HI5020 Corporate Accounting: Issues in Cash Flow Statement Assessment Answer
|Assessment Details and Submission Guidelines|
|Unit Title||Corporate Accounting|
|Assessment Type||Group Assignment|
|Assessment Title||Issues in Cash Flow Statement|
|Purpose of the assessment (with ULO Mapping)|
This assignment aims at developing a clear understanding of students on cash flows statement and use of cash flow statement to comprehend different key business decisions taken by the management. They will have to consult relevant literature and demonstrate understanding of
key concepts. As part of their assignment, they will also conduct a minor empirical analysis on cash flow statement. (ULO 1, 2, 4, 5, 6, 7)
|Weight||30 % of the total assessments|
|Word limit||3,000 words ± 500 words|
This assignment aims at developing a clear understanding of students on cash flows statement and use of cash flow statement to comprehend different key business decisions taken by the management. They will have to consult relevant literature and demonstrate understanding of key concepts. As part of their assignment, they will also conduct a minor empirical analysis on cash flow statement.
Do the relevant research to critically examine the relative information content of income statement and statement of cash flows. Why do investors find both income statement and statement of cash flows useful?
Appendix A, B, and C contain cash-flow statements from three companies. Each cash-flow statement has Three years of data. Examine the contents of these cash-flow statements carefully. Answer the following questions about each of the three cash-flow statements.
- For each of the three years on the Statement of Cash Flows:
- What are the major sources of cash for each firm? What are the major uses of cash for each firm?
- What was the trend in cash flow from (continuing) operations for each firm?
- Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. (Answer this question using only Appendix B: Cash flow statement for BHP Limited).
- Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?
- Did the cash flow from operations cover both the capital expenditures and the dividend payments made by the firm (if any)?
- If the firm has generated excess cash from operations, how did the firm invest the excess cash? If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends?
- Did the firm use the working capital (current asset and current liability) accounts other than cash and cash equivalents as sources of cash, or uses of cash? (Answer this question using only Appendix B: Cash flow statement for BHP Limited).
- What other major items affected cash flows?
- What was the trend in capital expenditures for each firm?
- What was the trend in dividends (if any) for each firm?
- What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for each firm?
- What was the trend in working capital accounts? (Answer this question using only Appendix B: Cash flow statement for BHP Limited).
- Critically evaluate the financial strength of each of the three companies based on the evidence presented in the Statement of Cash Flows.
- If you are asked to evaluate these three companies for lending purposes, which of the three companies you will select for lending? Explain Why.
Appendix A: Funtastic Limited, Consolidated Cash Flow Statement for the year ended 30 June 2018
|Cash Flows from Operating Activities||AU$000||AU$000||AU$000|
|Receipts from customers||46,463||61,731||94,773|
|Payments to suppliers and employees||(54,777)||(60,897)||(98,145)|
|Cash (utilised)/generated from operations||(8,314)||834||(3,372)|
|Income taxes refunded/(paid)||49||(25)||(163)|
|Interest and other costs of finance paid||(1,917)||(3,559)||(3,794)|
|Net cash outflow from operating activities||(10,182)||(2,750)||(7,329)|
|Cash flows from investing activities|
|Interest and other investment income received||2||439||651|
|Payments for plant and equipment||(145)||(888)||(884)|
|Payments for other intangible assets||(281)||(540)||(325)|
|Proceeds from sale of international subsidiary||126||-||-|
|Net cash outflow from investing activities||(298)||(989)||(558)|
|Cash flows from financing activities|
|Proceeds from borrowings|
|Repayment of commercial bills||-||-||(1,000)|
|Proceeds from share issue||8,355||-||1,111|
|Costs from share issue||(438)||-||-|
|Net cash inflow from financing activities||10,547||3,647||7,568|
|Net increase/(decrease) in Cash Held||67||(92)||(319)|
|Cash and cash equivalents at the beginning of the year||664||764||904|
|Effects of exchange rate changes on the balance of cash held in foreign currencies||(13)||(8)||179|
|Cash and cash equivalents at the end of the year||718||664||764|
Appendix B: BHP Limited, Consolidated Cash Flow Statement for the year ended 30 June 2018
|Profit before taxation||14,751||11,137||1,791|
|Depreciation and amortisation expense||6,288||6,184||6,210|
|Impairments of property, plant and equipment, financial assets and intangibles||333||193||186|
|Net finance costs||1,245||1,417||1,013|
|(Profit)/loss from equity accounted investments, related impairments and expenses||(147)||(272)||2,104|
|Changes in assets and liabilities:|
|Trade and other receivables||(662)||267||1,387|
|Trade and other payables||719||512||(1,272)|
|Provisions and other assets and liabilities||7||(333)||(316)|
|Cash generated from operations||22,949||18,612||12,091|