Corporate Accounting Assignment: Cash Flow Statement Analysis

This assignment delves into corporate accounting, focusing on cash flow statements and their significance in financial analysis. It begins with an introduction to corporate accounting and emphasizes the usefulness of income statements and cash flow statements for stakeholders. The assignment then evaluates a cash flow statement, specifically analyzing BHP Ltd's financial performance, including operational income, cash flow trends, capital expenditure, and dividend payments. It assesses the company's working capital management and its ability to meet debt obligations. Finally, the assignment concludes by selecting a company suitable for lending based on its cash flow analysis, highlighting the importance of financial statements in making informed business decisions, and supporting investment and funding decisions. References from academic journals and company annual reports are provided to support the analysis.

Corporate Accounting

TABLE OF CONTENTS
 Introduction
 Usefulness of income statement and the statement of cash flows
 Evaluation of cash flow statement
 Selecting the company for the purpose of lending
 Conclusion
 References

INTRODUCTION
 Corporate accounting is referred to as the branch of accounting which related to the
making and preparing for the cash flow statements and the final accounts for the
analysis of financial position.
 This is essential in order to take decision relating to the financial position of the
company and to develop strategies for its improvement.

Usefulness of income statement and the
statement of cash flows
 All concerned and active participants have interest to varying extent
in financial affairs of the business enterprise.
 Financial statement refers to blue print of the financial affairs.
 Owners of the company reveal the progress through earnings and the
current financial conditions to investors by its financial statements.
 Investors assess mainly the income statement and the cash flow
statements for reviewing the financial performance and position of
the company.

Cont..
 Non operating section of the income statement presents non primary activities which are
infrequent or unusual such as finance cost and tax expense.
 It allows the investor to compute returns over equity, capital employed and overall business
during the year for analysing the performance of business over the years.
 Using income statement investors could assess the company is able to generate adequate
returns carrying out the business operations.
 Investors have the focus over earning adequate returns and income statement helps them in
analysing financial performance.

Evaluation of cash flow statement
 1a
 BHP Ltd- the major source of finance for the company is the operational income that is
which the company is getting from the operations of the company that is sales.
 The income from operations for 2019 was 23428 which is very high as compared to
2018 and 2017.
 The major uses of cash for the company is to manage and run the business and pay for
all the expenses which are incurred within the business.

Evaluation of cash flow statement
Evaluating the usage of excess cash from operation of the company or the sources of cash
for the company in case of deficiency of the same
 By looking at the cash flow statement of the BHP Limited, it can be seen that the cash flow
 from the operation has decreased in comparison to the year 2018 but has increased from
the year 2017.
 This shows that company is having excess of cash flow from operating activities.
 It has invested it in purchasing the plants and equipment and properties.
 The company has also incurred expenses on exploration and has also made investment in
the equity accounted investments.

Cont..
Did BHL Limited making use of Working capital or the cash and cash equivalents
 The BHP Limited has made use of the working capital as the sources of cash for managing its
cash flow.
 By looking at the cash flow statement it is clear that the company is having sufficient working
capital in order to meet its business requirement.
 This has been shown as the proceeds or settlements of the cash management related
instruments .
Determining the major items affecting the cash flow of the company
 In BHP Limited, the cash flow of the company is mainly affected by making payment to its
interest bearing obligations, making a buy back of the shares, making payment of the dividend.

Cont..
Analysing the trend in regard to the capital expenditure of each company
 In case of BHP Limited, the capital expenditure of the company is showing an upward trend,
highlighting in the year 2019, it has increased to 6250 in the year 2019 from 4979 and 3697
in the year 2018 and 2017 respectively.
Analysing the changing trend in the amount of dividend paid
 In BHP Limited, the amount of the dividend paid is increasing as it was 2921 in 2017, 5220
in the year 2018 and then further increased to 11395 in the year ended 2019.

Cont..
Analysing the changing trend in the net borrowed capital
 In case of BHP Limited, the company has not borrowed any funds which
makes its net borrowings negative as it has made payment of its interest
bearing liabilities which has shown a declining trend in the past 3 years
which depicts that the company is having sufficient amount of funds in
making payment of its debt.
Determining and interpreting the trend in the working capital account of the
BHP Ltd.
 The proceeds from the cash management related instrument accounts for the
working capital of the company.

2 Evaluation of financial strength of all
companies
 BHP Ltd- the cash flow statement of the company provides the net cash inflow or the
cash outflow which is present with the company.
 This is a position which suggest that how much cash is there in the hand of the
company.
 The cash from operating activity was 17871 and from the investing activity the cash
flow was 2607 and from financing activity the cash flow was (20528).
 This implies that the company is having the cash inflow of 18 which is very low. Thus,
this can be said that BHP Ltd need to work on the improvement in the cash inflow
rather than focusing on cash outflow.

Selecting the company for the purpose of lending
 After evaluating the cash flow statements of the three companies it can be said
that BHL Limited would be best as it shown a positive trend in respect to the
cash flow from the business operation.
 The cash flow from the financing activities is negative which is because the
company is making payment of its debts quickly which depicts the efficiency
of the company in making timely repayment.
 This creates a sense of trust that the company will able to repay the amount on
time along with the interest liability and also the company is having positive
cash flow from the investing activities which can be used by it in making
payment of its debt obligations.