HI5020 Corporate Accounting: Analysis of Cash Flow Statements Report

This report delves into the analysis of cash flow statements, focusing on the financial performance of companies and the importance of cash management. The report examines the usefulness of cash flow statements and income statements, highlighting how they reflect a company's financial health. It analyzes the cash inflows and outflows of three companies: Funtastic Limited, BHP Limited, and Santos Limited, assessing their operational cash flows, capital expenditures, and dividend payments. The report investigates whether cash flows from operations cover capital expenditure and dividends, and examines how working capital accounts are utilized. The analysis provides a detailed understanding of how companies generate and use cash, offering insights into their financial strategies and potential risks. The report also includes an abstract, introduction, table of contents, and conclusion, providing a structured overview of the findings and analysis. The report further provides answers to various questions related to cash flow statements, including the sources and uses of cash, trends in cash flows, and the sufficiency of cash flows to cover capital expenditures and dividends.

HI5020
Management accounting

Abstract
This report reveals the key understanding on the changes in the cash flow statement and how
company uses its cash flow statement to record its cash inflow and outflow. However, three
companies have been assessed to evaluate the inflow and outflow of the cash in the particular
time period. It is considered that the cash flow statement shows all the transactions of
business through which the cash has been generated and it also reflects the sources of cash
earnings separately. However, in terms of cash flow, BHP Limited is having higher cash
outflow from its business which may pose higher financial risk on its business.

Table of Contents
Abstract.................................................................................................................................................1
Introduction...........................................................................................................................................3
PART A.................................................................................................................................................3
PART B:................................................................................................................................................4
Answer to question no-1........................................................................................................................4
Answer to question no-1 (a)..................................................................................................................4
Answer to question no-1 (b)..................................................................................................................5
Answer to question no-1 (c)..................................................................................................................5
Answer to question no-1 (d)..................................................................................................................6
Answer to question no-1 (e)..................................................................................................................9
Answer to question no-1 (f).................................................................................................................11
Answer to question no-1 (g)................................................................................................................13
Answer to question no-1 (h)................................................................................................................14
Answer to question no-1 (i).................................................................................................................14
Answer to question no-1(j)..................................................................................................................15
Answer to question no-1 (k)................................................................................................................15
Answer to question no-1 (l).................................................................................................................17
PART B:..........................................................................................................................................19
Answer to question no-2......................................................................................................................19
Answer to question no-3......................................................................................................................20
Conclusion...........................................................................................................................................20
References...........................................................................................................................................21

Introduction
In this report we will discuss about the importance of financial statements which includes the
cash flow statement, income and expenses statement and other financial statements. These
statements reflect the financial performance of company. The cash flow statement of a
company shows the actual cash generation made by the company in a particular financial
year. It reflects a detailed statement about the cash operations of the company. Similarly, the
income and expenses statement contains the details about the incomes earned and expenses
made by the company in its business transactions. This report comprises the financial analysis
of high and low cash outflow items in the financial statement and the details of changes in the
cash flow statement of the several companies.
PART A
Usefulness of Cash Flow Statement:
The organizations are required to consider the changes in the company’s cash flow and the
affecting factors related to the business. Due to the introduction of accrual system in the
business it is difficult for the investors to find out the actual generated cash in business only
by considering the income statement. Hence, only by the evaluation of the profit and loss
account, the position of cash cannot be ascertained. The return on the investment made in any
organisation majorly depends upon the position of cash in the organisation. There are many
of the examples of the companies in the past which were highly profit earning entities but
fell eventually due to the insufficiency of cash funds. The cash flow statement shows all the
transactions of business through which the cash has been generated and it also reflects the
sources of cash earnings separately i.e. by investment or other financing activities. The cash
flow also comprises the details of transaction where the cash has been put to use.
Usefulness of income statement
The income statement of any organisation consist the details of all revenues, operating
expenses, administrative and selling expenses, taxes and etc. With the help of such statement
the investors can assess the positioning of company’s financial and operating transactions.
The investors can consider the income and expenses statement to analyse the profitability of a
company by its operating transactions. An investor can make comparison between the

different years’ income statement of company to assess the growth of company and its
potential of returns. Hence, the income statement of a company helps the investors to choose
the better investment options.
PART B:
Answer to question no-1
Answer to question no-1 (a)
Funtastic Limited: The significant sources from which the cash is generated in any business
include proceeds from borrowings, cash receipts from customers, money from share issue,
interest receipts, income from investment and a proceed received from one-time sale of
international subsidiary in year 2018 (Athari, Adaoglu, and Bektas, 2016).
The cash is used for making payment to suppliers and employees, payment for plant and
equipment and intangible assets, financing cost and for repaying the commercial bills in year
2016 as latest (Baker, and Kapoor, 2015).
BHP Limited: In this company the sources of cash are the business profit in cash, cash
received from receivables, proceeds from sale of inventories, interest and dividend receipt,
proceeds from sale of asset, proceeds from liabilities with interest and net cash received from
discontinued operations (Cassell, Myers, Schmardebeck, and Zhou, 2018).
The major purposes to use the cash include payment of income tax, royalty, interest and other
taxes, payment of payables and creation of provisions, acquisition of property, plant and
equipment, repayment of liabilities with interest and payment of dividend.
Santos Limited: The company has several sources for receipt of cash which are the cash
received from customers, pipeline tariff and other, proceeds received from disposal of non-
current assets, expend of borrowings, and disposal of subsidiaries in year 2018 (Featherstone,
2017).
The significant uses of cash include, making payment to suppliers, employees and of
borrowing costs, purchase of evaluation assets and oil and gas assets, repayment of
borrowings, payment of royalty, excise, income tax, interest and other related taxes.

Answer to question no-1 (b)
Funtastic Limited: Such company is engaged in the business of manufacturing, marketing
and selling of branded merchandise such as homewares, toys, confectionary and etc. The cash
received in the business is considered to be generated from the operating activities of the
company. As per the given trends of the company there is an increase in financial year 2017
but it was negative as compared to financial year 2016, but a straight fall in financial year
2018 as compared to both financial year 2016 and 2017 (Kang, Trotman, and Trotman,
2015).
BHP Limited: The organisation is running its business in natural resources and comprises
several business channels. Hence, there are several operations in the company which have
been stopped. The other continued operations from which the cash is generated are reflecting
a rising trend from US$9,840 M in year 2016 to US$17,561 M in year 2018 which is almost
two times of it. The rise in business revenue results into an increase in the profit before tax
(Lessambo, 2018).
Santos Limited: This organisation is popular as Australia’s second largest producers of oil
and gas. The cash flows shown in the statement of cash flows refers to the continuing
operations of business. The cash flows of company are showing an increasing trend from
US$840 M in financial year 2016 to US$1578 M in financial year 2018 (Miculescu, and
Grui, 2018).
Answer to question no-1 (c)
Operational Cash flows in the business are higher than the net income for BHP Limited in all
three financial years. The net income was derived from the income and expenses statement
includes some non-cash items because it was taken on the basis of accrual system in the
business. The non-cash item comprises depreciation and amortisation and impairment. These
items do not affect the position of cash in the business. For getting the actual cash flow from
operational activities the current assets and liabilities of business are required to be adjusted
with the net income of the business. The adverse positioning of the trade and other receivable
and inventory shows the slow and negative inventory and account receivable management
efficiency and vice versa. The negative amount of this reflects the payment to payables and
the positive amount refers to the receipt of trade credit. These reasons prevent the cash flows
from operations by exceeding from the net income (Wu, Hsu, and Haslam, 2016).

Answer to question no-1 (d)
For showing that cash flows from operations covers the capital expenditure or not, tables
have been framed for each organisation.
In case of Funtastic Limited
FUNTASTIC LIMITED
PARTICULARS 2018 2017 2016
AU$00
0
AU$000 AU$000
cash flow from operations -10182 -2750 -7329
capital expenditure
payment for plant and equipment 145 888 884
payment for other intangible assets 281 540 325
426 1428 1209
Is cash flow from operations
sufficient?
no No No

In case of BHP Limited
BHP LIMITED
PARTICULARS 2018 2017 2016
US$M US$M US$M
cash flow from operations 18461 16804 10625
capital expenditure
Purchase of property, plant and equipment 4979 3697 5707
exploration expenditure (not deducted from
operating cash flows)
233 356 333
5212 4053 6040
Is cash flow from operations sufficient? yes yes Yes

In case of Santos Limited
SANTOS LIMITED
PARTICULARS 2018 2017 2016
US$M US$M US$M
cash flow from operations 1578 1248 840
capital expenditure
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
576 683 650
is cash flow from operations sufficient yes Yes Yes

Answer to question no-1 (e)
For reflecting the fact whether the cash flows from operations are able to cover the capital
expenditure and dividend or not, tables represent it for each organisation.
FUNTASTIC LIMITED
PARTICULARS 2018 2017 2016
AU$00
0
AU$00
0
AU$00
0
cash flow from operations -10182 -2750 -7329
capital expenditure 426 1428 1209
dividend payments 0 0 0
total 426 1428 1209
is cash flow from operations
sufficient
no no no
BHP LIMITED
PARTICULARS 2018 2017 2016

US$
M
US$
M
US$
M
cash flow from operations 18461 16804 10625
capital expenditure 5212 4053 6040
dividend payment:
controlling interest 5220 2921 4130
non-controlling interest 1582 575 62
total 12014 7549 10232
is cash flow from operations sufficient yes yes yes
SANTOS LIMITED
PARTICULARS 2018 2017 2016
US$M US$M US$M
cash flow from operations 1578 1248 840
capital expenditure 576 683 650

dividend payment 73 0 43
total 649 683 693
is cash flow from operations sufficient yes yes yes
Answer to question no-1 (f)
The given table shows the excess of cash flows from capital expenditures and dividend. If
there is an excess then it shows the amount of difference.
FUNTASTIC LIMITED
PARTICULARS 2018 2017 2016
AU$00
0
AU$00
0
AU$00
0
cash flow from operations -10182 -2750 -7329
total of capital expenditure and
dividend
426 1428 1209
is cash flow from operations
sufficient
no no no