repayment of borrowings, receipt of deposits which results in the net
cash flow amounting to $5,125.
In case of Paringa Resources, there were two financing activities in which the company was
involved which includes proceeds from issuance of the shares and payment for the issue costs
resulting in the overall cash flow from financing activities amounting to $48,128, which is
positive.
Hence, we can say that the cash flow position of Paringa Resources is better than that of Neptune
Limited during the year (Mock, Ragothaman, & Srivastava, 2018).
The extract of cash flow statement of both the companies are given below for reference-
Neptune Limited.
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Paringa Resource Limited
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The table given below provides a comparative analysis of the cash flow statement of past three
years in case of both the companies-
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Neptune Limited – Analysis of Cash
Flows
2017 2016 2015
4,940 3,788 12321
-916 -1957 -9,191
-5125 -5029 1,173
-1,101 -3198 4303
14,165 17594 11955
-461 -231 1336
12,603 14,165 17594
Net change, i.e., increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of
Currency exchange fluctuations on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the
(Amount in million USD)
Periods covered
Particulars
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Paringa Resource Limited – Analysis of
Cash Flows
2017 2016 2015
-4,990 -3,838 -5364
-8575 -858 -1,761
48128 3450 4,650
34,563 -1246 -2475
303 1611 4511
-64 -62 678
34,802 303 2104
Net change, i.e., increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of
Currency exchange fluctuations on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the
(Amount in million USD)
Periods covered
Particulars
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
From the data given above in case of both the companies, we can observe that the total cash flow
for Neptune Limited has been almost stable in comparison to the prior year’s performance, and,
we have not observed any major difference in the cash flow of the year end. From the above data
we can see that only the cash flow from only the operating activity is positive while cash flow
from other activities are negative (Rimmer, 2017). Currency exchange fluctuations also had an
adverse effect on the cash flow of the company. The liquidity position of the company is being
indicated by the cash flow and in the given case it is stable and the company has sufficient cash
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to pay off its debts, but keeping in mind the cash flow of the earlier years, the management is
required to take care of cash inflows.
In case Paringa Resource Limited we have observed that the cash flow from operating activities
has always been negative, and only cash flow from investing financing activities is positive
which hints on the inability of the company in managing its normal business operations which
has a great impact on the cash position of the company. Cash position has improved because of
the financial activities (Segal, 2017). This means that the company has enough resources for
paying off its debts and overall liquidity position of the company is stable. However, there are
certain points that company is required to oversee, like the cash position has been deteriorated
over the past years which merits the attention of the management.
Statement of Other Comprehensive Income
A statement of comprehensive Income Statement for the two companies have been stated
below.
 During the year Neptune Limited, was involved in foreign transactions which has
adversely affected their income statement. The net income or loss from hedge
transactions is also being presented in the income statements. These are those
elements that does not form part of the basic income statement for the company
(Sirois, Bédard, & Bera, 2018).
 In case of Paringa Resource Limited the gain or loss that the company has got from
foreign exchange transactions has been included in other comprehensive income
which has affected their financial positions.
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Treatment related to Corporate Tax:
The table below highlights the taxation metrics for three years of the two companies:
Neptune Limited - Tax Details
Particulars 2017 2016 2015
Tax Expenses Incurred 309
-
1,34
1
1,35
3
Effective tax Rate
30.0
0%
30.0
0%
45.5
0%
Taxes paid in Cash 76 741 16
Deferred tax
-
5737
-
1898
-
1970
During the year, Paringa Limited the company has incurred huge losses and hence have not paid
any taxes, so no statement is available. But in case of Neptune Limited, the company has paid all
the taxes and has made specific disclosures in that respect in their annual report which has been
provided above (Mubako & O'Donnell, 2018).
There is a difference between the book tax rate and the cash tax rate because of the fact that book
rate is the standard corporate tax rate which is being applied on all the companies, the same
being 30% and the cash tax rate is based on cash paid during the year as tax post adjustment of
deferred tax assets and deferred tax liabilities.
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Conclusion
Based on the overall analysis it can be said that comprehensive analysis and comparison
helps the companies in reaching to a conclusion that would help the investors in taking important
decisions with respect to the company. It is important that investors should see that they should
get optimum returns from their investment and that is based on many sources like the overall
position of the equity, cash flow etc. All this has been highlighted in this assignment and based
on that the investors can decide which company do they want to invest in.
References
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and Closing Review Notes in the Audit of Accounts Receivable. Issues in Accounting Education,
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