The manager has selected two different organizations to understand in a better manner to evaluate the form of corporate accounting. The provider of Healthcare in Australia, U.K is RHC Ramsay Health Care which was established in 1964 in Australia. It practices in psychiatric, rehabilitation, surgery, etc. SHL Sonic Healthcare Limited, has become the biggest diagnostic company which is spread in different areas. It specializes in radiology, imaging, laboratory medicine, pathology and gained a turn over revenue of $5,122 million in year 2017. It deals with the different concepts to obtain the current position of organizations, when needed. They also analyse the ratio of equity and debt to identify the statements of income for obtaining the amount of expense and income and in respect of owners. A lot better position of the company can be gained if the balance sheets depict the similar amount of assets and liabilities. Then it can be recognized among all other organizations. Healthcare can lead to its objective if all these accounts can be maintained in proper and systematic manner. This will lead the organization to a good level of respect.
Owner Equity can be explained as the difference among the assets of the company and its liabilities. It shows the owner’s investment in the business minus the withdrawals made by the owner in the business plus the net worth of the owner. It will be covered under a separate head in the balance sheet. There are different items that can be recorded under the equity in Sonic health care limited and Ramsay Health care (Ramsay Healthcare limited, 2017).
|
Treasury shares |
Convertible Adjustable Rate Equity Securities |
Retained Earnings |
Reserves |
Non-controlling Interests |
Minority Interest |
Contributed Equity |
Parent company Interest |
|
The concerned business orgaaization habvebought back in previous year. |
These shares are converted into stock at a price at the time of issuance of stock. These are the security whose rate of interest is tied to security rates. |
It can be found by subtracting the liabilities from assets and the remaining portion is equity(Ramsay Healthcare limited, 2017). |
It is the profit gain which is kept aside for the specific purpose. Also, it can be used to purchase the assets and to pay the bonus, debts etc. |
It can be termed as the minority interest in which stakeholders owns the lesser amount of shares that is 50% and they do not have the power to make decisions(Ramsay Healthcare limited, 2017). |
It is a part of the subsidiary corporations which cannot be owned by the parent firms. |
It consists of cash and assets which can be given by stakeholders in exchange for stock (Ramsay Healthcare limited, 2017). |
It is the company which control the operations and also has control over interest in different companies. |
This question helps in clarifying the theory of debt and equity in health care limited. The debt means the money that can be owed by one party to second party (Ramsay Healthcare limited, 2017). On the other hand, after observing the financial records the equity can be declared as the source of a firm’s assets and it can be introduced as the book value as it is equal to the assets minus liabilities.
It can be observed that the Sonic Health care Limited, raised the amount of equity to $3926130 in 2017 from $3732709 in 2016 which there is an increase in equity which denotes the profit gains of organizations (Sonic Healthcare Limited, 2016). The owners equity of the company in year 2015 was 3325998 which is raised to 3732709 in 2016. The main contribution in the increase was retained earnings of $871612 and issue of new equity of $150674 (SHL, 2017). On the other part, the liabilities becomes more as compare to the previous year. This reveals the meaning that they have taken loans to which they have to pay in future (McCabe, 2018). The owners equity of the company consists of contributed equity, reserves, retained earnings and minority interests.
In relation to Ramsay Healthcare limited has the equity of $1837794 in year 2015 which is raised to 2046061 in year 2016. Again, there is an increase in the equity results to $2358686 in year 2017 which concludes to the point that there is an ascending trend in equity which implies a good source of finance in organisations (Ramsay Healthcare limited, 2017). The company has not issues any shares during the year indicate the increase in the share capital due to the retained earnings and non-controlling interests. In the other part, the liability shows the descending trend which is 6195421 in 2016 to 5976675 in 2017. This depicts the fact that there is less liability they have to pay a lesser amount (Ramsay Healthcare limited, 2017). It is also identified that there is no change in the issued capital and Convertible Adjustable Rate Equity Securities (CARES) during the period of evaluation (RHC, 2016).
The statements of cash flow includes all the financial statements that allows the data in relation to the cash inflows which can be received from operations and investments and cash outflows which can be paid by owners in the aspect of activities(Ramsay Healthcare limited, 2017). It reports the cash which is spent and the cash generated for a specific period of time.
|
Activities |
Description |
|
Investing activities |
It consists the amount of interest that can be received by owner, acquisition of a business in terms of cash. This activity reports the aggregate change in the firm position of cash that can be resulted from the losses and gains and includes the amount that can be spend on the investments(Ramsay Healthcare limited, 2017). The investing activities of RHC include purchase of disposal of property, plant or equipment, proceeds from sale of property and plant. The other contributing areas are proceeds from sale of assets, interest received, and acquisition of business and deferred payments in investments. The investing activities in sonic healthcare limited were almost same some of the additional activities performed by the company were payments of investments, payments of intangibles and repayments of loan by other entities (RHC, 2016). |
|
Operating Activities |
It consists the items that arise in the normal business operations. As such, it includes receipts from clients, payments to suppliers, along with other items such as payment of interest rate and finance cost. Basically, these are the functions of an organization which are related to services and products to market. |
|
Financing activities |
It includes all activities that are related to financial activities (Sonic Healthcare Limited, 2016). The financing activities of SHL includes proceeds from the issue of shares, proceeds from borrowings and its repayments, non-controlling interest transactions and dividends paid to shareholders and minority interest in subsidiaries (SHL, 2017). |
This question allows to analyse the comparison between different activities in the terms of business profit and to understand meaning of the same. It can be given in the tabular form:
In Sonic Healthcare Limited, it can be determined that there is an ascending drift in operating income which concludes that they manufacture a different range of medicines in relation to different disease (Sonic Healthcare Limited, 2016). There is a descending trend in investing activity which explains that they are investing lesser in medicines and also raises lesser amount from different sources. While analysing the cash flow statement of the company, it is identified that major contribution is due to receipts from customers amounting $8643216 where as the payments to employees and suppliers amounting to 7432025 in year 2017. In addition to this, the investing activities indicate as decline in the cash outflow by 311951. There is no sale of property, plant or equipment in this year where as sales of other assets resulted to an inflow of 59729 (SHL, 2017). The main reason for fluctuation the acquisition of business and net cash received which lead to out flow of 213718 in 2016 and just 24698 in year 2017 (SHL, 2017). The financing activities also indicates an increase due to increase in hospital infrastructure payments reimbursed amounting 27746, proceeds from borrowings amounting 1063516 as the same time company has also made a repayment of borrowings 1090962.
The above mentioned table contents illustrates the deviation in different activities such as in Ramsay Healthcare Limited there is a descending trend in the operating activities as compared to previous years. This explains that they did not manufacture the medicines and pharmaceuticals up to mark which was required as per the demands of the market (Ramsay Healthcare limited, 2017). It also reveals the decrease in trend of the financing activity which means they raise less source of income. For the case of investing activities, they invested lesser as compared to the past years. As per the analysis of the cash flow position of the company, the operating activities in 2017 includes an increase in the receipts from customers $5219266 from year 2016 which is $5082370. There is a payment to the employees and suppliers amounting $4322565. On the other hand, investing activities indicates lower expense in payments of purchase of controlled entities from 475257 in year 2016 to 267871 in 2017 (Ramsay Healthcare limited, 2017). The proceeds from sale of non-current assets is also declined indicating less outflows $8193. The financing activities of the company indicate issue of shares amounting $27991 in2017. The proceeds from borrowings lead to increase the borrowings by $1508101. At the same time the company also made a repayment of $1179868 and paid dividends of 275775 (Ramsay Healthcare limited, 2017). This is the reason the cash inflows from financing activities has declined in year 2017 to 88558 from 131849 in 2016.
The Health care Limited records certain things in the intensive pay announcements as they are undiscovered in the current budgetary years. It consolidates certain things, for instance, incident or gain on benefits outlines that is the assortment in among the annuity portions and that are made by the business (Ramsay Healthcare limited, 2017). Remote money elucidation can be used to change over the after effect of parent associations outside assistants to its enumerating cash (Ramsay Healthcare restricted, 2017). Income supports can be credited to a specific risk with assets and liabilities. This is recorded by Ramsay Healthcare obliged. The other Healthcare organizations records the Exchange differentiates on translation of operations which are related to foreign, mishaps on retirement advantage duties.
Besides statement of profit and loss, the financial statements also cover the comprehensive income statement. The items covered in the comprehensive income statement primarily include costs, livelihoods along with other items that will be affected or influenced by the estimation or prediction. This particular segment has specific format and item covered in this statement are not mentioned anywhere. (Ramsay Healthcare limited, 2017).
The analysis of the comprehensive income statement depicts decline in the items reclassified to net profit from 5528 to (2091) indicating as negative change of 7547 during the period of 2016-2017. There is gain in cash flow hedges amounting to 26913 in 2017. There was loss of $54747 in year 2016. The company is facing losses in foreign currency transaction amounting to 14825 and $12138 in year 2016 and 2017 respectively.
In the Sonic Health care Limited it has been seen that the sum has been diminished in the extensive salary articulation which demonstrates that the benefit of the association is diminishing and the piece of the pie is additionally lessening (Sonic Healthcare Limited, 2016). In the case of Ramsay Health Care Limited there is by all accounts the varieties between the genuine sum and the sum which demonstrates the decrease in patterns (Ramsay Healthcare restricted, 2017). Yet, it has been seen that there is the addition in the measure of the data so it is said that the responsibility and additionally the straightforwardness inside the association is likewise expanding.
Yes, it can be said that the other comprehensive income statement will be included while analyzing the performance of the managers in the organization. This is due to the reason that it will enable in understanding the various concepts and aspects related to various concepts and the other strategies(Ramsay Healthcare limited, 2017). With this it also shows the changes in the equity which in turn will increase effectiveness as well as efficiency so the overall performance of the managers as well as the organizations can be increased.
What are the tax expenses shown in the latest financial statements of the two companies that you have selected?
The expenses are the expenses which are recorded in the income statement. It can be defined as the tax amount which is owned in the current financial year by the organization.
In case of Ramsay Health Care Limited the amount which is recorded of the tax expenses in the current financial year 2017 is ($198669). This amount will also have to be paid to the investors as well as the contractors in the form of liability. In Sonic Healthcare Limited the amount which is of the tax expense is ($133323)(Ramsay Healthcare limited, 2017). This is the amount of both the organizations which is to be paid by them in the form of debts(Ramsay Healthcare limited, 2017).
These are the expenses which are treated as the income for the organizations due to the reason that they helps in increasing revenues for the organization which in turn increases the overall profitability of organization and thus helps in achieving growth and success. These also enable in maintaining accountability as well as the transparency within the organizational systems so that the success of the overall organization can be achieved four future growth and endeavours.
Calculate the effective tax rate for both companies that you have selected. Which one of the companies has the higher effective tax rate?
Effective tax rate is that tax rate at which the amount of income tax is paid to the income tax authorities. Thus, it may be lower or higher than that of actual tax rate prevalent at that time (Sonic Healthcare Limited, 2016).
Effective tax rate for Ramsay Healthcare Limited
|
Particulars |
Amount (in $ Million) |
|
Income tax expense (a) |
(198,669) |
|
EBT (Profit before tax) (b) |
883053 |
|
Effective tax rate (c) = (a)/(b) *100 |
22.4% |
Effective tax rate for Sonic Healthcare limited
|
Particulars |
Amount $ Million |
|
Income tax expense |
133323 |
|
EBT |
575743 |
|
Effective tax rate |
23.15% |
Interpretation:
It can be observed that effective tax rate of Sonic Healthcare Limited is higher than that of Ramsay Healthcare Limited. Also, another interesting thing to note that effective tax rate of both the organizations is lower than that of actual corporate tax rate i.e., 30%(Ramsay Healthcare limited, 2017).
The above financial data has been taken from the financial statements of both these organizations of same financial years, i.e., 2017 and 2016. Both the companies contain deferred tax assets along with deferred tax liabilities. Besides, both these business enterprises record deferred tax expenses on account of temporary differences. It can be observed that deferred tax assets as well as liabilities of Ramsay Healthcare Limited and Sonic Healthcare Limited have increased in the financial year 2017 as compared to its previous year 2016. Also, both the companies follow the same concept in relation to recording of deferred tax expenses (covering both deferred tax assets and deferred tax liabilities) (Edwards, 2017).
Was there any increase or decrease in the deferred tax assets or in the deferred tax liability reported by each of your selected companies?
Comparing deferred tax expense is of utmost importance as it helps to determine the income tax expense. This is because income tax expense is adjusted to current tax expense so that income tax expense can be determined. It can be observed that deferred tax expense of Ramsay Healthcare Limited has increased from 8241,482 to 8335,361(Ramsay Healthcare limited, 2017). On the other hand, deferred tax liability has increased from 2046,061 to 2358,686. In the same manner, deferred tax assets of Sonic Healthcare Limited have increased from 7370,619 to 7878,615. Similarly, deferred tax liability has increased from 3732,709 to 3926,130(Sonic Healthcare Limited, 2016).
Please calculate the cash tax amount for both companies using the book tax amount, changes in the deferred tax assets and deferred tax liability.
Cash tax amount indicates the amount that has been paid in cash to the appropriate income tax authority. In the given case, the income tax expenses as depicted in the financial statements are same and akin to cash tax amount (Ramsay Healthcare limited, 2017). This happens because there are non-cash adjustments for income tax expense or provision apart from deferred tax expense.
The measure of the money assess is spoken to as the duty paid by the association and is accounted for under the working exercises segment of the income articulation. Comparative exhibits the cash survey proportion of paid by the organization at any rate the book charge aggregate has been as point by point in the declaration of advantage and mishap(Ramsay Healthcare limited, 2017). There has been a qualification of in both the totals and thusly the same are presented freely.
This is the sum which is spoken to by the organization in income articulation of the association and the salary assess discounts are additionally given to the association. Along these lines, the sum which is charge paid is $2.5 million and the discount sum is $10.1 in the budgetary year 2017.
Calculate the cash tax rate for both companies. Which company has higher cash tax rate?
Determination of cash tax rate of Ramsay Healthcare limited
|
Particulars |
Amount ($) million |
|
Cash tax amount |
(198,669) |
|
EBT |
883053 |
|
Cash tax rate |
22.4% |
Cash tax rate for Sonic Healthcare Limited
|
Particulars |
Amount ($) million |
|
Cash tax amount |
133323 |
|
EBT |
575743 |
|
Cash tax rate |
23.15% |
It can be observed that cash tax rate of both the business organizations differ from each other. Thus, while cash tax rate of Sonic Healthcare Limited is 23.15%, Ramsay Healthcare Limited is only 22.4%. Accordingly, cash tax rate of Ramsay Healthcare Limited is slightly higher than that of Sonic Healthcare Limited.
Why is the cash tax rate different from the book tax rate?
To understand the difference between cash tax rate and book tax rate, it is imperative to understand the concept of both these rates. Book tax rate is applied to book income or income computed as per accounting concepts. On the other hand, cash tax rate is applied on taxable income computed as per the income tax provisions (Ramsay Healthcare limited, 2017). Thus, book tax rate helps to determine the tax liability for which income tax provision needs to be prepared. But, cash tax rate helps to determine the tax rate that needs to be paid adjusted for any deferred tax expense. Accordingly, cash tax rate and book tax rate will never be same and akin.
Conclusion
The above report helps us to analyse the theory of corporate accounting. It is a compulsion for the manager to adapt the better policies and standards for the better regulation of operations and functions in the organization. By the help of a balancedsheet, they would be able to discuss the financial performance of the organisation with their assets and liabilities. They can maintain their transparency and consistency in organizations by maintaining the proper accounts. The income statement stands for the items of revenues and expenses and also verifies their existence. All this information helps to make the decisions and also helps in regulating the standards which are adapted in the healthcare organizations.
References
Ball, R., Gerakos, J., Linnainmaa, J.T. and Nikolaev, V., (2016) Accruals, cash flows, and operating profitability in the cross section of stock returns. Journal of Financial Economics, 121(1), pp.28-45.
Drake, K. D., Engel, E., & Martin, M. (2018) Money for nothing? Using Expectations of Loss Persistence to Examine CEO Cash Compensation in Loss-Making Firms.
Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., (2017) Changes in corporate effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), pp.441-463.
Edwards, A. (2017) The deferred tax asset valuation allowance and firm creditworthiness. The Journal of the American Taxation Association, 40(1), PP. 57-80.
Evers, L., Miller, H. and Spengel, C., (2015) Intellectual property box regimes: effective tax rates and tax policy considerations. International Tax and Public Finance, 22(3), pp.502-530.
Kim, J. H., & Im, C. C. (2017) The study on the effect and determinants of small-and medium-sized entities conducting tax avoidance. Journal of Applied Business Research, 33(2), PP. 375.
Lewellen, J. and Lewellen, K., (2016) Investment and cash flow: New evidence, Journal of Financial and Quantitative Analysis, 51(4), pp.1135-1164.
Ramsay Healthcare limited, (2017) Annual report. [Online]. Available at: https://www.ramsayhealth.com/common/emag/rhc/annualreport2017/pubData/source/RHCAR2017.pdf [Accessed: 24 September 2018]
Ramsay Healthcare limited, (2017) Annual report. [Online]. Ramsay Healthcare limited. (Available at: https://www.ramsayhealth.com/common/emag/rhc/annualreport2017/pubData/source/RHCAR2017.pdf [Accessed: 24 September 2018]
RHC (2016) Annual Report 2016. [Online]. Available at: https://www.ramsayhealth.com/common/emag/rhc/annualreport2016/pubData/source/RHC-Annual-Report-2016.pdf [Accessed: 1 October 2018].
Sheets, N.C.B. (2018) Non-consolidated Financial Statements. Policy, 2017.
Sheets, N.C.B. (2018) Non-consolidated Financial Statements. Policy, 2017.
SHL (2017) Concise Annual report 2017. [Online]. Available at: https://investors.sonichealthcare.com/FormBuilder/_Resource/_module/T8Ln_c4ibUqyFnnNe9zNRA/docs/Reports/AR/sonic-healthcare-limited-2017-annual-report-online.pdf [Accessed: 1 October 2018].
Sonic Healthcare Limited, (2016) Annual report. [Online]. Available at: https://investors.sonichealthcare.com/FormBuilder/_Resource/_module/T8Ln_c4ibUqyFnnNe9zNRA/docs/Announcements/3042/annual-report-2016-updated-for-website-october-2016.pdf [Accessed: 24 September 2018]
Sonic Healthcare Limited, (2016) Annual report. [Online]. Sonic Healthcare Limited Available at: https://investors.sonichealthcare.com/FormBuilder/_Resource/_module/T8Ln_c4ibUqyFnnNe9zNRA/docs/Announcements/3042/annual-report-2016-updated-for-website-october-2016.pdf [Accessed: 24 September 2018]
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