Corporate Accounting Report: Analyzing Financial Statements of Firms

This report provides an in-depth analysis of the financial statements of three ASX-listed companies: A2 Milk Company Limited, Food Revolution Group Limited, and Webster Limited. The analysis covers key aspects of their financial performance over three years, including equity and liabilities, cash flow statements, other comprehensive income, and corporate income tax. The report examines significant equity items such as share capital, retained earnings, and reserves, as well as current and non-current liabilities. It also evaluates the companies' cash flow activities, highlighting trends in operating, investing, and financing cash flows. Furthermore, the report compares the debt and equity positions of the three firms using the debt-to-equity ratio and discusses their approaches to accounting for corporate income tax, including deferred tax assets and liabilities. The analysis concludes with a summary of the key financial trends and observations for each company.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE ACCOUNTING
Executive Summary:
The current report has emphasised on evaluating the different financial statements of three ASX
listed firms operating in the same sector. The firms selected for this paper comprise of the A2
Milk Company Limited, the Food Group Revolution Limited and Webster Limited. It is evident
that these organisations have made huge investments in PPE and other intangible assets.
However, the inflows are adequate to offset such outflows. Furthermore, these organisations do
not take into account extraordinary items from the other comprehensive income statement, as
they are not linked directly with the daily business activities. Finally, from the taxation portion, it
has been analysed that the three organisations are considering deferred tax assets, income tax
provision, deferred tax liabilities and finance costs for computing the cash tax rate appropriately.

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Table of Contents
Introduction:....................................................................................................................................4
Equity and liability:.........................................................................................................................5
Requirement (i):...........................................................................................................................5
Requirement (ii):..........................................................................................................................6
Requirement (iii):.........................................................................................................................7
Cash flow statement:........................................................................................................................8
Requirement (iv):.........................................................................................................................8
Requirement (v):..........................................................................................................................9
Requirement (vi):.......................................................................................................................12
Other comprehensive income statement:.......................................................................................13
Requirement (vii):......................................................................................................................13
Requirement (viii):.....................................................................................................................13
Requirement (ix):.......................................................................................................................14
Requirement (x):........................................................................................................................14
Accounting for corporate income tax:...........................................................................................14
Requirement (xi):.......................................................................................................................14
Requirement (xii):......................................................................................................................15
Requirement (xiii):.....................................................................................................................15

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Requirement (xiv):.....................................................................................................................16
Requirement (xv):......................................................................................................................16
Requirement (xvi):.....................................................................................................................17
Requirement (xvii):....................................................................................................................17
Conclusion:....................................................................................................................................17
References and Bibliographies:.....................................................................................................19

4CORPORATE ACCOUNTING
Introduction:
The current report would focus on evaluating the different financial statements of three
ASX listed firms operating in the same sector. The firms selected for this paper comprise of the
A2 Milk Company Limited, the Food Group Revolution Limited and Webster Limited. The
annual reports of the past three years of each of the selected organisations are analysed, which
mainly include liability and equity, cash flow statement, corporate income tax and other
comprehensive income statement.
The A2 Milk Company Limited has been established in New Zealand in 2000 and it is
involved in commercialising A1 protein free branded milk and associated milk products in New
Zealand, Australia, China, UK and USA. It produces skim milk powder and whole milk powder
as well having staff base of 180 (The a2 Milk Company, 2019).
The Food Revolution Group Limited functions as a food processing organisation in
Australia selling wide range of functional juices like cold-pressed oils, fibres, infused fruits, fruit
waters, functional juices and kombuchas. It provides its products in the form of ingredients to the
food manufacturers for fulfilling the needs of beverage, functional food as well as nutraceutical
markets (The Food Revolution Group, 2019).
Webster Limited functions as an agribusiness organisation in Australia and it has its
business operations in two segments, which include horticulture and agriculture. The main
products of the organisation include annual row crops like wheat, cotton, walnuts, almonds,
maize and others. In addition, the organisation is involved in exporting its products in Middle
East, Asia and Europe (Webster Limited, 2019).

5CORPORATE ACCOUNTING
Equity and liability:
Requirement (i):
As per the annual reports of the three selected organisations, certain items of equity are
included in the statement of financial position.
In accordance with the annual reports of the A2 Milk Company Limited, the most
significant equity items include share capital, retained earnings and reserves. The share capital of
the organisation is observed to increase from $130,548,000 in 2016 to $141,566 in 2018 due to
the increase in issuance of equity shares. Considerable rise in reserves could be observed from
($1,841,000) in 2016 to $123,442,000 in 2018, as there has been rise in hedge reserve, foreign
currency translation reserve and others (The a2 Milk Company, 2019). Finally, retained earnings
of the company have risen significantly from $4,371,000 in 2016 to $290,701,000 in 2018 owing
to the fact that it has managed to increase its profitability over the years.
From the annual reports of the Food Revolution Group Limited, the basic equity items
are issued capital, option reserves and revaluation surplus. In case of issued capital, the amount
has remained the same in all three years due to the fact that the firm has not issued new equity
shares in the market (Kulikova, Garyntsev & Gafieva, 2015). Similarly, no change could be
observed in options reserve due to no change in hedge reserve and options. However, there is
significant increase in its revaluation reserve from 2016 to 2018 due to increase in capital assets
(The Food Revolution Group, 2019).
For Webster Limited, the major items of equity constitute of issued capital, reserves and
retained earnings or accumulated losses. The issued capital has increased from $462,844,000 in
2016 to $477,865,000 in 2017 and it has remained the same in 2018 due to no issuance of new

6CORPORATE ACCOUNTING
shares in the market (Wahlen, Baginski & Bradshaw, 2014). However, there has been fall in
reserves from $371,000 in 2016 to ($921,000) in 2018. On the other hand, as there is
considerable rise in profit level, retained earnings have increased significantly over the three-
year period (Webster Limited, 2019).
Requirement (ii):
As per the annual reports of the A2 Milk Company, the organisation has both current
liabilities and non-current liabilities. The current liabilities mainly comprise of trade and other
payables and income tax payable. There is increase in the total values of current liabilities owing
to considerable increase in income tax payable. On the other hand, non-current liabilities
primarily constitute of trade and other payables and deferred tax liabilities. The value of non-
current liabilities has fallen significantly in 2018, since no deferred tax liabilities have been
recognised in the year (The a2 Milk Company, 2019). However, owing to considerable increase
in current liabilities, the organisation has experienced increased overall liabilities in 2018
compared to 2016.
For the Food Revolution Group Limited, the current liabilities comprise of provisions,
trade and other payables, deferred consideration liability and borrowings. Increase in current
liabilities could be observed from 2016 to 2018 because of significant hike in deferred
consideration liability and short-term borrowings. On the contrary, the non-current liabilities of
the organisation mainly include deferred consideration liability, provisions and deferred tax
liabilities. There has been fall in total non-current liabilities due to absence of deferred
consideration liability in 2018. Such fall in non-current liabilities could not be offset due to
increase in total current liabilities and as a result, the total liabilities of the organisation have
risen over the years (The Food Revolution Group, 2019).

7CORPORATE ACCOUNTING
For Webster Limited, the current liabilities of the organisation mainly include trade and
other payables, current tax liability, borrowings, provisions and others and the same is observed
to increase massively in 2018 because of short-term borrowings. The non-current liabilities
primarily include borrowings, provisions and net deferred tax liability, which have fallen
massively, as it has minimised its long-term borrowings largely. Despite such decline, total
liabilities have increased from $234,737,000 in 2016 to $258,960,000 in 2018, as short-term
borrowings have increased massively (Webster Limited, 2019).
Requirement (iii):
For comparing the debt and equity position of the three firms, debt to equity ratio is the
most appropriate measure, which is represented briefly as follows:
2016 2017 2018
-
0.50
1.00
1.50
2.00
2.50
0.58 0.42 0.30
1.07
2.18
1.00
0.56 0.31 0.52
Debt to Equity Ratio
The A2 Milk Company Limited The Food Revolution Group Limited
Webster Limited

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The above figure clearly makes it evident that the A2 Milk Company and Webster
Limited has focused mainly on raising funds through equity, while the scenario is opposite for
the Food Revolution Group Limited, as majority of its assets are funded by Webster Limited.
Therefore, in terms of financial leverage, the Food Revolution Group Limited bears the highest
amount of risk followed by Webster Limited and the A2 Milk Company Limited.
Cash flow statement:
Requirement (iv):
As per the cash flow statements of the A2 Milk Company Limited, the major items
falling under cash flows used in operating activities include receipts from customers, payments
to suppliers, taxes paid and interest received. Considerable improvements could be witnessed in
this category from $21,474,000 in 2016 to $231,108,000 in 2018. On the other hand, the
investing cash flows mainly include items such as payments for intangible assets, property, plant
and equipment and listed investment, which has increased massively in 2017 because of listed
payment; however, considerable fall could be observed in 2018 due to fall in the same. In terms
of cash flows from financing activities, the only listed item is proceeds from issue of equity
shares that are observed to fall drastically in 2017; however, slight increase could be observed in
2018 (The a2 Milk Company, 2019). As a result, due to increased operating cash flows and
beginning cash balance, the amount of cash and cash equivalents has increased over the years.
For the Food Revolution Group Limited, the items belonging to operating cash flows are
customer receipts, supplier payments, finance costs, interest obtained and receipt of government
grants. Due to increase in receipts from the customers and reduction in finance costs, the
operating cash flows having negative balance in 2016 turned out to be highly positive in 2018.
The cash flows from investing activities mainly constitute of payments related to property, plant

9CORPORATE ACCOUNTING
and equipment (PPE), intangible assets and receipts from disposal of Roxdale. Due to the
significant increase in payment of its PPE and no amount obtained from Roxdale disposal in
2017, the investing cash flows have high negative balance in 2018 compared to 2017 with a
positive balance. Finally, the cash flows from financing activities comprise of proceeds from
share issuance and borrowings, repayment of borrowings and receipt of escrow deposits. The
organisation has managed to minimise its repayment of borrowings over the years largely owing
to which positive financing cash flows are observed in 2018. However, the net cash balance at
the end of the year is lower in 2018 compared to 2016, since no proceeds have been generated
from share issuance in both 2017 and 2018 (The Food Revolution Group, 2019).
In case of Webster Limited, the operating cash flows mainly include owed amounts from
the customers, payments made to the suppliers, interest obtained, interest incurred and payment
or refund of income tax. Despite considerable increase in this category in 2017, the lower
amounts obtained from the customers has eventually led to its decline again. The investing cash
flows constitute of payment for PPE and water entitlements and proceeds from PPE, government
grants and sale water entitlements. Due to increased payments from PPE and no proceeds from
sale water entitlements in 2018, there has been increased negative balance in this category in
2018. As a result, fall in ending cash balance is evident in 2018 compared to 2017 (Webster
Limited, 2019).
Requirement (v):
The A2 Milk Company:

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2016 2017 2018
-$100,000,000
-$50,000,000
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$21,474,000
$99,343,000
$231,108,000
-$2,054,000
-$51,148,000
-$20,919,000
$44,245,000
$3,754,000 $7,264,000
The A2 Milk Company Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities Net Cash Used in Financing Activities
It is evident from the above graph that the operating cash flows of the organisation have
increased heavily because of increased earnings made from consolidated business operations.
However, the negative balance of investing cash flows has risen largely due to increased
payments for non-current assets. Finally, financing cash flows have decreased from 2016 to 2018
owing to repurchase of shares made by the business owners (The a2 Milk Company, 2019).
The Food Revolution Group Limited:

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2016 2017 2018
-$6,000,000
-$4,000,000
-$2,000,000
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
-$4,710,940
$255,019
$1,884,487
-$1,400,586
$45,721
-$1,525,315
$7,429,109
-$1,559,078
$454,409
The Food Revolution Group Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities Net Cash Used in Financing Activities
As per the above figure, operating cash flows have risen considerably over the years
because of increase in receipts from the customers. However, the organisation has invested a
large amount in its PPE due to which negative balance could be seen in investing activities more
in 2018. Finally, financing cash flows have fallen drastically over the years; however, the figure
is still positive due to no payment on secured borrowings (The Food Revolution Group, 2019).
Webster Limited: