The most significant aim of this particular assignment is to analyse in detail the annual report of a company and provide comparative analysis on the cash flow statement for the 3 year period from FY2015 to FY2017. The student then analyse the other comprehensive income aspect of the company, the various particulars included in the OCI of the annual report and last part is to perform a detailed analysis on the corporate income tax paid by the company. The organisation which is considered for the analysis is MYOB, a primary software solutions company which is involved in offering software solutions to the small and medium sized enterprises on the various area which includes taxation, accounting system, payroll maintenance etc. The company main clients are the small and medium sized enterprises which are located in Australia, New Zealand and other Asian countries. The company offers solutions to its clients through cloud computing and other software soutions like MYOB Advanaced module, Payroll MYOB, Direct Pay. The company also offers various other services like taxation filing, payroll management of the employees, GST computation, and record management system of key financial and non-financial information.
Basically, cash flow statement is regarded as a complete account of changes in the balance sheet and income statement. In this case, attention is primarily focused on money in these sectors. Cash flow statement can be categorized into cash flow from investing activities, cash flow from operations and cash flow from financial activities. The main aim of the statement of cash flow is to give more information on the total payments and revenues over a given time period which is usually one financial year. Cash flow statement helps the business in understanding the business total liquidity, evaluates time to time solvency and forecasts future cash flows.
In this case, the most significant elements of the statement of cash flow are mostly based on the accounting abilities that the business has to define when comparing costs and revenues. It is important to note that the statement of cash flow encompasses only the funds and resources that were released. Generally, statement of cash flow disregard an operation that are not in monetary form. From the critical analysis of cash flow statement of MYOB it is noted that the cash flow from the beginning of the period were 61,434,000 in FY2017 but in the year FY2016 it stood at 36,384,000 and 5,044,000 in FY2015. This shows that the cash flow of the business is consistently increasing over the period of time.
Cash flow analysis of based on the operating activities
From the annual report of the company it is noted that the net cash flow based on the operating process was 97,860,000 in FY2015 whereas it was 145,833,000 in FY2016 and it has grown to 163,919,000 in 2017. This shows that the business has grown to a larger extent in the past three years. The cash receipts of the company were at 362,211,000 in 2015, but this has significantly increased to 406,711,000 in FY2016 and 414,224,000 in FY2017. Similarly the payments to the suppliers and others has been made to a level of 213,879,000 in FY2015, and this has increased to 246,153,000 in FY2016 but due to continuous effort of the management the expenses has been reduced to 233,781,000 in FY2017. The net cash flow from the operating activities were at 97,860,000 in 2015, increased significantly in FY2016 and stood at 145,833,000 in FY2016 and increased even further to 163,919,000 in FY2017.
|
2015 |
2016 |
2017 |
|
|
Net cash flow from the company operating activities |
AU$97,860 |
AU$145,833 |
AUD163,919 |
Analysis of investment activities of MYOB: This section is mainly involved in understanding the various investment activities which has been carried out by the company during the period FY2015 to FY2017. The firm made a major investment in creating new product development in FY2015 for this purpose 13,822,000 has been invested in FY2015, whereas in FY2016 the new product development was capitalised to a level of 26,879,000 in FY2016 and this has increased to 35,288,000 in FY2017. Furthermore the company paid 13,160,000 in FY2015 for the purchase of new company, whereas in FY2016 the purchase of new companies was 22,820,000 and in FY2017 the value of investment was at 47,545,000 in FY2017.
The overall investment made by the company in the year FY2015 was 54,605,000, whereas in the year FY2016 it was around 59,031,000 but in FY2017 the investment has increased significantly and was around 101,680,000.
|
2015 |
2016 |
2017 |
|
|
Net cash flow from company investment activities |
AU$54,605 |
AU$59,031 |
AU$101,680 |
Analysis of financing sources of the company: Based on the annual reports of the company, it is identified that the company raised the capital through the issue of shares at 828,062,000 in FY2015, whereas the proceeds generated through the treasury shares were at 3,456,000 in FY2017. The company made a repayment of borrowing 1,048,176,000 in FY2015, however the repayment of financial liabilities were 410,000 in FY2017. The overall financing aspects of the company were at -11,878,000 in FY2015, whereas it reduced to -62,453,000 in FY2016 and -69,525,000 in FY2017.
|
2015 |
2016 |
2017 |
|
|
Net cash flow from the company financing activities |
AU$11,878 |
AU$62,543 |
AU$69,525 |
A comparative analysis was made for a period of FY2015 to FY2017, the following table shows the various aspects pertaining to the cash flow of the business.
|
2015 |
2016 |
2017 |
|
|
Net cash flows from the company operating activities |
AU$97,860 |
AU$145,833 |
AU$163,919 |
|
Net cash flows from the company investment activities |
AU$54,605 |
AU$59,031 |
AU$101,680 |
|
Net cash flows from the company financing activities |
AU$11,878 |
AU$62,543 |
AU$69,525 |
|
Company net cash flow |
AU$36,384 |
AU$61,434 |
AU$54,779 |
The table shows the other comprehensive income as stated in the annual reports of the company, the only item to be reported is the OCI table is the foreign currency translation reserve, the value was around 2,327,000 in FY2017.
The company OCI includes the IFRS gains and comprehensive income which in most cases included in the balance sheet and in the income statement. Acording to this aspect, is has to be noted that the company management basically seek to take into consideration different expenses and revenues that includes the total financial results since they are not fully realized. Essentially, businesses reports any fundamental business transactions when they are completed. The other world ascribes greater significance to establishing the unconditional part of the net profit, rather on variations in company revenues that were part of equity instead of the underlying business deal. (Ray, 2011). Other comprehensive income requires to record details that are not essential and that the company does not presents a detailed and complete view of the business’s operations and other business aspects.
Basically, OCI is regarded as a comprehensive income included in both the balance sheet and the income statement. It is signinificant to not that the business management anticipates to engage in different expenses and revenues from the comprehensive company results but not fully realized. In this case, once the underlying tradings are finished, the profit is recognized when the investments are sold and realized. The accounting world inserts greater significance to consolidating the unconditional part of net revenue and also changes in business income, which often forms part of the capital instead of the underlying business transactions. (Ray, 2011).
Based on the annual report of the company, the net incoe of the business as of FY2017 is 85,482,000 and the income tax paid by the company for the year is 24,802,000.
Based on the net income generated by the business and the corporate tax rate of nearly 30%, the corporate tax of the business can be computed as
= 85,482,000 x 30%
= 25,645,000
However based on the annual statement the income tax paid by MYOB for the year 2017 is 24,802,000. In this case, we see that there is a difference between the above two values, the reconciliation between these two values are stated as under:
|
2017 |
2016 |
|
|
Net profit generated by the business for the given year |
85,482.00 |
71,132.00 |
|
Corporate tax as per the tax rate |
25,645.00 |
21,340.00 |
|
Overall tax effect on the amounts which are excluded in computing the tax aspect from the income |
||
|
Entertainment aspects |
269.00 |
353.00 |
|
Tax excluded due to research and development |
-1,391.00 |
-2,786.00 |
|
Recoup of depreciation which was transferred from Other company |
0.00 |
1,141.00 |
|
Other aspects |
654.00 |
-343.00 |
|
-468.00 |
-1,635.00 |
|
|
Variations in the overseas tax |
-132.00 |
-93.00 |
|
Adjustments made for the present year |
-243.00 |
-642.00 |
|
Total corporate income tax payable for the year |
24,802.00 |
18,970.00 |
Basically, the income recognized differs with the taxable income in the P&L account as certain income or items may be deducted or taxed in different financial period or some non-taxable. The Group’s sales tax and the liability are determined on the basis of the tax regulations and laws applied or adopted in the reporting financial period. Deferred tax is considered to be a recyclable or future tax that is resulted by short-term variances in the stated amount. In this case, a suitable rates of tax should be utilized to determine liabilities and assets in the taxable income and financial statements and thus important if used for financial reports. All the deferred taxes and time variances basically results to a deferred tax obligation. Taxable instruments indicate the extent to which temporary differences or taxable profits can be applied whose assets and liabilities are not recognized in the settlement of temporary differences arising from transactions and liabilities that are not affected by the taxable profit or the carrying amount that arises from the original contract that excludes acquisitions. In most cases, deferred taxes are not realized in the first stated result of nondeductible value added (Brigham, 2010).
However, deferred tax obligations are reported as short-term differences that are attributed to investments in subsidiaries and investments. Except if the company can regulate the reversal of the short-term difference and it is implausible to arise in the near future. The deferred tax assets carrying amount is assesses at each reporting period and reflects the variations in the group’s valuation. This is the taxable profit that is sufficient to recycle part or all of the company assets. Deferred tax is determined on the basis of the rates of interest that is applicable in debt settlement time or if the particular asset is taxable. During the expiration date, liabilities and assets are repaid when the tax is available regardless of whether the similar tax authority is related to income tax when resolving debts on debtors and liquid funds of the similar or different taxpayers. In this case, the tax is credited to the statement of income excluding items that are recorded directly or indirectly to the company comprehensive income which in this case includes tax which is reported in its own account or in the OCI (Titman, 2010).
Overall, goodwill is not amortized but the write-down amount is tested annually or there is evidence that the asset can be recycled. For the test of impairment, assets is often recorded at the lowest level when recognizable cash flows are identified. For a cash generating units, the resale value of the units decreases the write down value. It also reduces the book value of goodwill related with the business and thus allowing the firm to access to other assets. The impairment loss recognized in goodwill can not be changed in subsequent periods. The recoverable amount is the actual value, the sale cost and the value in use. Projected future cash flows that reflects the current money market and risk evaluations at discounted rates of discount before taxation in the present valuations are regarded as distinct techniques in analyzing the future cash flow.
References
Bragg, Steven. (2007). Throughput Accounting: A Guide to Constraint Management. 1st edition.Wiley & Sons
Brigham, E. F. (2010). Financial Management: Theory & Practice. 5th edition. Cengage Learning.
Brooks, R. M. (2012). Financial Management. 4th edition. Prentice Hall.
Kaplan, R. S., & Young, M. S. (2011). Management Accounting. 3rd edition. Prentice Hall.
MYOB. (2017). Annual report of MYOB
Ray, G., & Eric, N. (2011). Managerial Accounting. McGraw-Hill/Irwin.
Titman, S. J. (2010). Financial Management. Prentice Hall.
Weygandt. (2011). Managerial Accounting: Tools for Business Decision Making (6th Ed.).Wiley.
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