Analysis of Galaxy Resources Limited Financial Statements

This audit report provides an analysis of the financial statements of Galaxy Resources Limited, an Australian mining company. The report includes a cash flow statement, other comprehensive income statement, and accounting for corporate income tax. It also provides recommendations and conclusions based on the analysis.

Audit

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By student name
Professor
University
Date: 22nd May 2018.
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Executive Summary
Audit report is an essential record that the company is required to submit and hence it is essential all
that is stated and related to the company must be accurate and there should not be any avoidance
within it. Required topics that the auditor is required to intimate has been mentioned in this assignment
with appropriate analysis and conclusion. Portion from the annual reports of 2 companies have been
adopted and checked to look as to the way, they have been reporting important topics in their audit
report.
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CONTENTS:
Introduction...........…………………………………………………………………..........…...4
Analysis.......................………………........................................................................................6
Conclusion.......................………………...................................................................................10
References......................……………….....................................................................................11
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Galaxy Resources Limited
Introduction
In this assignment the financial statements of galaxy resources limited has been discussed and
important matters is analysed and presented. There are various elements in the financial statements the
users do not have follow knowledge of that, so they need expert help who can guide them and tell them
who needs what. In this case also the experts have extracted certain elements from the financial
statements and have presented it in a brief manner so that users can relate to it and can decide whether
they want to invest in the company or not. The cash flow statement and other items that might affect
the financial position of the company has been extracted and presented below. Formulas and
judgement has been applied to reach to a conclusion on whether the management should invest in this
company or not. Galaxy resource Limited is an Australian company that works in the mining industry and
is also present in the ASX list of top 100 companies (Alexander, 2016). The overall revenue of the
company runs into millions and the stocks of the company are listed in the Australian Stock Exchange. It
begun its operations in 2009 and has been operating since then. The financials of the company have
been extracted and analysed below, with proper recommendations and conclusion being given below –
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Analysis
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Cash flow Statement of Galaxy Resources Limited
1. Particulars Notes 2017 2016
$’000 $’000
Operating activities
Receipts from customers 1 1,04,169 9,159
Payments to suppliers, contractors and employees -47,082 -6,538
Net cash inflow from operating activities 57,087 2,621
Investing activities
Interest received 398 28
Sales proceeds from pre-production 12,849 -
Payments for property, plant and equipment -35,839 -21435
Proceeds from sale of other non-current assets 2,416 1500
Proceeds/(payment) for available-for-sale assets -3,404 27
Cash acquired through acquisition - 6,534
Payments for exploration and evaluation assets -11,574 -1717
Net cash (outflow) from investing activities -35,154 -15063
Financing activities
Net proceeds from issue of shares, net of transaction costs 76,333 1710
Bank charges, withholding tax and interest paid -1,326 -4529
Proceeds from borrowings 13,083 22200
Repayments of borrowings -57,582 -2302
Transaction costs related to loans and borrowings -702 -
Net cash inflow from financing activities 29,806 17079
Net increase in cash and cash equivalents 51,739 4637
Cash and cash equivalents at the beginning of the period 9,327 4761
Effect of foreign exchange rate changes -1,323 -71
Cash and cash equivalents at the end of the period 59,743 9327
Notes: 1
RECONCILIATION OF PROFIT AFTER INCOME T AX TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
2017 2016
$’000 $’000
Profit for the year 166 122706
Adjustments for:
Funds received on settlement with Tianqi -2519 -
Depreciation and amortisation 28020 88
Net finance costs 6852 9389
Impairment reversal 5 -75653
Share-based payments 12016 234
Realised gain on available-for-sale assets - -4455
Analysis
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1. Effect from Changes and Comparative analysis of the cash flow of Galaxy Resources Limited are
discussed below: -
There are following changes in cash flow since last year 2016: -
1. Receipt from customer increase in 2017 because revenue increases of the company will rise.
Further profit of last year 2016 is very high in compare to profit in 2017 but there are various
changes which result the increase in income of cash flow from operating activity of the
company. Item that effect the cash flow is Depreciation and amortisation, Impairment reversal,
Share-based payments, Profit on sale of those assets which are available for sale, Transaction
costs on acquisition of company, Net inventory movement, Deferred tax on available for sale
assets, Deferred income to investing activities, Adjustment to rehabilitation provision, Change in
Debtor and other receivables in two years, Change in value of Creditors and other payable,
Change in value of inventories, Change in value of prepayments, Change in amount of provisions
and employee benefits, and Difference in deferred tax assets of the company. Further what
amount of changes made is already mentioned in above table of Cash flow from operating
activities. Cash flow will increase to $57087000 in the year 2017 because of change in above
item during the year of the company.
2. Income from investing activities of Galaxy Resources Limited in the year 2017 net outflow from
investing activity will increase to ($35154000) due to increase in interest received, Sales
proceeds from pre-production and Proceeds from sale of other non-current asset during this
year. And also increase in outflow of Payments for property, plant and equipment,
Proceeds/(payment) for sale of assets which are available for sale and any Payments for
revaluation of assets. These items will result to increase the net outflow from last year 2016.
3. Cash flow from financing Activity will increase in the year 2017 due to changes in following item.
Like: - change in value of Net proceeds from issue of shares, Transaction costs on issue of share,
Amount of Bank charges paid, Amount of withholding tax paid and interest paid, Proceeds from
borrowings, Repayments of borrowings, Transaction costs related to loans and borrowings and
Effect of foreign exchange rate changes. These items will result to increase the cash flow from
financing activity in the year 2017 amounting to $ 59743000.
4. Further apart from the above item cash and cash equivalent will also increase in the year 2017.
This is also factoring to change in cash flow activity of the company. Increase in cash flow means
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Galaxy Resources Limited will have more Liquid cash in hand to run the day to day operation of
the company.
Other comprehensive income statement of Galaxy Resources Limited
2. There are following item which reported under other comprehensive income statement
 Profit or loss Foreign Currency Transaction which arise due to change in price of the
currency – foreign operations
 Revaluation of available for sale financial assets
 Income tax relating to sale of those assets which are available for sale
 Change in fair value of assets and liability
 Revaluation of Fixed assets
 Revaluation of financial instrument
 Retirement Benefits
 Actuary gain
 Actuary loss
 Pension prior period service cost or credit (Goldmann, 2016).
3. Other comprehensive income statement is providing an overview of company's financial
statements in a more comprehensive way, which helps to understand the current financial
position of the company very easily.
Item which may be reclassified during the year is mentioned in the other comprehensive
income statement. These items are classified in other comprehensive income statement of
the company because this is not a part of normal income statement. Further Reporting of
such item in (OCI) other comprehensive income is provided by the (IFRS) international
financial reporting Standards. Treatment of the entire above items is done provided as
the manner prescribed by international financial reporting Standards. Further
reclassification of assets and liabilities are done from fair value change through Other
comprehensive income to fair value through Profit and Loss account are consider in OCI of
the company. There are 3 methods through which we can done the accounting the method
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is Fair value change through profit and loss account method, Fair value change through
other comprehensive income and Amortisation method is followed to value any change in
financial instrument, Such revaluation recorded in other comprehensive income statement
of the company (Alexander, 2016).
4. Other comprehensive income statement of company includes revenues, expenses, gains, and
losses which are prescribed under the Generally Accepted Accounting
Principles and International Financial Reporting Standards. Other comprehensive incomes are
not a part of normal income of the company. Normal income is different from other
comprehensive income statement. Further Revenues, expenses, gains and losses appear in
other comprehensive income which is not realized yet. Further some are realized when the
underlying transaction has been completed. For example, if a company has invested in Security,
and the value of such Security changes, then we recognize the difference of such Security as a
gain or loss and recorded in other comprehensive income. At the time of selling of such security,
company earn profit or loss from such security, and then company record above gain or loss
which arises on sale of security is recorded in other comprehensive income. Further we consider
the treatment which is prescribe by (Belton, 2017)
International financial reporting Standards we do not consider the above item in Normal
income statement of the company.
Accounting for Corporate Income tax
5. The tax expenses of Galaxy Resources Limited is as per the latest financial expenses is
($5999000).
Further Income tax relating to revaluation of those assets which are available for sale of Galaxy
Resources Limited is ($5070000)
6. No, Amount of income tax of company and rate of income tax charged on company are not
same. A reconciliation of income tax benefit applicable to accounting profit/(loss) before income
tax at the statutory income tax rate to income tax expense at the Group’s effective income tax
rate for the years ended 31 December 2017 and 31 December 2016 is as follows:
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Particulars 2017 2016
$’000 $’000
Accounting profit before income tax 6165 58020
At the statutory income tax rate of @ 30% (2016:30%) -1849 -17406
Deductible balancing adjustment/(non-deductible expenses) -3930 3222
Tax effect on temporary differences brought to account -507 18382
Tax losses brought to account as a deferred tax asset - -63081
Utilisation of deferred tax asset previously recognised 434 -
Non-assessable income 356 -
Under provision in prior year -503 -2593
Income tax (expense)/benefit -5999 64686
Note;- The statutory tax rate applicable to the Company and the Australian subsidiary was 30%
during 2017and 2016. No provision for Australian taxation was made during the Relevant Period
for the Company and the Australian subsidiaries (Bromwich & Scapens, 2016).
7. Deferred tax Assets of the Galaxy Resources Limited is $64686000 and $53619000 of the year
2016 and 2017 respectively. A Deferred Tax Asset is an asset on a company that may be used for
better compliance in the company. Deferred Tax Asset is offset with the deferred tax liability.
Both are recorded under the balance sheet’s Current Assets and current liability. When income
taxes payable is higher than the Actual income taxes paid to the government, deferred tax asset
is created (Farmer, 2018).
There is following reasons why deferred tax assets are created:
 When Revenues are recognized in one period for tax purposes are different from revenue are
recorded for accounting purposes.
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 When assets have a different tax base for the purpose of income tax and for the purpose of
accounting than deferred tax assets is recorded in the books.
 When The Company paid excess tax, and refund is taken in future.
 When Losses or expenses are recognized in the income statement but which are not recognising
by respective tax authority than differed tax is created (Chron, 2017).
 Further Deferred tax is reported in the balance sheet because it is a reporting requirement of
both Generally Accepted Accounting Principles and International Financial Reporting Standards.
8. Yes the current income tax payable of Galaxy Resources Limited is ($17406000) and ($1849000)
for the year 2016 and 2017 respectively. Income tax payable are not the income tax expenses of
the company because income tax payable is an amount which is charged on profit as per the
applicable tax rate on the company, but the income tax actually paid are not same because we
should consider the differed tax before making the payment of tax to the government. After
taking the effect of differed tax whatever amount is left such amount is income tax expenses of
the company. This is the reason the income tax expenses and income tax payable are not same
of any company. Income tax is a amount what company owes in tax based on standard business
accounting rule (Das, 2017).
9. No, Income tax expenses which appear in income statement are different from cash flow’s tax
amount. Because the income tax expense which shown in income statement are the actual tax
amount which is payable by the company, the income tax expenses which reflect in cash flow
statement are the Actual tax amount which is paid by the company to the government during
the year. In cash flow we record the actual outflow of cash which is paid as a tax expenses
(Heminway, 2017). Further In cash flow statement we record the actual change of deferred tax
during the year. Further Accounting method followed by the company when reporting financial
results are often different from the method that followed for calculation of income taxes for the
company, As a result, the amount of tax calculated "should" pay based on its reported profit will
be different from its actual income tax expense. This disparity shows up in company’s financial
statements as a difference between "income tax expense" and "income tax payable (Kuhn &
Morris, 2016)."
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10. Calculation of Statutory tax dues as per the applicable tax rate and calculation of deferred tax
assets of company find interesting. Further tax treatment of Income tax relating to revaluation
of available-for-sale financial assets asset in the company is finding confusing and difficult to
calculated and record in the books. The new insights of recording the tax expenses that
company can reconcile the whole tax liability which is payable from the last year tax payable.
The detailed reconciliation statement is discussed above in point no. 7 (Kangarluie & Aalizadeh,
2017).
Conclusion.
The overall analysis of the annual report is presented below, with all the elements being presented
above. Important calculations have been given and proper analysis has been given. The users can
depend on it to take important decisions regarding the company and its financials.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management
Accounting Research, Volume 31, pp. 1-9.
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
[Accessed 07 december 2017].
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
Studies, 2(2), pp. 10-17.
Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of
Media Ethics, pp. 1-12.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, Volume 4, pp. 103-112.
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Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, pp. 1-35.
Kangarluie, S. & Aalizadeh, A., 2017. 'The expectation gap in auditing. Accounting, 3(1), pp. 19-22.
Kuhn, J. & Morris, B., 2016. IT internal control weaknesses and the market value of firms. Journal of
Enterprise Information Management, 30(6).
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