In order to analyze the annual report the chosen organisation listed on the Australian Stock exchange (ASX) is Telstra Corporation which is the largest telecommunications business in Australia. Telstra Corporation is a media and telecommunications company in Australia that operates as well as facilitates networks of telecommunications, mobile, access to internet, markets voice, pay television and other entertainment services along with the products.
The Cash flow statement of the Telstra corporations is segregated into three categories which are namely cash from operating activities, financing activities cash and investing activities cash (Damodaran 2016). The items that are listed under the cash from operating activities are receipts from customers that amounts to $31,288m, payments to suppliers and employees -$21,179m, government grants received $235 182m, net placement of deposits by Autohome Inc. all the amounts has taken place in the financial year of 2017. It can be seen from the statement that there has been decrease in net cash outflow from $ 8133 m in year 2016 compared to $ 7775 m in year 2017. This fall in net cash flow is due to decrease in payment made to suppliers and employees and fall in the expenditure on mining interests.
Then comes the cash from investing activities is divided into three parts first includes cash out flow before investments, second deals with the various investments and the third involves the cash outflows after the investments. The first segment consists of payments from plant, property and equipment and intangible assets. The second part has the heads capital expenditures that totals to $5466m. The third segment shows a total cash outflow of $4279m in 2017 that consists of the proceeds from the sales, investment and the interests. The total cash flow from investing activities has been reduced in case of Telstra Corporation from $5926 in 2016 to $3496 in 2017. However, there has been a drastic increase in the cash flow in the financing activities. The amount increased from $3777m to $6104.it can be said that there has been more cash flow in the financing activities that deals with borrowing, repayments, share buy backs, finance cost and dividends.
The cash flow statement of Telstra Corporation ends with the cash and cash equivalents changes during the year. The net cash and cash equivalents has been decreased drastically from $3550m in 2016 to $936m in 2017.thismay be due to the increase in expenses more than the incomes. The table below in the appendix represents the individual cash flow items of the company of Telstra.
|
Particular |
2015 in $m |
2016 in $m |
2017 in $m |
|
Net cash flow from operating activities |
10,066 |
9,526 |
9,993 |
|
Net cash flow from investing activities |
-5,692 |
-4,279 |
-2,207 |
|
Net cash flow from financing activities |
-6,882 |
-6,104 |
-3,777 |
The table above represents the comparative analysis of cash flow from operating activities, financing activities and investing activities. Net cash flow from operating activities remained more or less constant in the last three years. However, it declined from year 2015 from $10,066 to $9,526 and $9,993 in year 2016 and 2017. There was net cash flow used in financing activities in year 2017 at amount -$3,777compared to -$ 6,882 in year 2015. On other hand, from investing activities, there was increase in cash flow to -$ 2,207 in year 2017 as against -$5,692 in 2015.
The items listed under the comprehensive income statement involves profit from continuing and discontinuing activities that involves income from equity shareholders and the non-controlling interest (Brooks 2015). Then it consists of the like the retained earnings, fair value of equity of instrument reserve and foreign currency translation reserve. All this incomes does not be again classified into the income statement. The comprehensive income statement is followed by the items that may be classified to the income statement that includes cash flow hedging reserve and foreign currency basis spread reserve (Reid & Myddelton, 2017). The total of the comprehensive income or profit has been decreased from 2016 that was $5627 to $3881 in 2017.
The total amount of profit resulting from continuing operations before income tax for year 2017 stood at $ 3874m as against $ 5849 in year 2016. Total amount of revenue for year 2017 is recorded at $ 3902 as against $ 5570 in year 2016. The loss is attributable to the fact that total amount of expenses is exceeding total amount of revenue that has been earned in both the reporting period.
Furthermore, no income tax is recorded in both the years and the total comprehensive loss attributable to the owners of Telstra was at $21m in year 2017 as against profit of $57. Items under other comprehensive loss involve exchange differences on translation of foreign operations and items that are subsequently reclassified into profits. The reason for decline in total amount of comprehensive loss is due to lower amount of comprehensive income net of tax for year 2018 (Robinson & Sensoy, 2016).
Comprehensive income statement is used to measure any change in interest of owners in business. It incorporates the income and expenses that have not been yet realized and it is used for bypassing the income statement (Chen, Feldmann & Tang 2015). Other comprehensive income takes into account items such as losses and gains from derivative instruments, debt security on unrealized losses and gains, adjustments in foreign currency transactions and retirement plans or any pension losses or gains
The effective rate of income tax 31.4 per cent in 2017 and in 2016 it was 23.5 per cent. The tax was calculated as expense of income tax divided by profit before income tax expense from discontinued and continuing operations. The continuing operations effective tax rate for 2016 was 31.6 per cent. In 2016, discontinued operations included the gain on disposal of Auto home on which there was no tax payable as the corresponding capital gain for tax purposes was reduced to nil after capital losses were applied.
Non-deductible items and non-taxable and in the current period include from the section 2.4 of the income statement areas follows:
Therefore, it can be identified that, the income tax for the period has been in changed from -$83 in 2016 to $18 in 2017.
Income tax amount is computed using the tax rates that have been enacted considerably by the financial position statement. In both the financial year, Telstra have generated comprehensive income of amount from 2016 that was $5627 to $3881 in 2017. Therefore, it cannot be evaluated whether the figures of income tax expenses re same as the tax rate times the accounting income.
The Deferred tax is accounted using the method of balance sheet liability resulting from temporary differences between the tax bases of liabilities and assets and their carrying amount in the financial statements (Delkhosh et al., 2017). The initial recognition of liabilities and assets does not lead to recognition of deferred income tax and this does not have any impact on accounting or taxable loss or profit. Recognition of deferred tax assets are done to the extent that the availability of future taxable profits is probable against the temporary differences that are deductible. In current year, there has been deferred tax liabilities is $ 1,539m in 2017 and $1493 in 2016.
In the chosen company of Telstra the income tax assets amounts to $44 m in 2017 and $ 54 in 2016. There has also been income tax payable identified in the balance sheet that amounts to $161m in 2017 from $176m in the year of 2016.
The Income tax expenses is the amount that is calculated based on the standard accounting rules and on the amount of tax that is owed by company to tax authorities. Income tax payable is the amount that the entity owes in terms of tax based on rules of tax code (Grant, 2016). Until the company makes the payment of tax, the amount of income tax payable appears on the balance sheet liability section.
The income tax expense shown in the income statement is not same as the income tax paid shown in the cash flow statement which is $1,751m in 2017 that have been reduced from $1,860m. The Income tax payments includes the impact of income tax of certain loss or gain relating to financing or investing activities so that after tax cash flow is reflected in the subtotals of net cash flow (Almamy, Aston & Ngwa, 2016). On other hand Income tax expense is the amount that represents the recording of income tax costs. Income tax payable is the liability account that helps in recording of the income tax amount that is owed by organization but is yet to be paid. Income tax expenses on other hand represent the amount that is incurred rather than being paid.
From the annual report analysis of the Australian company of Telstra, it has been identified that charge for current income tax is made on the basis of the adjusted profits that are attributable for any disallowed or non-assessable items. Computation of income tax expense is not done by using the applicable tax rate as provided by the standard accounting taxation rule that is 30% instead of that in both the years it has been taken as 31.4 per cent in 2017 and in 2016 it was 23.5 per cent. In addition to this, the notes to financial statements present the numerical reconciliation of the income tax expense to tax payable prima facie (Gordon, et al., 2017). Such reconciliation provides users with items involved in the computation of such income tax expense. Therefore, the interesting part in relation to realization of income tax expenses are the reconciliation of temporary differences and any amount of net loss after income tax(Scholes, 2015).
References
Almamy, J., Aston, J., & Ngwa, L. N. (2016). An evaluation of Altman’s Z-score using cash flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK. Journal of Corporate Finance, 36, 278-285.
Brooks, R. (2015). Financial management: core concepts. Pearson.
Chen, L., Feldmann, A., & Tang, O. (2015). The relationship between disclosures of corporate social performance and financial performance: Evidences from GRI reports in manufacturing industry. International Journal of Production Economics, 170, 445-456.
Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
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Gordon, E. A., Henry, E., Jorgensen, B. N., & Linthicum, C. L. (2017). Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), 839-872.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
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Najmi, M., Sarraf, F., & Darabi, R. (2015). Relationship between Capital Structure, Free Cash Flow and Performance in Companies Listed on Tehran Stock Exchange. European Online Journal of Natural and Social Sciences: Proceedings, 4(1 (s)), pp-1229.
Reid, W., & Myddelton, D. R. (2017). The meaning of company accounts. Routledge.
Robinson, D. T., & Sensoy, B. A. (2016). Cyclicality, performance measurement, and cash flow liquidity in private equity. Journal of Financial Economics, 122(3), 521-543.
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