Financial Statements Analysis Of Galaxy Resources Limited

Cash flow statement changes

In this assignment the financial statements of galaxy resources limited has been discussed and important matters is analysed and presented. There are various elements in the financial statements the users do not have follow knowledge of that, so they need expert help who can guide them and tell them who needs what. In this case also the experts have extracted certain elements from the financial statements and have presented it in a brief manner so that users can relate to it and can decide whether they want to invest in the company or not. The cash flow statement and other items that might affect the financial position of the company has been extracted and presented below. Formulas and judgement has been applied to reach to a conclusion on whether the management should invest in this company or not. Galaxy resource Limited is an Australian company that works in the mining industry and is also present in the ASX list of top 100 companies (Alexander, 2016). The overall revenue of the company runs into millions and the stocks of the company are listed in the Australian Stock Exchange. It begun its operations in 2009 and has been operating since then. The financials of the company have been extracted and analysed below, with proper recommendations and conclusion being given below

Effect from Changes and Comparative analysis of the cash flow of Galaxy Resources Limited are discussed below: –

There are following changes in cash flow since last year 2016: –

Receipt from customer increase in 2017 because revenue increases of the company will rise. Further profit of last year 2016 is very high in compare to profit in 2017 but there are various changes which result the increase in income of cash flow from operating activity of the company. Item that effect the cash flow is Depreciation and amortisation, Impairment reversal, Share-based payments, Profit on sale of those assets which are available for sale, Transaction costs on acquisition of company, Net inventory movement, Deferred tax on available for sale assets, Deferred income to investing activities, Adjustment to rehabilitation provision, Change in Debtor and other receivables in two years, Change in value of  Creditors and other payable, Change in value of inventories, Change in value of prepayments, Change in amount of provisions and employee benefits, and Difference  in deferred tax assets of the company. Further what amount of changes made is already mentioned in above table of Cash flow from operating activities. Cash flow will increase to $57087000 in the year 2017 because of change in above item during the year of the company.

Income from investing activities

Income from investing activities of  Galaxy Resources Limited in the year 2017 net outflow from investing activity will increase to ($35154000)  due to increase in  interest received, Sales proceeds from pre-production and Proceeds from sale of other non-current asset during this year. And also increase in outflow of Payments for property, plant and equipment, Proceeds/(payment) for sale of assets which are available for sale and any Payments for revaluation of assets. These items will result to increase the net outflow from last year 2016.

Cash flow from financing Activity will increase in the year 2017 due to changes in following item. Like: – change in value of Net proceeds from issue of shares, Transaction costs on issue of share, Amount of Bank charges paid, Amount of withholding tax paid and interest paid, Proceeds from borrowings, Repayments of borrowings, Transaction costs related to loans and borrowings and Effect of foreign exchange rate changes. These items will result to increase the cash flow from financing activity in the year 2017 amounting to $ 59743000.

Further apart from the above item cash and cash equivalent will also increase in the year 2017. This is also factoring to change in cash flow activity of the company. Increase in cash flow means Galaxy Resources Limited will have more Liquid cash in hand to run the day to day operation of the company.

Other comprehensive income statement of Galaxy Resources Limited

There are following item which reported under other comprehensive income statement

• Profit or loss Foreign Currency Transaction which arise due to change in price of the currency – foreign operations
• Revaluation of available for sale financial assets
• Income tax relating to sale of those assets which are available for sale
• Change in fair value of assets and liability
• Revaluation of Fixed assets
• Revaluation of financial instrument
• Retirement Benefits
• Actuary gain
• Actuary loss
• Pension prior period service cost or credit(Goldmann, 2016).

Other comprehensive income statement is providing an overview of company’s financial statements in a more comprehensive way, which helps to understand the current financial position of the company very easily.

Item which may be reclassified during the year is mentioned in the other comprehensive income statement. These items are classified in other comprehensive income statement of the company because this is not a part of normal income statement. Further Reporting of such item in (OCI) other comprehensive income is provided by the (IFRS) international financial reporting Standards. Treatment of the entire above items is done provided as

the manner prescribed by international financial reporting Standards. Further reclassification of assets and liabilities are done from fair value change through Other comprehensive income to fair value through Profit and Loss account are consider in OCI of the company. There are 3 methods through which we can done the accounting the method is Fair value change through profit and loss account method, Fair value change through other comprehensive income and Amortisation method is followed to value any change in financial instrument, Such revaluation recorded in other comprehensive income statement of the company (Alexander, 2016).

Cash flow from financing activity

Other comprehensive income statement of company includes revenues, expenses, gains, and losses which are prescribed under the Generally Accepted Accounting Principles and International Financial Reporting Standards.  Other comprehensive incomes   are not a part of normal income of the company. Normal income is different from other comprehensive income statement. Further Revenues, expenses, gains and losses appear in other comprehensive income which is not realized yet. Further some are realized when the underlying transaction has been completed. For example, if a company has invested in Security, and the value of such Security changes, then we recognize the difference of such Security as a gain or loss and recorded in other comprehensive income. At the time of selling of such security, company earn profit or loss from such security, and then company record above gain or loss which arises on sale of security is recorded in other comprehensive income. Further we consider the treatment which is prescribe by (Belton, 2017)

International financial reporting Standards we do not consider the above item in Normal income statement of the company.

The tax expenses of Galaxy Resources Limited is as per the latest financial expenses is ($5999000).

Further Income tax relating to revaluation of those assets which are available for sale of Galaxy Resources Limited is ($5070000)

No, Amount of income tax of company and rate of income tax charged on company are not same. A reconciliation of income tax benefit applicable to accounting profit/(loss) before income tax at the statutory income tax rate to income tax expense at the Group’s effective income tax rate for the years ended 31 December 2017 and 31 December 2016 is as follows:

Particulars			2017	2016
			$’000	$’000
Accounting profit before income tax			6165	58020
At the statutory income tax rate of @ 30% (2016:30%)			-1849	-17406
Deductible balancing adjustment/(non-deductible expenses)			-3930	3222
Tax effect on temporary differences brought to account			-507	18382
Tax losses brought to account as a deferred tax asset			–	-63081
Utilisation of deferred tax asset previously recognised			434	–
Non-assessable income			356	–
Under provision in prior year			-503	-2593
Income tax (expense)/benefit			-5999	64686

Note;- The statutory tax rate applicable to the Company and the Australian subsidiary was 30% during 2017and 2016. No provision for Australian taxation was made during the Relevant Period for the Company and the Australian subsidiaries (Bromwich & Scapens, 2016).

Deferred tax Assets of the Galaxy Resources Limited is $64686000 and $53619000 of the year 2016 and 2017 respectively. A Deferred Tax Asset is an asset on a company that may be used for better compliance in the company. Deferred Tax Asset is offset with the deferred tax liability. Both are recorded under the balance sheet’s Current Assets and current liability. When income taxes payable is higher than the Actual income taxes paid to the government, deferred tax asset is created (Farmer, 2018).

There is following reasons why deferred tax assets are created:

• When Revenues are recognized in one period for tax purposes are different from revenue are recorded for accounting purposes. 
• When assets have a different tax base for the purpose of income tax and for the purpose of accounting than deferred tax assets is recorded in the books. 
• When The Company paid excess tax, and refund is taken in future.
• When Losses or expenses are recognized in the income statement but which are not recognising by respective tax authority than differed tax is created(Chron, 2017).
• Further Deferred tax is reported in the balance sheet because it is  a reporting requirement of both Generally Accepted Accounting Principlesand International Financial Reporting Standards. 

 Yes the current income tax payable of Galaxy Resources Limited is ($17406000) and ($1849000) for the year 2016 and 2017 respectively. Income tax payable are not the income tax expenses of the company because income tax payable is an amount which is charged on profit as per the applicable tax rate on the company, but the income tax actually paid are not same because we should consider the differed tax before making the payment of tax to the government. After taking the effect of differed tax whatever amount is left such amount is income tax expenses of the company. This is the reason the income tax expenses and income tax payable are not same of any company. Income tax is a amount what company owes in tax based on standard business accounting rule (Das, 2017).

Other comprehensive income statement

No, Income tax expenses which appear in income statement are different from cash flow’s tax amount. Because the income tax expense which shown in income statement are the actual tax amount which is payable by the company, the income tax expenses which reflect in cash flow statement are the Actual tax amount which is paid by the company to the government during the year. In cash flow we record the actual outflow of cash which is paid as a tax expenses (Heminway, 2017). Further In cash flow statement we record the actual change of deferred tax during the year. Further Accounting method followed by the company when reporting financial results are often different from the method that followed for calculation of income taxes for the company, As a result, the amount of tax calculated “should” pay based on its reported profit will be different from its actual income tax expense. This disparity shows up in company’s financial statements as a difference between “income tax expense” and “income tax payable (Kuhn & Morris, 2016).”

Calculation of Statutory tax dues as per the applicable tax rate and calculation of deferred tax assets of company find interesting. Further tax treatment of Income tax relating to revaluation of available-for-sale financial assets asset in the company is finding confusing and difficult to calculated and record in the books. The new insights of recording the tax expenses that company can reconcile the whole tax liability which is payable from the last year tax payable. The detailed reconciliation statement is discussed above in point no. 7 (Kangarluie & Aalizadeh, 2017).

Conclusion.

The overall analysis of the annual report is presented below, with all the elements being presented above. Important calculations have been given and proper analysis has been given. The users can depend on it to take important decisions regarding the company and its financials.

References

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.

Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.

Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: https://smallbusiness.chron.com/five-common-features-internal-control-system-business-430.html
[Accessed 07 december 2017].

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets – A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, pp. 1-12.

Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.

Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.

Kangarluie, S. & Aalizadeh, A., 2017. ‘The expectation gap in auditing. Accounting, 3(1), pp. 19-22.

Kuhn, J. & Morris, B., 2016. IT internal control weaknesses and the market value of firms. Journal of Enterprise Information Management, 30(6).