HI5020 Corporate Accounting: Cash Flow Statement Analysis Report

This report delves into corporate accounting, emphasizing the significance of income statements and cash flow statements for financial analysis and decision-making. It critically examines the information content and usefulness of these statements, providing insights into how investors assess a company's financial performance and position. The report further analyzes the cash flow statements of BHP Ltd, Santos Ltd, and Funtastic Ltd over three years, addressing specific questions related to cash flow sources, trends, and the relationship between operating cash flow and net profit. It evaluates the companies' financial strengths, assesses their ability to meet financial obligations, and determines their suitability for lending purposes. The analysis also covers the utilization of excess cash, the use of working capital, and the major items affecting the cash flow of the companies, offering a comprehensive understanding of their financial health.

Corporate Accounting

Abstract
This report is about the topic Corporate Accounting which involves the important
concepts of finance. This report provided an insight about the useful content in the income
statement and the cash flow statement of the company and how it is useful for the investors. Both
these statements provides the relevant information on account of the revenue and expenditure of
the business in a specific period along with the different sources of funds and application of the
same in the business. With the help of the statement of the cash flow of the three company, the
given questions were answered which highlighted the cash flow position and performance level
of the companies. Also, by analysing the cash flow statement helped in determining the financial
strength of the company and according to it the BHL limited is selected as the company for the
lending purpose.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Part A...............................................................................................................................................4
Critical examination of the information content of income statement and statement of cash
flows. Usefulness of income statement and the statement of cash flows...............................4
Part B...............................................................................................................................................5
1..............................................................................................................................................5
2............................................................................................................................................10
2 Evaluation of financial strength of all companies.............................................................10
3............................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

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 (Schaltegger, Etxeberria and Ortas, 2017). This is essential in order to take decision
relating to the financial position of the company and to develop strategies for its
improvement. The current report will discuss the information relating to the income and
cash flow statements and this purpose and usefulness. Further the analysis of the financial
reports of BHP Ltd, Funtastic Ltd and the Santos Ltd will be done to analyse the financial
positon of the company for the past three years. Further the financial strength and the
lending purpose of all the three companies will be listed.
MAIN BODY
Part A
Critical examination of the information content of income statement and statement of cash flows.
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.
Profit or loss or income statement presents revenues, expenses and the net income from
carrying out business for the year. The statement provides summary of the revenues sources and
the expenses incurred during the year (Knežević, Mitrović and Ilić, 2016). It allows the investors
to identify whether company has made adequate profits or not during the period by carrying out
the business. Operating section of the statement consists of the incomes and expenses that are
incurred for business activities. Incomes are earned from the sales and enhancement of assets and
expenses consists of the outflows or use of assets for manufacturing products or carrying out the
business.
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.
The cash flow statement is of significant importance for the business and the investors to
evaluate the cash flows in the company. Cash flow statement consists of the information
regarding the cash inflows and outflows from the business. Cash flow statement is divided in
three parts which are operating activities, investing activities and financing activities. All the
activities provides the sources of inflows and the areas of outflow so that the users of cash flow
statement could analyse the cash flows of business in different activities.
Operating activities provide information regarding the cash flows from business activities
such as sales and expenses. It also provides about the change in working capital during year.
Investing activities provide about information regarding sales or purchase of assets and
investments (Abernathy and et.al., 2017). Financing activities cover all the information of cash
flow related to the financial sources such as shares, debentures, dividend etc.,. Cash flow
statement allows the investors to assess whether company had adequate funds for meeting the
financial obligations and for carrying out the business. Company must have strong liquidity
position for meeting the working capital requirements and for running the business smoothly.
Part B
1.
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.
 Santos Ltd- the major source of cash for Santos is the sales which the company provides
to the consumer and in against of this the cash is generated within the business. the major
use of the cash within the business is to pay all the liabilities and to run and manage the
business in profitable manner.

 Funtastic Ltd- the major source of cash for Funtastic Ltd is the sales and the investment
which the company is taking. The major reason underlying this fact is that the investment
assists the company in getting more return. Thus, the application of the cash within the
business is the repayment of the liabilities, loan and other expenses being incurred while
running the business.
1b
 BHP Ltd- the trend of cash flow from the operating profit is not static or constant rather it
is changing (Hoang and Joseph, 2019). This is majorly because of the reason that earlier
in the year 2017 it was 16804 but in 2018 it increased to 18461 and again in 2019 it
decreased to 17871.
 Santos Ltd- the trend within the operating cash flow is increasing as in 2017 it was 1248
and in 2018 it increased to 1578. Further in 2019 the cash flow was 2046 and it suggests
that the trend in cash flow is increasing (Aburous, 2016).
 Funtastic Ltd- the trend of cash flow is very cyclic as there is no static pattern or value
within the value of cash flow. In 2017 the cash outflow was of 2750 but in 2018 the cash
outflow increased to 10182 and in 2019 it was 8030.
1c
The cash flow from the operations for the year ended 2019 was 17871 and the net profit after tax
in the income statement is 8306. The net cash flow from the operation activities is referred to as
the net cash which is generated by the company after paying for all the expenses and other
liabilities. On the other side the net profit after tax is referred to as the profit which is remained
by the company after the payment of all the expenses. There is huge difference between both the
data as the net cash flow from operating activity suggest the cash application only in the
activities relating to the cash inflow and outflow. But in the net profit after tax all the expenses
have been paid and the money remained with the shareholder is listed. Thus, the major reason
behind the difference is that the operating activity just list out the application of the cash and the
net profit list out the cash left for the shareholder to be used.
1d
 BHP Ltd- the firm was able to generate enough cash for the payment of the capital
expenditure as the company was in profitable situation. This profitable situation suggests
that the company has paid all of its expenses and the profit is left with the company.

 Santos Ltd- for the company the net cash from operating activity was 2046 and the net
profit was 674. Thus, this depicts that the company is able to pay all its expenses and run
and manage the business in proper and effective manner.
 Funtasitc Ltd- here the cash outflow was more than compared to the cash inflow that is
8030 and the net profit is 6615. The net profit suggest that all the expenses have been
paid and there is not much any of the expenses left to be paid (Holzman, Miller and
Williams, 2019). This suggests that the cash outflow does not much affect the
expenditure payment.
1e
 BHP Ltd- the cash from operating activity was 17871 and the dividend paid was 11395.
Thus, this states that the operating cash flow was enough to deal with the expense of
dividend. Hence, with the available amount of operating cash flow all the dividend were
effectively paid (Zeff, 2018).
 Santos Ltd- with the analysis of the financial statement and cash flow statement of Santos
Ltd it was seen that the operating cash flow was 2046. On the other side the dividend
expense was 251 and this reflects that the operating cash inflow is enough to bear the
expenses of the payment to be made for dividend.
 Funtastic Ltd- in case of Funtastic Ltd the net cash flow from operating activity is in
negative that is outflow is more than inflow that is 8030. On the other side the dividend
payment is 253 and this suggests that the company is not having enough cash for the
payment of the dividend which is of utmost importance.
f. 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 equipments and properties. The company has also
incurred expenses on exploration and has also made investment in the equity accounted
investments (BHP Annual Report 2019). In case of Santos Ltd, in the past 3 years the company
has seen an increase in the cash flow from its operating activities (Santos Annual Report 2019.

2019.). The company has made use of these excess cash by investing it in the exploration and the
evaluation of the assets, in purchasing the oil and the gas assets, land and buildings, payment of
the borrowed amount. The company has also used it in repayment of its liabilities and made
purchase of the shares. In the Funtastic Ltd, the cash flow from the operating activities is
negative which means that the company is not having enough cash from its operating business
(Funtastic Annual Report 2019. 2019). For meeting its business requirement the company has
borrowed funds which it has used in making repayment of the commercial bills, cost incurred on
the shares issue.
g. 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 (BHP Annual Report 2019). 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 .
h. 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. Along with that the company has incurred huge expenditure on purchasing the new
assets (BHP Annual Report 2019). The company has also made a huge amount of the cash
outflow on account of the net interest being paid by it. In Santos Ltd, the major cause for
negative cash flow from financing activity is that making huge amount of repayment on its
borrowed funds and making payment of the interest as well (Santos Annual Report 2019. 2019).
It also included the amount of dividend paid. In case of Funtastic Ltd, the major factor affected
its cash flow is making payment of the commercial bills and on the acquisition of the intangible
assets (Funtastic Annual Report 2019. 2019).
I. 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 (BHP Annual Report 2019). In Santos Ltd, the
investment in the capital expenditure of the company has shown an increase in trend even though
the cash flow from the investing activity is increasing as compared to the previous year (Santos

Annual Report 2019. 2019). The company has increased its expenditure in the capital assets such
as by investing in the gas assets, plants and equipments, acquisition of the subsidiary etc. While
in Funtastic Ltd, there is a reduction in the outward payment being made by the company which
has resulted into increase in the cash flow from the investing activities (Funtastic Annual Report
2019. 2019). The company has shown a decrease in trend of the investment being made.
j. 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. A special
dividend is being paid in January 2019 amounted to US$5.2 billion and has also paid high
dividend to the shareholders of the company which is equivalent to US$1.0 billion (BHP Annual
Report 2019). In the Santos Ltd, the amount of dividend paid in the year 2017 was zero which
then increased to 73 the very next year and further to 251 in 2019. There is nearly 244 per cent
increase in the dividend paid taking 2018 as the base year (Santos Annual Report 2019. 2019). In
the case of Funtastic Ltd, the company has not paid any type of dividend in that past 3 years,
therefore, there is no such trend in respect to the dividend paid (Funtastic Annual Report 2019.
2019).
k. Analysing the changing trend in the net borrowed capital
The net borrowings refer to the proceeds from the net borrowings reduced by the
payment made in respect to the short and long term debt obligations. 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 (BHP Annual Report 2019). In Santos Ltd, the net borrowings of the company is showing
an increase in the trend. As the company has made a payment of its borrowings which is much
more than the amount borrowed in these 3 years (Santos Annual Report 2019. 2019). And this
has resulted into decrease in the cash flow of the financing activities. In the case of Funtastic Ltd,
the company has taken additional funds each year and the along with that the company has made
payment of its as well (Funtastic Annual Report 2019. 2019). Therefore, the Funtastic Ltd, has
shown a downward trend in regard to its net borrowings trend.
l. 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. The BHL Limited, has shown an increase in the trend of the working
capital of the company as it has increased over the past 3 years (BHP Annual Report 2019). In
the year 2017, it was negative 140 which further increased to negative 292 and then in the year
2019, it has increased to the 296. Thus, the company shows a positive trend.
2.
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.
 Santos Ltd- from the evaluation of the financial position of the company it is stated that
the cash flow from operating activity was 2046 and from investing activity there is cash
outflow more that is (1033) and for financing activity the cash outflow is (1251). Hence,
the net cash inflow out of all the three is 1067 which suggest that the financial strength is
good of the company as in the end there is more stability in the inflow of cash.
 Funtastic Ltd- with the analysis of the cash flow statement of Funtastic Ltd it is clear that
the net cash outflow from the financing activity is (8030). Further, from the investing
activity it was also cash outflow and it was of (151) and from the financing activity the
net cash inflow was 7928 and after all reduction the net cash in the end was 465. Thus,
this data suggest that even though the investing and operating activity both are having
negative value that is more of cash outflow. This suggests that the company is in good
condition and is able to manage and run the business with the assistance of the financing
activity only.
3.
Evaluating the companies and identifying and 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 (BHP Annual Report 2019). 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. If compared to the other company like Santos Ltd, which is also having a
positive cash flow from operating activity with an increasing trend but it shows that in one year it
is repaying amount of 2442 while in the second year it is repaying just 220 and in the third year it
is making payment of 1474. This up and down in the payment creates doubt about the ability and
efficiency of the company in respect to making payment on the timely basis (Santos Annual
Report 2019. 2019). Also, the cash flow from the investing activities of the company is negative
which means that the company has incurred a lot of expenses in purchasing the assets of the
company or in making any other investment which has resulted into increase in the cash outflow
adding it ability to borrow more funds or making payment of its existing debt. Therefore, Santos
Ltd, cannot be selected.
In case of Funtastic Ltd, the company is not able to generate sufficient amount of cash
from its operating activities as it is showing a negative trend and fluctuating trend. This is the
first thing that makes it important for making any decision. It highlights the ability of the
company in generating sufficient amount of cash from its actual business operational activities.
Also, the cash flow from the financing activity of the company shows the positive trend
(Funtastic Annual Report 2019. 2019). As the company has borrowed huge amount of funds but
has not made any repayment of the same. Therefore, it can be interpreted from the cash flow
statement of the Funtastic Ltd it is lacking on the part of making payment of its due amount.
Thus, it is not feasible for the company in lending money to this company. Therefore, it is
preferable to select BHL Limited company for the purpose of lending.
CONCLUSION
It can be summarized from the above that the financial statements are very useful for the
business organization for the purpose of the taking meaningful business related decisions. The
usage of financial statement supports its users in taking right decisions on account of making an

investment in the company or in providing funds to the company. With the helps of income
statement and the cash flow statement will help the management in evaluating the financial
performance of the company from the point of view of the investors. This is used in taking
various investment related decisions by the investors in respect to whether to make an investment
in the company or not. This report also provided an insight about how the cash flow statement of
the two companies is being analysed and interpreted in order to gain the meaningful and useful
business related financial information. Here, the cash flow statement of the three companies were
evaluated based on which the performance level of each of the company is identified which
include trend analysis, sources of funds, capital expenditure of the companies, net borrowings of
the company and so forth. Along with that with the use of statement of cash flow the overall
financial strength of the company is evaluated and also based on this evaluation, the BHL
Limited is being selected as the best suitable and recommended company in regard to the lending
purpose. Thus, this aspect of corporate financing is a crucial thing which cannot be ignored as it
will result into taking right and prompt financial decisions.

REFERENCES
Books and Journals
Knežević, S., Mitrović, A. and Ilić, Z., 2016. Different perspectives on the cash flow
statement. Hotel and Tourism Management. 4(2). pp.48-54.
Abernathy, J.L., and et.al., 2017. Income statement reporting discretion allowed by FIN 48:
Interest and penalty expense classification. The Journal of the American Taxation
Association. 39(1). pp.45-66.
Schaltegger, S., Etxeberria, I.Á. and Ortas, E., 2017. Innovating corporate accounting and
reporting for sustainability–attributes and challenges. Sustainable Development. 25(2).
pp.113-122.
Hoang, T.C. and Joseph, D.M., 2019. The effect of new corporate accounting regime on earnings
management: Evidence from Vietnam. Journal of International Studies. 12(1).
Aburous, D., 2016. Understanding cultural capital and habitus in Corporate Accounting: A
postcolonial context. Spanish Journal of Finance and Accounting/Revista Española de
Financiación y Contabilidad. 45(2). pp.154-179.
Holzman, E., Miller, B.P. and Williams, B., 2019. The local spillover effect of corporate
accounting misconduct: evidence from city crime rates. Kelley School of Business
Research Paper, (18-72).
Zeff, S.A., 2018. An Introduction to Corporate Accounting Standards: Detecting Paton's and
Littleton's Influences. Accounting Historians Journal. 45(1). pp.45-67.
Online
BHP Annual Report 2019. 2019. [Online]. Available
Through:<https://www.bhp.com/-/media/documents/investors/annual-reports/2019/
bhpannualreport2019.pdf>.
Santos Annual Report 2019. 2019. [Online]. Available Through:<https://www.santos.com/wp-
content/uploads/2020/02/2019-annual-report.pdf>.
Funtastic Annual Report 2019. 2019. [Online]. Available
Through:<https://www.annualreports.com/HostedData/AnnualReports/PDF/
ASX_FUN_2019.pdf>.