The reporting framework is used by most companies nowadays. This framework helps in assessing whether the business and the expectations of the shareholders are provided with relevant information or not. A relevant framework is considered to be ideal when it has all relevant information and appropriate disclosures for the same. The assessment makes a focus on certain key disclosures which are engaged in similar operations. The two companies which are considered for this assignment include Ramsay Health care and Sonic Healthcare Limited.
Ramsay Healthcare is one of the leading operators in hospitals and provides healthcare services to clients as well as hospitals. The company operates around 235 hospitals and day surgery facilities. The company has these services set up across Australia, France, UK and parts of Asia as well. The annual report shows that the business draws about half of its revenue from operations in Australia and again around one fifth from the market of UK.
Sonic Healthcare is another leading operator of healthcare services in Australia . It also has its operations across various countries that include UK, USA, Germany and other several countries. It is engaged in providing laboratory services and radiology services to the customers . It is considered to be one of the largest diagnostic companies in the country.
The assessment provides a comparative analysis of the cash flow statement, comprehensive items and debt equity position of the business. It also shows computation of effective tax rate, tax rate and book rate.
Owners equity represents the share capital that is used by the businesses of funding the operations that a business conducts. The owner’s equity consists of items like share capital, reserves and other equity related funds. These disclosures are shown in the balance sheet of a company(Henderson et al. 2015). The annual report of Ramsay Healthcare , which is shown for the year 2017 shows that the owners equity is comprised of reserves, equity share capital and retained earnings of the business. The equity share capital is obtained by the business through issuing equity shares t the public(Konchitchki and Patatoukas 2013). Through the issue of shares, it takes the capital for the purpose of financing other financial projects and making sure that the day to day operations are run in a smooth manner. Reserves are a great source of direct finance . These are used by businesses in meeting special requirements. The use of retained earnings is also known as ploughing back of profits(Farshadfar and Monem 2013).
The equity share capital of Ramsay healthcare was shown to be $ 2871 million in 2015 with the same having increased significantly in 2017. This signifies that the management of the company needed a huge amount of capital that is drawn from equity sources. The reserve balance of the business is shown to be at $ 176.2 million and the same is shown to have reduced drastically in 2017 and the figure is shown to be $ 67.8 million. On the other hand, the retained earnings of the business have shown an improvement during the years between 2015 and 2017. There is a steady growth in the retained earnings of the business. It shows that the business is growing strength to strength(Gitman, Juchau and Flanagan 2015).
In case of Sonic healthcare, the share capital that is shown in the balance sheet is estimated in the amount of $ 2675 million which has significantly improved from the figures of last year. The other reserve balance and retained earnings balance that is shown in the financial statements also signify a slight increase in the values of both items. The increase in share capital of the business shows that the management of the business has issued new shares during the year. The figure for retained earnings is shown to be $ 21,761 million.
The capital structure of a business is dependent on the requirements that is to be made by the businesses for the funds. The management needs to consider the cost and risk factors that are associated with the business while making decisions regarding the capital structure of the business(Jain, Singh and Yadav 2013). The capital structure of Ramsay Health Care is composed of both loan and equity debt capital as per the balance sheet of the company. The company has taken a significant amount of equity and debt capital in 2017 which is evident from the cash inflows . These are seen in the cash flow statement of the business during the year. The debt capital of the business is shown to have increased from $ 1092.8 million in 2016 to about $ 1565.9 million during the year 2017. This sudden increase in the capital structure of the company suggest that the management of the company is planning on making improvements in business structure or investing in long term financial projects.
The capital structure of Sonic Healthcare is composed of both equity and debt capital for the purpose of financing the different projects of a business. The debt balance of the business is shown to be at $ 1499 million and the same has reduced in comparison to the figures of last year. This means that the management of the company has repaid a substantial part of the loan. On further analysis , it is evident that the equity capital of the business is being utilised by the management for the most part and employ a part of debt capital in order to attain a more favourable capital mix. a graph has been presented a s well to analyse the debt position
The comprehensive items for the year 2017 shows that the business of Ramsay Healthcare has invested in hedge cash flow contracts and it shows translation of foreign currency during that period. The comprehensive items of Sonic Healthcare show cash flow hedge contracts, revaluation of assets and translation of foreign currency during the period . The annual items of both companies show similar items in case of comprehensive item disclosures(Angelsen et al. 2014).
The comprehensive items which are included in the annual reports of the companies are shown separately . They are shown separately for the reason that they are extraordinary in nature and can therefore affect financial statements. In addition to this , the items are non recurring in nature for the companies and therefore the same is not shown in the profit and loss statement(Alkema et al.2013).
The comprehensive items of both Ramsay Healthcare and Sonic Healthcare effectively shows items that are included like cash flow contracts, translation of foreign currency during the year. The comprehensive income of Sonic Healthcare is shown to be at $ 187.8 million during 2017 and the same has decreased from previous year. While the comprehensive income of Ramsey Healthcare is shown at $ 1178 million which is quite higher than Sonic Healthcare. This can be due to the higher scale of operations of Ramsey Healthcare in comparison to Sonic Healthcare(Ramsayhealth.com, 2018).
The comprehensive items which are shown in the annual reports of the business should not affect the decision making process of the management as these items are non recurring in nature. The management can make provisions for the same(Duran and Lozano-Vivas 2013). A graph has been shown to review the comprehensive income of Ramsay healthcare and Sonic Healthcare.
The cash flow statement are essential impacts of financial reports that is prepared by the business. It allows the users of the financial statements to keep track of the cash inflows and outflows of the business during a period(Robinson and Sensoy 2016). The cash flow statement shows the liquidity position of a business. A cash flow statement generally shows three types of activities which are operating activities. investing activities and financing activities(Chen and Teng 2015).
The cash flow statement which is prepared by the management of Ramsey Healthcare shows that the main receipts of cash is the one that they receive from customers by way of providing them health services , which is shown to be at $ 6,54, 321 million which shows that the figures have increased from previous year. The main cash outflow that can be identified from the above analysis is the cash that is paid to suppliers and employees of the business during the year. The cash from operating activity is shown to be positive and is shown to be at $ 55,566 million which has also increased from last years. The cash flow from investing activities is negative for 2015 while it has been positive for the next two years. In 2015, there has been a substantial purchase of property, plant and equipment while the purchase amounts have dropped significantly. This is the main reason why cash outflow is more than cash inflow in 2015. The cash from financing activities of the business comprises of net capital which is raised by the business. It also consists of debt capital which is taken for the year 2017. The net cash from financing activities of the business is shown to be positive in the first year while it is shown to be negative for the last two years. In the first year, it is positive because excessive cash has entered into the business while in the following two years, it is negative because there have been more repayments of loan than share issue(Ramsayhealth.com 2018).
The cash flow statement of Sonic healthcare for the year 2017 shows that the cash from operations of the business is $ 24,874 million which has shown an improvement from the last two years. This means that the scale of operations of the business has increased during this period. The cash from operations of the business comprises of operating activirties . The main items include receipts from customers and the cash paid to suppliers. the main investing activities of the business shows that the management of the company has purchased and sold property and also investments and intangible assets(Sonichealthcare.com 2018). This is the main reason why cash from investing activities is shown to be negative during 2015 and 2017. The inflows from investing activities of the business is from sale of property. The cash from financing activity show that the major cash outflows is from repayment of borrowed capital. the major cash inflows include issue of shares and proceeds from borrowing. The cash from financing activities of the business represent those activities which are required for fund generation of the business(Zayed and Liu 2014).
As per the cash flow statement of Ramsay Healthcare , the cash flow from operating activity is shown to be at $ 24874 million which has shown a significant improvement over the last two years. The cash flow from investing activity shows a negative figure in 2015 which is mainly due to the excessive purchases of business and property. It became positive in 2016 when it had less purchases. In 2017, it again became negative due to excessive purchases of property(Ramsayhealth.com, 2018)
The financing activities of the business for the year 2017 shows that the company made more outflows than inflows. The major outflows include significant amount of repayment of debt and borrowings., which were more than the inflows which included issue of share proceeds. A graphical presentation of the cash flow statement is shown below:
The cash flow statement of sonic healthcare shows that the cash from operating activities of the business has increased significantly in 2017 compared to the last few years. The increase in cash from operating activities is due to increase in sales and the reduction in operating costs of the business. The cash from investing activities of the business is shown to be negative in 2017 which is mainly due to purchase of property, plant , investment and intangibles which is undertaken by the business. The cash from financing activity reveals that the management has repaid a significant portion of the loans in order to reduce the overall risk which are associated with the business. A graphical representation of the cash flow statement is shown in the figure below:
The tax expense which is incurred by Ramsay Healthcare as per the profit and loss stateemt is shown to be $ 5477 million for the year 2017 and the same has increased in comparison to last year analysis. The tax expense of Sonic Healthcare for the year 2017 is shown to $ 4355 million for the year 2017.
The effective tax rate of Sonic Health care and Ramsay health care are calculated in the above table. The tax rate is shown to be a little higher for Sonic Healthcare than Ramsay Healthcare. It is marginally higher for sonic Healthcare than Ramsay Healthcare.
The deferred tax assets and liabilities refer to the tax obligations that are either paid in advance by the business or is due to be paid in a future pint of time(Laux 2013.). The same relates to tax items for the previous years as well. The deferred tax assets and liabilities are shown in the balance sheet of both the companies as shown in the annual report that is prepared by the business. The deferred tax liabilities of Ramsay Healthcare is shown to have diminished significantly whole the deferred assets of the business is shown to be in an improvement. This suggests that the business has reduced their tax obligations in respect of previous years. In case of Sonic Healthcare , the company only has deferred tax assets which are shown in the financial statements of the business and the same is shown to have a slight improvement over the years.
The cash tax rate is computed in the above figure shows that the cash rate of Ramsay Healthcare is a little higher for the year 2017 compared to that of Sonic Healthcare . The computation considers changes in both deferred tax assets and liabilities of the business.
The cash tax rate computation considers the cash items of the business and also considers the changes that take pace in deferred tax and liabilities of the business as shown in the above table. The book tax rate , on the other hand does not consider such items and is the general tax rate on which the tax of a business is charged(Inger 2013).
Conclusion
As per the discussion which is shown above, it can be ascertained that the business of Ramsay Health care is larger compared to the operations and profit generating capacity than Sonic Healthcare. It is larger due to the fact that the expenses and profits of Ramsay Healthcare are higher than Sonic Healthcare. The cash position of Ramsay Healthcare is better than Sonic Healthcare which shows that the liquidity of Ramsay Healthcare is better in comparison to Sonic Healthcare.
References:
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