Analysis Of Cash Flows, Comprehensive Income Statement And Tax In Downer Ltd

Cash Flows Statement and Analysis of Changes over Three Years

Significant Items included in Cash Flow Statement

The cash flow statement is a part of the financial statements of the business which is to be published with the profit and loss statement of the business and the balance sheet of the company. The cash flow statement shows the cash inflows and outflow of the business and ultimately shows the closing cash balance which is available to the company at the end of the year (Call, Chen and Tong 2013). Cash flow statements are prepared by businesses to show the liquidity of the business. The company which is selected for this assignment is Downer ltd for which the analysis is to be conducted in the coming paragraphs.

The cash flow statement of Downer ltd shown and prepared as per the requirements of relevant accounting standards and principles (Downer Corporate Site. 2018). The major items which are shown in the cash from operating activities are the cash which the business collects from the customers in case of credit sales. payments made to creditors and the income tax which is applicable to the business during the year (Kaspina, Molotov and Kaspin 2015). The receipts from the customers represents the main source of revenue for the business from operating activities and the same is generated from sales and revenue generating activities of the business. As per the financial statements for the year 2017, the cash which is collected from the customers as shown in the cash flow statement for the year 2017 is $ 7957.7 million which has significantly increased from the previous year which was shown to be $ 7615 million. The cash flow statement of the business shows that the cash which is paid to the suppliers have also increased from previous year and the same is shown as $ 7262 million and the sane was shown as 7123.4 million in 2016. The income tax of the business has also increased which is quite natural as the sales revenue of the business has increased and the profit of the business has also increased (Stevanovi?, Belopavlovi? and Lazarevi?-Morav?evi? 2017). The income tax which is to be paid by the business for the year 2017 is shown as $49 million.

As per the cash flow statement of the business, the company has incurred significant amount of expenses for the purpose of purchasing assets for the business. As per the cash flow statement, the company has sold a part of property, plant and equipment which is shown to be $ 23.2 million during the year 2017. The purchases of property, plant and equity which is made during the year is shown to be $ 203.6 million which has significantly increased from previous year’s expenditure. The company has also acquired intangible assets for which the amount which is shown in the cash flow statement is $ 37.9 million and also acquired businesses which is shown to be $ 143.2 million.

Comparative Analysis of Three Broad Categories of Cash Flow

The main components which is shown in the cash flow statement for the year 2017 are capital acquired, repayment of borrowings and dividend payed by the business. The company has raised a capital of $989.9 million which is related to the takeover of the business which the company has engaged in during the year. The company has also paid back a significant amount of loan which is shown in the cash flow statement as $ 370 million. The company’s objective behind such a significant amount of loan repayment may be to restructure the capital structure of the business. The company has also declared a dividend for the year at $ 110.6 million which signifies that the profitability of the business has increased and the business is performing well.

Particular	2015	2016	2017
Net cash flows from operating activities	$  486.50	$  447.80	$  441.60
Net cash flows used in investing activities	$ -498.20	$ -205.50	$ -995.80
Net cash flows used in financing activities	$   -46.80	$   -45.80	$  830.50

As per the chart which is show above represents the cash from operating, financing and investing activities of the business. The figures which are shown in the chart above shows cash flow statement’s results which are in million. The cash which is shown from operations reveal that the estimate has fallen from 2015 and has continuously fallen. This shows that the management might be facing certain problems in the operational activities of the business. another reason for the fall in the cash from operations may be due to high cost which the business incurs to the suppliers of the business (Nobes 2014). The cash which is generated from operation for the year 2017 is shown to be $ 441.60 million as per the cash flow statement of the business. The net cash flow from investing activities of the business show that the estimate is highest for the year 2017 where the cash expenses is the most.  This can be attributed to the significant purchases of assets which was made by the company during the year 2017. The company purchased plant, property, equipment, acquired businesses and acquired intangible assets for the business. The cash which is generated from the financing activities of the business has improved significantly in the year 2017 due the capital which is raised by the business which is of a significant amount of $ 989.9 million as per the cash flow statement of the business (Mousavi et al. 2013). The company has also paid a significant amount for repayment of debts of the business and has also declared a dividend of $ 110.6 million for the year 2017 as per the cash flow statement of Downer ltd.

Understanding of Various Items reported in the Comprehensive Income Statement

The comprehensive income statement which is shown in the financial statement just below the profit and loss account, deals with certain items of revenue and expenses which are not revealed in the profit and loss account and the same is shown as Comprehensive income which is shown separately from the profit and loss account of the business (Eaton, Easterday and Rhodes 2013). The financial statement of Downer ltd shows that the business has prepared comprehensive income amount for the various items which are

As per the profit and loss account of the business which is shown for the year 2017 show that the various items which are included in the comprehensive income statement are exchange difference transaction from foreign operations, certain losses which the business incurred, income tax component of other comprehensive income of the business (Schaberl and Victoravich 2015).

The exchange difference which is shown in the profit and loss account under comprehensive income is shown because of the change in the value of foreign currency of the business. This also suggest that the company has engaged in foreign transaction during the year. There are times when the translation value fluctuates of foreign currency and therefore businesses tend to get income from such fluctuation which is shown in the comprehensive income statement (Towbin and Weber 2013). The business of Downer ltd has incurred certain losses during the year which relates to foreign currency forward contracts and cross currency transaction which the business had engaged in during the year. Then there is the tax expenses which is related to the comprehensive income which is applicable to tax. The last two items which are shown is related to the small amount of change has occurred which is included in the comprehensive statement.

The items of comprehensive income are recorded separately as they are different from items which are shown in the profit and loss statement of the business. The main purpose of disclosing the comprehensive items of the business from which the business earns revenue or incurs expenses so that the users of the financial statements are informed on all matters.

Current Tax Expenses

The current income tax expenses which is incurred by the business for the year 2017 is shown to be $ 69.5 million which has increased from the previous year which is shown to be 63.3 million in the year 2016. The increase in the income tax which the business has to pay is due to the increase in the level of profits of the business.

Tax Assets/Liabilities, Income Tax Payable and Expenses

The net profit which is generated by Downer ltd for the year 2017 and 2016 is shown as $ 181.5 million and $ 180.6 million. These figures reflect the after tax figures of the business and after the adjustment of the comprehensive income is made the profit which is remaining is for the owners of the company. The tax expenses which is charged for the year of 2017 is shown to be 69.5 million and the same is shown to be $ 63.3 million as shown in the financial statement of the business. The tax which is shown in the financial statement is lower than what the actual expenses should be considering the tax rate is 30%. The difference in the actual tax expenses and the one which is calculated might be caused due to the presence of deferred tax asset and liabilities which are set off during the year with the current tax expenses of the business.

The deferred tax assets arises when an individual or a company pays tax which is more than what is due from him and therefore such excessive tax paid becomes the deferred tax assets of the business, On the other hand, the deferred tax liabilities of the business arises when an individual or a company has paid less than what is due to the tax authorities of Australia (Laux 2013). The financial statement of Downer ltd reveals that the company has deferred tax asset which is shown to be $ 59.4 million in 2017. The deferred tax assets have just been recognized as it is not shown in 2016 which suggest that the company has paid tax in excess which is the reason for the deferred tax assets as shown in the balance sheet of the company. It is a known fact that deferred tax assets and liabilities arise due to temporary difference between items which are on different balance sheet date (Dhaliwal et al 2013).

The deferred tax assets and liabilities are carried forward by the business from year to year so that the business can set them off in the future years. In the case of deferred tax asset which is shown in the financial statement of Downer ltd is the one which is newly created.

The balance sheet which is prepared by the management of Downer ltd shows that Downer ltd has current tax liabilities shown in the current liabilities section and current tax assets which is shown in current asset section. The system of accounting records transaction on accrual basis and thus the income tax which is payable is shown as current liabilities of the business. The current tax liability of the business which is shown to be $ 7.2 million which has increased from the previous year. The current tax assets of the business is shown to be $ 45.5 million for the current year.

New Insights gained from Examining the Firm’s Tax Expense

The income tax expenses which is shown in the income statement of the business is different from the actual income tax paid which is shown in the cash flow statement of the business. The actual expenses which is paid in the cash flow statement is $ 49 million and the same is measured in the profit and loss account as $ 69.5 million. The difference can be due to full tax is not paid to the tax authority or tax which is pending and being carried forward is added to the teax figure for the current year.

The analysis of the financial statement of Downer ltd shows that the business has prepared the financial statements as per the rules and regulations which are applicable in Australia. The financial statements of the business reveal that the company has deferred tax assets as well as current tax assets and current tax liabilities which are shown in the balance sheet of the business. The treatment of tax and all the disclosures relating to the same is appropriately shown in the financial statement of the business.

References

Call, A.C., Chen, S. and Tong, Y.H., 2013. Are analysts’ cash flow forecasts naïve extensions of their own earnings forecasts?. Contemporary Accounting Research, 30(2), pp.438-465.

Dhaliwal, D.S., Kaplan, S.E., Laux, R.C. and Weisbrod, E., 2013. The information content of tax expense for firms reporting losses. Journal of Accounting Research, 51(1), pp.135-164.

Downer Corporate Site. (2018). Downer Group. [online] Available at: https://www.downergroup.com [Accessed 22 May 2018].

Eaton, T.V., Easterday, K.E. and Rhodes, M.R., 2013. The presentation of other comprehensive income. The CPA Journal, 83(3), p.32.

Kaspina, R.G., Molotov, L.A. and Kaspin, L.E., 2015. Cash flow forecasting as an element of integrated reporting: an empirical study. Asian social science, 11(11), p.89.

Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383.

Mousavi, S.M., Hajipour, V., Niaki, S.T.A. and Alikar, N., 2013. Optimizing multi-item multi-period inventory control system with discounted cash flow and inflation: two calibrated meta-heuristic algorithms. Applied Mathematical Modelling, 37(4), pp.2241-2256.

Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.

Schaberl, P.D. and Victoravich, L.M., 2015. Reporting location and the value relevance of accounting information: The case of other comprehensive income. Advances in Accounting, 31(2), pp.239-246.

Stevanovi?, S., Belopavlovi?, G. and Lazarevi?-Morav?evi?, M., 2017. Creative Cash Flow Reporting–the Motivation and Opportunities. Economic analysis, 46(1-2), pp.28-39.

Towbin, P. and Weber, S., 2013. Limits of floating exchange rates: The role of foreign currency debt and import structure. Journal of Development Economics, 101, pp.179-194.