Issues in Cash Flow Statement

This report assesses the various aspects of cash flows related to three organizations, BHP Billiton, Santos Limited, and Funtastic Limited. It provides insight into the cash flow components and their significance to investors and financial reports users. The analysis identifies the main sources and utilization of cash for each organization. Recommendations are made based on the cash flow positions.

Running head: ISSUES IN CASH FLOW STATEMENT
Issues in Cash Flow Statement
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ISSUES IN CASH FLOW STATEMENT
Abstract:
The objective of this report is to assess the various aspects of cash flows related to
three organisations, which include BHP Billiton, Santos Limited and Funtastic Limited.
The report is considered to be useful in developing insight on the various cash flow
components. It has been evaluated that the income statement and the cash flow
statement provide the investors with significant crucial information when it comes to
undertaking investment decisions and the two statements have significance to the users
of the financial reports. Moreover, from the above discussion, it could be seen that the
cash flow statement plays a pivotal role in order to ascertain the financial position and
financial strength of an organisation. The above analysis has assisted in the
identification of the main sources of cash along with their utilisation by Funtastic Limited,
BHP Billiton and Santos Limited. Santos Limited is observed to have sound cash flow
position, as positive cash flows have been generated by the organisation from its
financing and operating activities in order to settle its obligations. By considering all
these aspects, it is recommended to the creditors to lend to Santos Limited, since it
possesses the ability of settling its borrowings within the scheduled time.

2ISSUES IN CASH FLOW STATEMENT
Table of Contents
Introduction:.......................................................................................................................3
Part A:................................................................................................................................3
Part B:................................................................................................................................4
Requirement 1:...............................................................................................................4
Requirement 2:...............................................................................................................7
Requirement 3:...............................................................................................................8
Conclusion:........................................................................................................................8
References;......................................................................................................................10

3ISSUES IN CASH FLOW STATEMENT
Introduction:
One of the significant financial statements is the cash flow statement for the
organisations that depicts the impact of the alterations in income and balance sheet
statements on the cash and cash equivalents. The statement separates the analysis
into operating, financing and investing activities (Atanasov and Black 2016). The
management needs to have a clear insight of the various cash flow aspects for
undertaking sound business decisions. The objective of this report is to assess the
various aspects of cash flows related to three organisations, which include BHP Billiton,
Santos Limited and Funtastic Limited. The report is considered to be useful in
developing insight on the various cash flow components.
Part A:
The income statement and the cash flow statement are considered to be highly
beneficial for the investors owing to the following reasons:
Income statement:
This is a useful financial report for the investors, as they require detailed
information before investing in an organisation. With the help of this statement, the
investors are provided with all information like revenue, profit and operating efficiency to
various other non-operational aspects. By using this information, the investors could
have a clear overview of the existing business performance as well as the future
expectations (Baños-Caballero, García-Teruel and Martínez-Solano 2014). Owing to
this reason, the income statement could be adjudged as a trustworthy source in order to
judge the condition of the organisations.
In other words, the income statement is crucial for the investors, since it provides
a concise picture of the profitability position of an organisation. The statement is
involved in recording overall business revenue and expenses and profit or loss is
computed by deducting total expenses from total revenue (Bedford and Ziegler 2016).
This information could be found only by the investors in the income statement.
Moreover, the income statement depicts timely update of the business operations, as it
is updated more often than the other financial statements. Owing to the fact that the
income statement provides concise and clear picture of the existing profitability of an
organisation, the business managers and the investors are involved in continual review
of the income statement to find the updated information on the business operations. The
investors obtain the classification of various expenses and revenue of the organisations
from the income statements (Dang, Li and Yang 2018). In the presence of all these
aspects, it could be stated that the income statement is valuable for the investors, as
they are provided with necessary information for undertaking investment decisions.
Cash flow statement:
Cash flow statement is deemed to be another significant financial statement for
the investors, as it provides information regarding the cash position of the organisation.
In order to ensure business success, adequate cash flows need to be present for
repayment of expenses (Ehrhardt and Brigham 2016). Thus, with the help of cash flow
statement, it becomes possible to ascertain whether an organisation has significant
cash for fulfilling the above purposes. The income statements do not provide any

4ISSUES IN CASH FLOW STATEMENT
information regarding the principal business payments. However, the cash flow
statements inform the investors regarding the areas of the organisation, in which
principal payments are made. In accordance with the cash flow statement, the indication
of utilising cash could be observed in a variety of situations such as extending credit
terms of the customers, rise in inventory, buying capital equipment and others that could
not be represented in the income statement (Ferran and Ho 2014). By analysing the
cash flow statement, the investors could obtain an in-depth overview of whether an
organisation is suffering from cash shortage despite having sound profitability position.
Along with this, the owners could know if they are drawing too much money from the
business funds. When all such information is available, it becomes easy for the
investors to undertake sound investment decisions (Fourie et al. 2015). By combining all
the aspects, it could be stated that the income statement and the cash flow statement
are deemed to be valuable for the investors.
Part B:
Requirement 1:
a) In case of Funtastic Limited, the significant sources of cash include customer
receipts, proceeds from borrowings and issuance of shares and the significant uses for
cash include supplier and staff payments, cash used from operations, interest and other
expenses, plant and equipment payment along with intangible assets and share issue
cost (Fracassi 2016).
In case of BHP Billiton, the significant cash sources include trade and other
receivables, interest and dividend received, proceeds from interest bearing liabilities.
Cash is used for net finance cost, amortisation and depreciation, trade and other
payables, impairment, payment of interest, payment of royalty-related taxation, income
tax, exploration expense, purchase of plant and equipment, repaying interest payment
liabilities and payment of dividend (Frino, Hill and Chen 2015).
In case of Santos Limited, cash is received from customer receipts, amount
received from borrowings, pipeline tariffs. On the other hand, cash is incurred on
supplier and staff payments, borrowing cost payment, oil and gas assets’ payments,
subsidiary acquisition and borrowing repayment (Gippel, Smith and Zhu 2015).
b) Both BHP Billiton and Santos Limited are observed to follow similar trend owing to
the fact that they have generated positive cash flows from their business operations.
However, for Funtastic Limited, the trend is observed to be negative due to generation
of negative cash flows (Gitman, Juchau and Flanagan 2015).
c) The net income of BHP Billiton is lower compared to its cash flows. Net profit is a
significant profitability measure, while the operating cash flows depicts the crucial
adjustments made to net profit and this is the significant reason behind the difference
(Gullifer and Payne 2015). The treatment is different for certain items in the cash flow
statement in contrast to the income statement. The income statement needs to include
non-cash expenses like amortisation, depreciation and share-based payments;
however, these expenses do not minimise the cash amount generated by an
organisation in a specific period. As a result, these items are added to the cash flow
statement as well and thus, difference could be seen (Haas 2014).

5ISSUES IN CASH FLOW STATEMENT
d) Funtastic Limited has negative operating cash flows, which is not sufficient for
payment of capital expenses, which include intangible asset payment and purchase of
plant and equipment.
For BHP Billiton, operating cash flows are found to be positive in order to pay for
capital expenses including exploration expense and purchase of plant and equipment.
Although Santos Limited has positive operating cash flows, they are not sufficient
to cover the capital expenses, which include evaluation and exploration of assets, land
and building, oil and gas assets, subsidiary acquisition, acquisition costs and borrowing
cost payment (Hillier et al. 2014).
e) Funtastic Limited has not paid any dividend, while Santos Limited and BHP Billiton
have paid dividend to the shareholders. It could be observed that the operating cash
flows of BHP Billiton are sufficient to cover dividend payment as well as capital
expenditure, as the operating cash flows are more compared to the combination of
dividend payment and capital expenses. Santos Limited has been unable to pay
dividend from its operating cash flows, since capital expense could not be settled with
the generated operating cash flows (Johnson, McLaughlin and Haueter 2015).
f) Funtastic Limited could not generate additional cash flows owing to the presence of
negative cash flows. It could be observed from the table below that Santos Limited does
not adequate cash flow to pay its capital expenditure. When there are no additional
cash flows, these two organisations have used long-term borrowings along with
proceeds from various aspects like selling assets to obtain cash for capital expense
payment (Loughran and McDonald 2016).
It is noteworthy to mention that excess cash flows could be observed in BHP
Billiton from operations, which is evident from the following table:

6ISSUES IN CASH FLOW STATEMENT
It could be stated that BHP Billiton has generated additional operating cash flows
to settle its capital expenses like exploration expense, purchase of PPE and other
expenses (McLaney and Atrill 2014).
g) From the cash flow statement of BHP Billiton, it could be seen that the organisation
has used different working capital accounts besides cash and cash equivalents as cash
sources, which include inventories and trade and other receivables. In this regard, it is
necessary to state that alterations in current assets and current liabilities results in the
source of fund usage. Rise in accounts receivable is not sound for cash flows; however,
a decline works in the form of cash. The similar situation could be observed for
inventory, as fall in inventory supplies increases cash. In addition, rise in current
liabilities is suitable in order to supply cash in the cash flow statement (Pyles 2016).
h) It is noteworthy to mention that there are different other items having impact on cash
flows and tax payment is one of them. If the organisations do not keep money aside,
huge tax payments need to be made; thereby, impacting the cash flows. Another factor
includes repayment of long-term borrowings. It could be observed that the organisations
have to incur considerable cash for repaying their borrowings and this is observed to
have adverse effect on their cash flows (Vernimmen et al. 2014).
i) A common trend could be observed in all three organisations, which is negative cash
flows from investment activities and this implies that their capital income is lower than
capital expenditure. There is one more similar trend observed among these
organisations, which include non-current liability payment like plant and equipment. For
BHP Billiton and Funtastic Limited, there has been fluctuation in capital expense of
these organisations from 2016 to 2018. However, capital expense has increased for
Santos Limited in this period, which is crucial to be taken into consideration (Quattrone
2016).
j) Based on the provided cash flow statement of Funtastic Limited, there is no payment
of dividend between 2016 and 2018. BHP Billiton has incurred normal dividend and that
for non-controlling interests as well and according to the trend, the dividend payment is
observed to rise in 2018. Santos Limited has received dividend, which is observed to
decline in 2018. Moreover, the organisation has incurred dividend in 2018; however, no
dividend was received in the past year.
k) The below tables reveal the net borrowings of the three organisations:

7ISSUES IN CASH FLOW STATEMENT
The net borrowings of Funtastic Limited has shown declining trend owing to the
non-payment of borrowings in the existing years. On the other hand, the net borrowings
of BHP Billiton are observed to be negative, which could be adjudged as a positive
aspect for the organisation. This implies that the organisation has made advance loan
payments and the existing loan payment as well. Finally, Santos Limited has
experienced an increase in net borrowings in 2018.
l) Based on the cash flow statement of BHP Billiton in 2018, a change in trend could be
observed when trade receivables have decreased; however, the same has increased
between 2016 and 2017. In terms of inventories, it could be witnessed that current
assets have declined in 2017 and 2018. On the other hand, trade payables of the
organisation are observed to increase during the period. Finally, there has been rise in
provision as well as in other assets and liabilities; however, they have declined in 2018.
Requirement 2:
From the cash flow analysis of the three organisations, the assessment of the
financial strength is discussed as follows:
Funtastic Limited:
Based on the provided cash flow statement of the organisation, negative
operating cash flows could be observed and this signifies that the revenue structure of
the organisation has not been able to cover its business expenses. More precisely, it
suggests the weakness in the operating efficiency of the organisation. In addition to this,
it could be observed that the organisation has produced negative cash flows from
investment activities. The reason includes considerable amount of investment in
purchasing long-term assets as well as intangible assets. This is a favourable indication
owing to the fact that the asset base of the organisation is increased. Finally, it could be
observed that Funtastic Limited has generated positive financing cash flows and this
denotes that the organisation has managed to raise cash via financing activities like
proceeds from share issue, proceeds from borrowings and others.
BHP Billiton:
Based on the cash flow statement of BHP Billiton, it could be witnessed that the
organisation has generated positive operating cash flows implying that the revenue

8ISSUES IN CASH FLOW STATEMENT
structure of the organisation has covered all expenses, which could be adjudged as
strength of the organisation. However, BHP Billiton has provided negative investing
cash flows in order to purchase non-current assets and other investments. This is
deemed to be a favourable aspect for the organisation, which denotes rise in its asset
base. Finally, the financing cash flows of BHP Billiton are observed to be negative,
which reveals that it has to incur cash for making dividend payments, liability
repayments and others. This could be considered as a weakness for the organisation
because of significant cash outflows (Warren and Jones 2018).
Santos Limited:
As per the cash flow statement of Santos Limited, the organisation has earned
positive operating cash flows and this is a sound aspect when it comes to judging the
ability of a firm in operating cash flows. Moreover, it could be observed that the
organisation has generated negative investing cash flows because of purchasing
various classes of fixed assets and business acquisition. This could be adjudged as the
crucial positive aspect from the business perspective of Santos Limited. Along with this,
investing cash flows are observed to be positive for Santos Limited owing to the
drawdown of borrowings. This signifies the ability of the organisation in generating cash
from its investing activities. By combining all these aspects, it could be said that Santos
Limited has sound financial strength deemed to be crucial for ensuring business
success (Watson 2015).
Requirement 3:
It is apparent from the cash flow statement of Santos Limited that the
organisation has managed to earn positive operating cash flows between 2016 and
2018, the values of which are $1,578 million, $1,248 million and $840 million in 2016,
2017 and 2018 respectively. Moreover, it could be witnessed that Santos Limited has
obtained the maximum amount of receipts from customers valuing $3,740 million. This
clearly indicates the fact that majority of the fees are generated by the organisation from
its primary business operations. Besides this, it is clearly visible that the organisation
has made huge amount of investment in order to buy assets like oil and gas assets,
exploration assets, plant, building, land, new business acquisition as well as others.
These measures could be considered as the measures of business diversification
undertaken by the organisation so that it could increase its profitability further in future.
Finally, it could be observed that Santos Limited has been successful in generating
positive cash flows from financing activities, which is considerably useful from the
business viewpoint of the organisation. By combining all these aspects, it could be
stated that Santos Limited has increased its business strength over the years.
However, the above-stated aspects are deemed to be missing for BHP Billiton
and Funtastic Limited. When all these aspects are taken into consideration, it could be
said that Santos Limited possesses the ability of repaying its borrowings within the
stipulated timeframe. Hence, for lending purpose, Santos Limited would be the first
choice for the creditors.
Conclusion:
It has been evaluated from the above discussion that the income statement and
the cash flow statement provide the investors with significant crucial information when it
comes to undertaking investment decisions and the two statements have significance to

9ISSUES IN CASH FLOW STATEMENT
the users of the financial reports. Moreover, from the above discussion, it could be seen
that the cash flow statement plays a pivotal role in order to ascertain the financial
position and financial strength of an organisation. The above analysis has assisted in
the identification of the main sources of cash along with their utilisation by Funtastic
Limited, BHP Billiton and Santos Limited.
As per the cash flow statement of Santos Limited, the organisation has earned
positive operating cash flows and this is a sound aspect when it comes to judging the
ability of a firm in operating cash flows. Moreover, it could be observed that the
organisation has generated negative investing cash flows because of purchasing
various classes of fixed assets and business acquisition. This could be adjudged as the
crucial positive aspect from the business perspective of Santos Limited. Along with this,
investing cash flows are observed to be positive for Santos Limited owing to the
drawdown of borrowings. This signifies the ability of the organisation in generating cash
from its investing activities. Santos Limited is observed to have sound cash flow
position, as positive cash flows have been generated by the organisation from its
financing and operating activities in order to settle its obligations. By considering all
these aspects, it is recommended to the creditors to lend to Santos Limited, since it
possesses the ability of settling its borrowings within the scheduled time.

10ISSUES IN CASH FLOW STATEMENT
References;
Atanasov, V.A. and Black, B.S., 2016. Shock-based causal inference in corporate
finance and accounting research. Critical Finance Review, 5, pp.207-304.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working
capital management, corporate performance, and financial constraints. Journal of
Business Research, 67(3), pp.332-338.
Bedford, N.M. and Ziegler, R.E., 2016. The contributions of AC Littleton to accounting
thought and practice. Memorial Articles for 20th Century American Accounting
Leaders, 49, p.219.
Dang, C., Li, Z.F. and Yang, C., 2018. Measuring firm size in empirical corporate
finance. Journal of Banking & Finance, 86, pp.159-176.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach.
Cengage learning.
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University
Press.
Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2015. Municipal finance and
accounting. Van Schaik Publishers.
Fracassi, C., 2016. Corporate finance policies and social networks. Management
Science, 63(8), pp.2420-2438.
Frino, A., Hill, A. and Chen, Z., 2015. Introduction to corporate finance. Pearson Higher
Education AU.
Gippel, J., Smith, T. and Zhu, Y., 2015. Endogeneity in accounting and finance
research: natural experiments as a state‐of‐the‐art solution. Abacus, 51(2), pp.143-168.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance.
Pearson Higher Education AU.
Gullifer, L. and Payne, J., 2015. Corporate finance law: principles and policy.
Bloomsbury Publishing.
Haas, J.J., 2014. Corporate finance. West Academic.
Hillier, D., Clacher, I., Ross, S., Westerfield, R. and Jordan, B., 2014. Fundamentals of
corporate finance (No. 2nd Eu). McGraw Hill.
Johnson, C.J., McLaughlin, J. and Haueter, E.S., 2015. Corporate finance and the
securities laws. Wolters Kluwer Law & Business.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.
McLaney, E.J. and Atrill, P., 2014. Accounting and finance: an introduction. New York:
Pearson.
Pyles, M., 2016. Applied Corporate Finance. Springer-Verlag New York.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate
finance: theory and practice. John Wiley & Sons.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of
Accounting Literature, 34, pp.1-16.