Corporate Accounting Analysis: BHP, Santos, Funtastic

This report provides an in-depth analysis of corporate accounting, specifically focusing on the income statement and cash flow statement, and their significance for investors. The report details the components of each statement, including sales/revenues, cost of goods sold, gross profit, oper...Read More

Corporate Accounting

EXECUTIVE SUMMARY
This study summarises the in-depth assessment of relative details contained in income
statement and cash-flow-statement, with goal of determining how such statements are beneficial
for company investors. In addition , study covers a critical review of company's consolidated
cash-flow statement of three organisations named as: Santos Ltd, BHP Ltd and Funtastic Ltd,
as to determine actual comparison of performance of such entities over period from year 2017 to
year 2019, with intention of exploring the multiple financial key elements of each entity, its
capabilities and determining which entity is most favoured for lending.

Contents
EXECUTIVE SUMMARY.......................................................................................................................2
INTRODUCTION.....................................................................................................................................4
MAIN BODY.............................................................................................................................................4
Part A......................................................................................................................................................4
Part B.......................................................................................................................................................7
CONCLUSION........................................................................................................................................30
REFERENCES........................................................................................................................................32

INTRODUCTION
Every corporate entity requires to do certain kind of accounting process. This is pertinent for
determining the financial status of the large corporations. Accounting, commonly considered as
bookkeeping process, includes the collection, analysis, evaluation, reporting as well as
dissemination of financial records. There are variety of ways of conducting accounting process.
Corporate accounting process is one of those. It's best suited to large corporations. This
performs procedures such as preparing cash-flow statement, different tax-returns, financial
statements etc. It can be used to manage basic business processes such as takeover,
amalgamation and the production of integrated reports (Harring, Jagers and Matti, 2019).
The analysis report discusses the various dimensions of the corporate accounting
process in two separate parts. First section assesses the fundamental details contained in cash
flow statement and income statement for purpose of assessing how why these details are
beneficial to stakeholder groups / investors. While another part analyses consolidated cash-flow
statements of the businesses involved in order to determine their actual output and to determine
other related elements.
MAIN BODY
Part A
Reviewing information stated in income statements and cash-flows statements.
The organisation 's financial statements relates to structured reports that represent corporation 's
operating activities and fiscal records. Corporation's financial statements are reviewed by
government authorities, compliance officers, auditors etc. in attempts to insure conformity with
the requirements of accounting, financing or investment. These statements thereby include:
balance-sheet, income statements (P&L a/c) including cash-flows statement. The business entity
's financial statements offer stakeholders with an summary of all operations carried out by the
organisation, whereby every transaction contributes to its ultimate performance (Ioannidis,
2019).
Company's cash-flow-statement is recognised as most informative among the
entity's financial statements as it depicts the cash-fund generated by the entity in three key
aspects — through operations, making investments and through financing. The aggregate of

these segments is recognised to be net amount of cash-flows. This is a comprehensive
examination of the components and specifics of the statement of cash-flow and income-
statement:
Income statement: It is financial statement prepared by entities that demonstrates how financially
viable/profitable the corporation is in particular year. This illustrates profits sum of the entity
reduced by costs/expenses of the entity and certain other losses. It is analysis of the information-
contents of income-statement described here:
Sales / revenues: Sales turnover amount is the revenue earned by business through the
selling products or providing services. In financial term, "sale" and "earnings" are often used
usually associated expressions to explain the same matter. It is important to note that earnings
also aren’t necessarily equivalent to the amount of money gained. A component of revenues may
be paid in cash and also a proportion might also be paid in credit facilities by virtue of business
debtors. Sales revenues are presented on the income statement as either overall gross sales
figures and as overall net sales.
Cost-of-goods sold: normally alluded as "COGS," that indicates how long it costs to
make products / provide services that the corporation has offered to its consumers. COGS just
involves direct expenses such as supplies, wages costs and transport.
Gross Profit: This is the figure indicating what the corporation could earn/get after reimbursing
total COGS from the revenues/sales. Gross profit reveals how efficient in terms of profit
generation the business is, factoring direct expenses, but before consideration of
overheads expenses. This is an effective indicator of how productive a corporation is.
General expenses: commonly considered as operating expenses include rentals, brokerage &
Internet banking charges, machine/tools expenses, ads & advertising costs, marketing, and any
other cost that may be needed to continue operating.
Operating earnings: These illustrates to what extent financially viable the organization is,
post considering operational cost, over which corporation has more leverage, but before
contemplating external costs like borrowing interest and tax payments, over which organisation
has little controlling on.

Net Profit: such amount indicates the real profitability position and net profits amount, remains
after consideration of all enterprise expenditures.
Cash-flow statement: This statement sets out the various forms of cash-inflows as well as cash-
outs (as well as cash-equivalents) that can be obtained by a entity and is probably one of the most
substantial financial reports of business. Comprehending how to compile and evaluate the cash-
flow statement is relatively easy and productive (Liu, Li, Zeng and An, 2017). This will make it
convenient for executives or other investors to determine how the company is earning or invests
capital, how many extra money is invested or generated, that could provide important input into
the organisation's financial. The following is the analysis of the information-contents of cash-
flow statement, here below:
Cash-flows via operating activities: The total amount of money inside or outside day-to-day
affairs of a company is known to be Cash-flows from operations. Operating profits and non -
monetary factors such as depreciation are generated. As operating earnings are decreased by non-
cash products such as depreciation including amortisation, these need to have added back to
operating profits in attempt to quantify cash flows. This is a pivotal metric as it displays investor
the efficiency of the current operating strategy and practices.
Cash via investment activities: In company Investment activities include both modes and cash
uses via investments undertaken by organisation. The buying or sales of assets, guarantees given
or received or other payments pertaining to mergers and acquisitions are defined under this
heading. In short, improvements in equipment, infrastructure and finances are attributed to cash
via investment. Ordinarily, monetary shifts from investments are "monetary out" as money is
used to buy new equipment, properties, or shorter-period assets such as marketable shares.
Likewise, if a company relinquishes an asset, the sale is considered to be a monetary sale for the
purpose of assessing the monetary value of the investment.
Cash via financing operations: These operations includes pools of funding through investors or
financial institutions, as well as the use of money offered to investors. Sum of distribution as
dividend, repurchase payments, including the repayment of principal debts (mortgage interest)
are listed in this heading. Cash variations by financing being perceived to be cash into "whenever

cash is raised and cash outs when dividends are obtained. Thus, whenever a company sells
securities to public, company receives cash financing; however when interest is paid to debt
holders, the organization decreases its capital-fund.
Significance of income statement for investors:
Investors foresee the organization’s income statement report to measure the profitability status of
a firm over a period of time. Investors are looking for trends in company spending and earnings
as the paper breaks down revenue and expenses of employees. If a company is not stable or if
profits are transitioning year-on-year, income statement lets it to realize where the money is
actually flowing. The specifics of EPS are another crucial component for investors/stakeholders.
The portion that an entity would pay towards its shareholders with every share if the entity pays
most of net-income as dividends. Corporations do not, though, have to make those payments as
well as usually reinvest their cash back into enterprise instead of just pay it all back
to company's securityholders. When a company offers dividends to their shareholders,
this statement will show how much entity has paid.
Significance of the cash flow statement for investors:
This tends to help existing and potential investors/shareholders to use the corporation 's previous
cash-flows details to estimate future cash-flows on the basis of their investments choices. It
exhibits improvements within balance sheet and aids in the analysis of projects, investments and
financing processes. This does provide insights into actual liquidity including that of solvency
of business, which is critical to the survival which performance of each business. This shows the
financial state of the company over a period. This enables information about cash-generating
ability of the organisation's main activities to be given. Investors/shareholders tend to
compare Cash-Flow statements of number of firms by allowing them to reveal the constancy of
their overall revenues. It enables to making the proper decision about them. Considering that the
entity has some longer-term financial liabilities, Cash-Flow Statement allows investors and
lending institutions to determine the likelihood of recovery. It can be used to reliably predict the
speed, quantity and variability of future money flows (Warren and Jones, 2018).

Part B
1.Examination of cash flow of each company.
(a) Major source and uses of cash of each firm.
BHP limited:

Santos limited-

Funtastic limited:
Santos limited-

Funtastic limited:

(b) Trend in cash flow of each firm from operating activity.
2017 (Data in $
million) 2018 (Data in $
million) 2019 (Data in $
million)
15500
16000
16500
17000
17500
18000
18500
16804
18461
17871
Cash fl ow from operati ng
acti vity OF BHP LTD.

Trend- In connection with the aforementioned table, it has been observed that the cash
flows from the operations of BHP fluctuates across all said years. Although there are cash
inflows in these 3 years, the maximum is $18461 m in year 2018, whereas the smallest is at
2017. The reasoning underlying fluctuations in cash flows from operating activities is to improve
and decline operating incomes and expenditure over each year.
2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
500
1000
1500
2000
2500
1248
1578
2046
Cash fl ow from operati ng
acti vity OF SANTOS LTD.
Trend- The diagram of this corporation shows a gradual rise in cash flows from their operating
activities. Progress in the period 2018-19 is more that $468 million. This demonstrates an
excellent side of the business since they are capable to handle their operating costs in such a way
that cash-funds is available at year-ending.

2017 (Data in $
million) 2018 (Data in $
million) 2019 (Data in $
million)
-12000
-10000
-8000
-6000
-4000
-2000
0
Cas h outf low from oper ati ng
acti vity of funtas ti c ltd.
Trend- This entity's chart displays that there has been an unfavorable cash flow across 3 years.
Whilst also cash outflows, there is a large rise annually. The explanation behind such an
inconsistent performance could be an inadequate approach for maintaining or regulating
operational costs.
(c) Comparison of cash flow from operations and net profit after tax.

2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
5000
10000
15000
20000
25000
30000
6222 7744 9520
16804
18461 17871
Difference between net profit
after tax and cash flow from
operations
Net profit after tax Cash flow from operations
Analysis-From the aforesaid chart, this can be determined that, in every year, the corporation has
a greater amount of cash-inflow relative to profits after tax. That's because of the volume of
operations specified within each statement.
(d) Are firms have enough cash flow to pay all capital expenses.
BHP Ltd: As described earlier, this group created cash inflows via operations. However, value
of cash flows gone up and down, although they have adequate cash inflows to finance their
capital expenditures/outlays.
Santos Ltd: Similar to BHP, this entity also have a healthy, positive and sustainable cash
flows over 3 years. From this sum of cash-inflows, feasible decisions could be made to render
capital expenditure up to level of cash-flow.
Funtastic Ltd: This entity has been confronted with a low/negative cash flows in said period.
Company reported poor negative cash-inflows from operations activities. As a effect, this group
does not have ample cash to make capital investments and expenses.
(e) Did the cash flow from operations cover the dividend payment made by the firm (if any)?

2017 (Data in $ million)
2018 (Data in $ million)
2019 (Data in $ million)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2921
5220
11395
16804
18461
17871
BHP LIMITED
Dividend paid Cash flow from operations
Analysis- During every year, the enterprise generated that much cash inflows to allow divided
payment. Business paid more than $1,395 million of dividends in 2019, despite of the cash
inflows of about $1,7871 million.

2017 (Data in $ million)
2018 (Data in $ million)
2019 (Data in $ million)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0
73
251
1248
1578
2046
Santos lim ited
Dividend paid Cash flow from operations
Analysis- During 2017, company did not make any dividend payments even though there was
ample cash inflows. They earned amount dividends of $78m and $251m for the remainder of
2 years.
Funtastic Ltd: This entity didn't made any dividend payout owing to the unfavorable
negative cash-inflows.
(f) How firm invested excess cash flow.
BHP limited:
In year-2017: Entity reported cash inflows of $16804 m and also invested around $5607 m in the
following heads:

Purchases fixed
assets Investigation
expense Net investment and
funding of equity
accounted
investments
Other investment
0
500
1000
1500
2000
2500
3000
3500
4000
4500 4252
968
234 153
Capital expenditure by BHP
limited ($ m illion) in year 2017
2018: The entity has spent $5994 m towards investment activities listed herein, as below:

Purchases fixed assets Investigation expense Other investment
0
1000
2000
3000
4000
5000
6000
4979
874
141
Capital expenditure by BHP
limited ($ m illion) in year 2018
2019: During year, the entity made a increased investment of $8042 m relative to the rest of the 2
years. Entity have invested under following heads:
Purchases fixed
assets Investigation
expense Other investment Net investment and
funding of equity
accounted
investments
0
1000
2000
3000
4000
5000
6000
7000 6250
873 289 630
Capital expenditure by BHP
limited ($ m illion) in year 2019

Santos limited:
2017- From $1248 million of cash-inflows, the entity invested $689 m in the below heads:
Investigation of
assets Oil and gas
assets Other fixed
assets Acquisition of oil
and gas assets Borrowing costs
0
100
200
300
400
500
600
Investigation of
assets
Oil and gas assets
Other fixed assets
Acquisition of oil
and gas assets Borrowing costs
Capital expenditure by Santos
limited ($ m illion) in year 2017

2018: Forth from $1,578 million of cash-inflows, the entity invested $2525 m in the here listed
heads:
Investigatio
n of assets Oil and gas
assets Other fixed
assets Acquisition
of oil and
gas assets
Acquisition
of
subsidiary
Costs
associated
with
acquisition
Borrowing
costs
0
500
1000
1500
2000
2500
Investigation of
assets
Oil and gas assets
Other fixed assets
Acquisition of oil
and gas assets
Acquisition of
subsidiary
Costs associated
with acquisitionBorrowing costs
Capital expenditure by Santos
limited ($ m illion) in year 2018
2019: This entity has expended cash flows from operations under the following heads:

Investigatio
n of assets Oil and gas
assets Other fixed
assets Acquisition
of assets Acquisition
of
subsidiary
Costs
associated
with
acquisition
Borrowing
costs
0
100
200
300
400
500
600
700
Investigation of
assets
Oil and gas assets
Other fixed assets
Acquisition of
assets
Acquisition of
subsidiary
Costs associated
with acquisitionBorrowing costs
Capital expenditure by Santos
limited ($ m illion) in year 2019
Funtastic limited: The entity did not made any investment owing to shortage of cash-
inflows availability during three years.
(h) Usage of working capital as a source or uses of cash.
BHP limited:

(i) The items which affected cash flow of each firm.
BHP limited-
Increasing capital expenditure-Regarding investment operation, this can be reported that owing
to more purchasing of tangible assets, the enterprise being struggling with losses that culminated
in cash-outflows.
Huge Debts: As part of financing operation, this can be analyzed that there's cash outflows due to
enhanced interest amount on loan-taken.
Lack of Operational control: This element has a favorable effect on the cash flows of the
business. This is because further operational activities produce greater cash proceeds,
culminating in positive/favorable cash-flows.
Santos limited-
Increasing operational expenses: In this context, the cash flows of the entity has been influenced
by increased operational costs which have affected cash flows.

Increasing capital expenditures: This corporation bought various assets even with limited cash
inflows. This contributed in cash outflows from investment activities.
Higher debts payment: In one year, the corporation charged increasing interest on the mortgage,
which is the source of the cash outflows.
Funtastic limited-
Unmanaged and increasing operating costs-This entity has been impacted by certain operations
which have led to increased operating costs.
Financing Operations-The cash flows of the entity from financing tasks were positively
influenced by the rise in the amount of earnings over the loans.
capital expenditures-The cash flows of the enterprise from investment tasks has been
significantly impacted by the incorrect disposition of the capital.
(j) Trend in capital expenses of each firm.
2017 ($ Million)
2018 ($ Million)
2019 ($ Million)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Capital expenses MADE BY BHP LIMITED

Trend- The whole chart reveals that the capital spending of the enterprise has grown year upon
year. This mainly because of healthy cash flows from business operations.
2017 ($ Million)
2018 ($ Million)
2019 ($ Million)
0
500
1000
1500
2000
2500
3000
689
2525
1074
Capital expenses made by santos limited
Trend- The entity fluctuated their costs in order to satisfy the needs. Following 2018, there had
been a massive reduction in business expenses.
2017 ($ Million) 2018 ($ Million) 2019 ($ Million)
0
500
1000
1500 1428
426
152
Capital expenses made by funtastic limited

Trend- This organisation has decreased its capital spending on a regular basis. This is because of
insufficient cash flows via operational activities.
(k) Trend in dividend.
2017 (Data in $ million)
2018 (Data in $ million)
2019 (Data in $ million)
0
2000
4000
6000
8000
10000
12000
2921
5220
11395
Dividend paid by bhp limited
Trend- This chart clearly illustrates a growing pattern in the dividends paid-out by the entity. The
largest dividend sum paid by the corporation is $1,395 m during year 2019.

2017 (Data in $ million)
2018 (Data in $ million)
2019 (Data in $ million)
0
50
100
150
200
250
300
0
73
251
Dividend paid by santos limited
Trend- With the exception of year 2017, the entity has paid dividends on a gradual basis due to
more capital inflows in those 2 years.
Trend in net borrowings.
2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
1000
2000
3000
4000
5000
6000
7000
8000 7156
4406
2764
Net borrowings of bhp limited
Trend- This chart depicts per year-by-year fall in total loans. It indicates that the dependency of
the corporation on debt obligations has been lessened.

2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
200
400
600
800
1000
1200
1400
783
1193
592
Net borr owings of santos
limited
Trend- The diagram of this entity shows variations in overall debt according to their
business requirements. The largest total debt amounted to $1193 m during 2018.
2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
1000
2000
3000
4000
5000
6000
3647
2630
5666
Net borr owings by funtas ti c
limited

Trend- During 2019, the entity raised its debt by $5666 million. This reflects increase
dependence over debt-funding.
(l) Trend in working capital accounts.
Trend: The table clearly demonstrates that working capital level of company is greater per year,
that means that entity have ample current assets to allow payments of current obligations. The
entity's working capital level is growing each year, inferring a favorable growth towards liquidity
status.
2. Financial strength of each company.
In conjunction with the aforementioned study of cash position of each enterprise, it can be found
that every enterprise has certain core strengths and shortcomings. This largely depends on
companies to deal with weakness and exploit their assets wisely. Below are several strengths of
said three companies listed, which are discussed:
BHP limited:
 The principal beneficial factor of this corporation is that entity has produced
substantial cash inflows through business's operating activities over said periods. This has
been made facilitated by effective and proper management of the aggregate income and
expenditure from each operation-activity.
 Increased capital inflows through operating tasks are employed by the enterprise in an
satisfactory way to purchase distinct fixed assets.
 In addition to this entity's focus towards borrowing monies is negligible which
indicates efficiency of company in terms of cash generation.
Santos limited-
 The core strength of this entity is that overall cash-flows from various operations has
evolved in a thorough manner. It means that the entity has improved its financial efficacy.

 Dividends were distributed by the entity only because there were a considerable cash
inflows and with no pressure on the entity to pay dividends.
 In addition to this 2018, the company produced fund inflows through all major head
activities, showing that they covered cash outflows by borrowings.
Funtastic limited:
 In 2018 , the company provided cash inflows via its all head activities. This suggests that
entity were equally focused on all operations.
 The company has produced significant cash inflows through financing operations that
show that they have controlled their loans and securities adequately during three years.
 This company has efficiently obtained the investments through using a small component
of the mortgage despite sustaining losses.
3. Selection of a company for lending purpose.
In case I have to choose one entity from respective companies for the sake of lending
intention, then I will primarily choose company BHP. The rationale being that
this enterprise reported positive sum of cash flows and an rise in profitability over year 2017,
2018 and 2019. Due to this, there’s less risk that the enterprise would not pay back the money
of its debts, further it is anticipated that entity will perform well in years to come.
CONCLUSION
From the above report, it has been concluded that the importance of the cash flow statements in
the business is that it decides cash ins and outflows for a given span of period. This details
on liquidity state of the company would not only allow the business or stakeholders to prepare
for the immediate or prolonged term, but may also make it possible to analyse the necessary
amount of cash-funds needed in the enterprise. Cash flows and income statements are considered
to be favorable and essential instrument for management for the reasons of planning, along with
the monitoring of cash-funds.

REFERENCES
Books and journal:
Harring, N., Jagers, S.C. and Matti, S., 2019. The significance of political culture, economic
context and instrument type for climate policy support: a cross-national study. Climate
policy, 19(5), pp.636-650.
Ioannidis, J.P., 2019. The importance of predefined rules and prespecified statistical analyses: do
not abandon significance. Jama, 321(21), pp.2067-2068.
Liu, Y., Li, X., Zeng, H. and An, Y., 2017. Political connections, auditor choice and corporate
accounting transparency: evidence from private sector firms in China. Accounting &
Finance, 57(4), pp.1071-1099.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Online:
Annual report of BHP limited for year 2017. [online] available through:<
https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf>
Annual report of BHP limited for year 2018. [online] available through:<
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf>
Annual report of BHP limited for year 2019. [online] available through:<
https://www.bhp.com/-/media/documents/investors/annual-reports/2019/
bhpannualreport2019.pdf>
Annual report of Santos limited for year 2017. [online] available through:<
https://www.santos.com/wp-content/uploads/2020/02/2017-annual-report.pdf>
Annual report of Santos limited for year 2018. [online] available through:<
https://www.santos.com/wp-content/uploads/2020/02/2018-annual-report.pdf>
Annual report of Santos limited for year 2019. [online] available through:<
https://www.santos.com/wp-content/uploads/2020/02/2019-annual-report.pdf>
Annual report of Funtastic limited for year 2017. [online] available through:<
https://www.annualreports.com/HostedData/AnnualReportArchive/f/ASX_FUN_2017.pd
f>
Annual report of Funtastic limited for year 2018 & 2019. [online] available through:<
https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_FUN_2019.pdf>