Corporate Accounting: Cash Flow Analysis of Three Firms

This report presents a detailed analysis of the financial performance of BHP Ltd, Santos Ltd, and Funtastic Ltd, primarily focusing on their cash flow statements. The study examines the role of income statements and cash flow statements for investors, followed by a deep dive into the cash flow trends of each company from operating activities. It compares cash flow from operations with net profit after tax, assessing the companies' abilities to cover capital expenditures and dividend payments. The analysis further explores how each firm invested its excess cash flow, providing insights into their financial strategies. The report aims to evaluate the financial health and performance of the three companies, offering valuable insights for investors and stakeholders. This assignment is contributed by a student to be published on the website Desklib, a platform providing AI-based study tools for students.

CORPORATE
ACCOUNTING

ABSTRACT
The study summarizes discussion of financial results of three separate firms: BHP Ltd,
Santos Ltd, and Funtastic Ltd based on cash flow. In this study, with respect to above-mentioned
organizations, different types of aspects are thoroughly analyzed to assess performance. In later
part of the study-report, evaluation of has been done of such companies as to select most
appropriate company among these for the lending purpose.

Contents
ABSTRACT...............................................................................................................................................2
INTRODUCTION.....................................................................................................................................4
MAIN BODY.............................................................................................................................................4
Part A......................................................................................................................................................4
Part B.......................................................................................................................................................6
CONCLUSION........................................................................................................................................29
REFERENCES........................................................................................................................................30

INTRODUCTION
There are quite a large number of accounting processes in finance field and corporate
accounting is most significant accounting process. It can be characterized as process of
accounting dealing with operation of compiling financial statement comprising cash-flows
statement, income-statement etc (Warren and Jones, 2018). The study is focused on the review of
cash-flows statement roles and concerns in context of three different companies namely: BHP
limited, Santos Ltd and Funtastic Ltd. The study is broken down into 2 sections: A and B.
Analysis of cash flows and income statement done under Part-A. Whereas the consolidated cash-
flows of all three companies have been evaluated to answer different questions.
MAIN BODY
Part A
Reviewing information stated in income statements and cash-flows statements.
A company's financial statements comprises primarily three forms of
statements namely: Income-statement, Company's balance sheet and cash-flows statement report.
All these statements perform a major part and provide in-depth information regarding various
dimensions of company (Thanh, 2016). Below, a thorough analysis of financial statements being
performed in effective way, as follows:
Income statement- This can be perceived as a sort of statement that contains incomes and
expenditure particulars within a given time span. This Statement mainly contains the following
information:
· Sales revenue- Net sales revenue or turnover details stated by the sales less sales return
under income statement.
· Cost of sales- Total costs incurred in the production and distribution of a item are
mentioned in this head, which is referred to as costs of sales.
· Operating income and expenditures- In addition, income statement provides details on
operating incomes generated alongside expenses made in relation to such income
generation.

· Interest Expenses- if corporation has borrowed and interest amount paid periodically then
such aggregate amount of interests paid is shown under the head of finance cost in
the income-statement.
· Tax- It also contains the details of tax rate and amount of liability of income tax.
· Net profit- This head under income-statement consists of net amount of profits earned by
company during a particular period after providing all business expenses.
Cash flow- This is characterised as a statement consisting of comprehensive details concerning
cash in-flows and cash payouts. this is framed by combining cash flow of three major
activities: operational, investment and financial activities. Here below is discussion about all the
major heads of this statement, as follows:
Cash receipts- Particulars on the amount of cash proceeds and the operations is specified in cash-
flow statement. It mainly offers details concerning cash proceeds from 3 distinct operations
involving operational, investment and financial activities (Kristanti and Herwany, 2017).
Cash payments- It contains of details about cash payments transactions under such three separate
activities and deducting from all cash receipts.
Net cash flow- The amount of net cash flow which is generated from three different activities is
also mentioned in this statement.
Importance/significance of cash-flow and income statement in context of investors.
For stakeholders or investors, proper comprehension concerning a corporation 's fiscal dimension
is crucial for them to be able to undertake decisions appropriately. Investors are largely
dependent on different forms of fiscal statements to access crucial information.
Role of income statement for investors:
The investors require reliable information mostly on profits and spending of the corporation over
a reporting period. This could only become feasible due to company's reported income statement.
As with the aid of this, they can know regarding company-earned profit, as well as these details
could be applied to determine earning-per share. Moreover, income statement also helpful in
providing investors with information pertaining to the proportion of costs and business activities.

Based on this valuable detail, investors can take decisions to make investments in the securities
and stocks of a corporation.
Role of cash flow statement for investors:
The cash-flows statement is also beneficial for investors so as to obtain information
regarding cash flows trend of more than one period which is used to make projections of
upcoming years cash-flows. Furthermore, cash flows statement allows investors to fully
understand regarding certain operations that are causing higher costs. Investors decide on the
basis of this knowledge whether they can make an investment in company (Unerman,
Bebbington, and O’dwyer, 2018).
Part B
1. Examination of cash flow of each company.
(a) Major source and uses of cash of each firm.
BHP limited: Based on below sad it can be ascertained that the corporation has various
types of cash generation sources and application which are described here, as
follows:

Santos limited-

Funtastic limited:

(b) Trend in cash flow of each firm from operating activity.
BHP limited: 2017 (Data in $
million)
2018 (Data in $
million)
2019 (Data in $
million)
Cash flow from
operating activity
16804 18461 17871

2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
15500
16000
16500
17000
17500
18000
18500
16804
18461
17871
Cash flow from operating activity
OF BHP LTD.
Trend- The chart described indicates that cash inflows occurred throughout 2017, 2018 and
2019. While, in year 2017, the amount of cash-inflow fluctuates, this was $16804 million that
rose to $17561 million. however this started to shrink in year 2019, and then it reached
to $17397 million. The reason underlying this decline is that more spending towards operational
activities results in more cash outlays than cash receipts (Annual report of BHP limited for year
2017).
Santos limited: 2017 (Data in $
million)
2018 (Data in $
million)
2019 (Data in $
million)
Cash flow from
operating activity
1248 1578 2046

2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
0
500
1000
1500
2000
2500
1248
1578
2046
Cash flow from operating activity
OF SANTOS LTD.
Trend- The aforementioned chart indicates a substantial improvement in net cash
inflows of the corporation during three years. It shows that in year- s2017, the cash
inflow were $1248 million which reached to $1578 and $2046 million within increase in
year 2018 and 2019. This corporation 's positive success shows that company is able to
successfully handle their operational cash flows, contributing to positive cash flows.
Funtastic limited: 2017 (Data in $
million)
2018 (Data in $
million)
2019 (Data in $
million)
Cash outflow from
operating activity
-2750 -10182 -8030
2017 (Data in $ million) 2018 (Data in $ million) 2019 (Data in $ million)
-12000
-10000
-8000
-6000
-4000
-2000
0
Cash outflow from operating
activity of funtastic ltd.

Trend- Abovementioned graph indicates that this corporation is unable to generate cash inflows
from operational activities. Cash outflow were $-2750 in year-2017, which rose over next year
and reached to $-10182. Although, the cash outflows decreased by a small slight amount to $-
8030 million in year-2019. The reason for this adverse result is inability of controlling over
operating costs and inadequate cash handling (Annual report of BHP limited for year 2018).
(c) Comparison of cash flow from operations and net profit after tax.
BHP limited: 2017 (Data in $
million)
2018 (Data in $
million)
2019 (Data in $
million)
Net profit after tax 6222 7744 9520
Cash flow from
operations
16804 18461 17871
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
Diff erence between net profi t after
tax and cash fl ow from operations
Net profit after tax Cash flow from operations
Analysis- As presented in above chart this has been analyzed that company has reported profit as
well as positive cash-flow simultaneously during 2017 to 2019. Although there is decline in cash
flow in year 2019 but company’s net profitability position has been improved over the year.
Overall analysis shows that company’s profitability and liquidity position is quite good (Annual
report of BHP limited for year 2019).