Corporate Accounting Analysis Of A2 Milk Company And Dairy Farmers Company

Company Overview

Corporate accounting is a process which mainly focuses on the preparation of the final accounts of a business. It identifies the recording and presentation of the final financial statement of a business. It interprets the financial statement of the businesses to evaluate that whether the proper policies have been followed by the company or not (Nobes, Parker and Parker, 2008). In the report, the corporate accounting process has been applied on a2 Milk Company and dairy farmers company in order to measure the final financial statement of the business ad identify that why the changes have taken place in the process of the final financials statement of the business.  

For identifying the financial statement and the performance of the company, the annual report and other articles of the business have been identified. The report focuses on the accounting standards, accounting policies, materiality, disclosure etc policies of the business to evaluate the overall performance of the company. The main motto of the report is to identify that whether the proper policies have been followed by the business or not.

A2 Milk Company is a dairy company in the Australian market. It has been founded in 2000 in the New Zealand. The main products of the company are dairy products, infant formula etc. the company has been formed by Dr Corran McLachlan in order to offer the healthy products to the citizen and the main quality factor of the products of the company is fat free and it contains A1 protein which offers the health benefits to the consumers (Home, 2018). The company deals with the farmers and offer the quality and healthy dairy products into the Australian market.

Dairy farmers is also operating its business under the dairy industry in the Australian market. It has been founded in 1990 in the Australia. The main products of the company are dairy products. The company has been formed by Dairy farmer’s cooperative milk company in order to offer the healthy products and dairy products to the citizen and it supplies the products at local as well as international level (Home, 2018). The main brands of the company are “long life” milk, thick and creamy yogurt, custard, deserts and buttermilk.

The equity items of both the companies have been evaluated which are as follows:

	THE A2 MILK CO LTD	Dairy farmers
Fiscal year ends in June. AUD in thousands	2017-06	2017-06
Common stock	129841	75100
Other Equity	11328
Additional paid in capital		57900
Retained earnings	266625
Accumulated other comprehensive income	101890	1557000
Total stockholders’ equity	509684	1690000

(Annual report, 2017)

The common stock briefs total amount which has been generated by the business through offering the ownership in the business to the shareholders of the company. It depicts the par value of the common stock and the par value of preference share which has been issued by the company in the market. The item “other equity” explains about the additional ownership shares which have been offered by the company to the internal stakeholders of the business (Morris, 2017).

The additional paid in capital contains the additional value which has been paid by the shareholder above the par value to get the ownership in the business. Retained earnings further explain about the portion which has not been distributed among the shareholders from the total profit of the company. Accumulated other comprehensive income contains all the additional amount of equity such as treasury stock etc. all if the equity items are essential for a business to identify and present in proper way.

Owner’s Equity

The debt and equity position of both the companies are as follows:

	THE A2 MILK CO LTD	Dairy farmers
Fiscal year ends in June. AUD in thousands.	2017-06	2017-06
Total debt	110	764700
Total equity	509684	1690000
Debt / equity	0.02%	45.25%

(Morningstar, 2018)

It explains that the debt position of the A2 milk company is quite lower than the total equity position of the business. The debt: equity proportion of the company is 0.0002:1 which leads to the conclusion that the company is highly depend on the equity funds to manage and run the business. On the other hand, the debt position and equity position of the dairy farmers is average. The debt: equity proportion of the company is 0.45:1 which leads to the conclusion that the company is managing the funds through debt and equity both and which makes an optimal capital structure in the business (Tran, 2015).

Through comparing the position of both the companies, it has been concluded that the performance of dairy farmers is way better and the A2 milk company is required to focus on the debt funds to raise the amount in the company.

The main cash flow items and the comparison from last year of both the companies are as follows:

	THE A2 MILK CO LTD	Dairy farmers
Fiscal year ends in June. AUD in thousands.	2017-06	2016-06	Changes	2017-06	2016-06	Changes
Cash Flows From Operating Activities	231108	99943	131.24%	671300	542900	23.65%
Cash Flows From Investing Activities	-20919	-51148	-59.10%	-280600	-428000	-34.44%
Cash Flows From Financing Activities	7264	3754	93.50%	-387900	-42500	812.71%
Net change in cash	217453	52549	313.81%	2800	72400	-96.13%
Capital expenditure	123002	68471	79.64%	331700	250200	32.57%
Free cash flow	340455	121020	181.32%	334500	322600	3.69%

(annual report, 2016)

On the basis of the above table, it has been recognized that the cash flow from operating activities consist receipts and payment from customers and suppliers and other items which are related to the daily operations of the business. Generally, the cash flow from operating activities is positive. Cash flow from investing activities include various items which are related to the investment for long period to run the business such as purchase of PPE, sales of PPE, payment for investment etc. the cash flow from investment activities are generally negative.

Further, the Cash flow from financing activities include various items which are related to the funds and the capital structure of the business such as increment in the deposits, payment of dividend, issue of equity shares etc. (Nobes, parker and Parker, 2008) lastly, the capital expenditure contains various items which are not related to the transaction but still have affected the cash position of the business such as changes in the exchange rate.

Through comparing the cash flow position of A2 milk lid from last year, it has been measured that the operating cash flow has been improved by 131.24%. These huge changes have taken place due to changes in the credit policy and increment in the total revenue. The changes into the financing and investing activities are also higher which has taken place due to changes into the strategically performance. The overall cash position of the company has been improved by 181.32% (annual report, 2017).

Further, the comparison of the cash flow position of dairy farmers has been done. And it has been measured that the operating cash flow has been improved by 23.65% only because of decrement in the supplier payment. Further, the changes into the financing position are -34.44% and investing activities have been changed by 812.71% due to issue of share capital in the market. The overall cash position of the company has been improved by 3.69% only (annual report, 2016).

Debt and Equity Position of both the Companies

The cash flow position of the companies of last 3 years is as follows:

	THE A2 MILK CO LTD	Dairy farmers
Fiscal year ends in June. AUD in thousands.	2017-06	2016-06	2015-05	Changes	2017-06	2016-06	2015-05	Changes
Cash Flows From Operating Activities	231108	99943	21474	976.22%	671300	542900	699800	-4.07%
Cash Flows From Investing Activities	-20919	-51148	-2054	918.45%	-280600	-428000	-1365400	-79.45%
Cash Flows From Financing Activities	7264	3754	444245	-98.36%	-387900	-42500	277800	-239.63%
Net change in cash	217453	52549	463665	-53.10%	2800	72400	-387800	-100.72%
Capital expenditure	123002	68471	-394304	-131.19%	331700	250200	2644500	-87.46%
Free cash flow	340455	121020	69361	390.84%	334500	322600	2256700	-85.18%

(Morningstar, 2018)

The evaluation on a2 milk limited brief huge changes in the business which has lead to the business towards better performance. Such as, in case of operating cash position, the cash inflow has been improved by 976.22% in last 2 years. As well as, the investing expenses have been increased in the business by 918.45%. Further, the cash flow of the business has been lowered by 98.36%. The overall changes are 390.84% in last 3 years which are enough competitive for the business (Annual report, 2016).

Further, in case of dairy farmers limited, the inflows have been lowered in all the major items of the cash flow statement. The operating cash flow, investing cash flow and financial cash flow of the business lead to the conclusion that the cash position of the company has been lowered by 85.18% from 2015 in 2017.

The comparative evaluation on both the companies further explains that the cash flow strategies of A2 Milk Company are better in the industry. The company has invested and managed the cash position in better way in the industry. The revenues of a2m has also been improved which has helped the company to improve the overall operations in the industry (Annual report, 2016).

Other comprehensive income statement:

The comprehensive income statement items of both the companies are as follows:

Other Comprehensive income statement
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands.	2017-06	2017-06
Foreign currency taxation loss	74	68600
Listed investment fair value gain	108741
Debt / equity	108815	68600

(Annual report, 2017)

Those items which must not be related to the operation of the business and still affect the profits of the business falls in the category of the comprehensive income statement. These items of comprehensive income statement are foreign current taxation loss and the fair value gain on the investment, these are not the part of the operations of the business but still the impact on the foreign rate and investment price improves or reduces the net profit level of the business.

The above stated items have not been reported directly to the income statement because of their nature as these are not the part of the operations and daily activities of the business and still affect the performance of the business (Bardley, 2017).

In case of both the companies, it has been found that the comprehensive income statement of the company is positive which explains about the profit position of the company. If these items were added into the income statement of both the companies then it would surely improve the total profitability level and investment position of the business.

The managers are suggested to add those comprehensive income statement figures in the consolidated income statement of the business as ultimately these are the part of the business and it affect the profitability level of the business. If the items would be added in the profit statement of a2m and the dairy farmers than the position of the business would be improved and the annual report of the company would be more impressive.

Accounting for corporate income tax:

The total tax expense of a2m and dairy farmers are as follows:

Tax expenses
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands	2017-06	2017-06
Income tax expenses	87548	42000

Cash Flow Statement and Other Comprehensive Income Statement

(Annual report, 2017)

It express that the income tax expenses of a2m is higher because of the higher income than the dairy farmers.

The effective tax rate of both the companies is as follows:

Calculation of effective tax rate
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands	2017-06	2017-06
Income tax expenses	87548	42000
EBT	283232	235200
Effective tax = income tax expenses / EBT	30.91%	17.86%

(Bradley, 2017)

It expresses that the effective tax rate of a2m and dairy farmers is 30.91% and 17.86%. It briefs higher effective rate of a2m.

Deferred tax assets and liabilities are reported in the balance sheet of an organization. It depict about the difference among the tax amount which must be paid and the tax amount which has actually been paid (Ho, 2017).

Deferred tax assets and liabilities
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands	2017-06	2017-06
Deferred  tax assets	4861	1100
Deferred  tax liabilities		51800

(Annual report, 2017)

In case of the above table, it has been recognized that the deferred tax assets of a2m is higher due to the extra payment of taxation. On the other hand, the dairy farmers have paid lesser taxation to the government and they are required to pay additional $ 51,800 thousand to the Australian government as tax amount.

The deferred tax assets and liabilities of both the companies have been compared from the last year to identify the changes. The changes are as follows:

Deferred tax assets and liabilities
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands	2017-06	2016-06	Changes	2017-06	2016-06	Changes
Deferred  tax assets	4861	1954	148.77%	1100	400	175.00%
Deferred  tax liabilities				51800	3600	1338.89%

(Annual report, 2016)

In case of both the companies, the tax assets and liabilities have been improved.

The cash tax amount is the total amount which has been paid by the company annually to the government as tax amount. In case of both the companies, the cash tax amount is as follows:

Calculation of cash tax amount
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands.	2017-06	2017-06
Book Income tax expenses	87548	42000
ADD: Increment in the deferred  tax assets	2907	700
Less: increment in the deferred  tax liabilities		48200
unleveraged cash taxes	90455	-5500

The cash tax amount of a2m is $ 90,455 thousand whereas the cash tax amount of dairy farmers is $ -5500 thousand which explains that the company has not paid any tax amount in the current year. The cash tax amount leads to the conclusion that how much taxes have been paid by the company to the government of the company in order to manage the cash flow level and reduce the liabilities of the business (Gorry, Hassett Hubbard and Mathur, 2017).

Morris (2017) has stated into his report that the cash tax amount of a business is one of the major criteria to identify the total tax amount which has been actually paid by the organization to the government. It is comprised with the book tax amount and the deferred tax assets and liabilities to reach over a conclusion about the actual tax amount

Cash tax rate of both the companies are as follows:

Calculation of Cash tax rate
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands.	2017-06	2017-06
Book Income tax expenses	87548	42000
ADD: Increment in the deferred  tax assets	2907	700
Less: increment in the deferred  tax liabilities		48200
unleveraged cash taxes	90455	-5500
EBT	283232	235200
Cash tax rate	31.94%	-2.34%

(Annual report, 2017)

The cash tax rate of a2m is 32.63% whereas the cash tax rate of dairy farmers is -2.34% which explains that the company has not paid any tax amount in the current year. The cash tax rate leads to the conclusion that how much taxes have been paid by the company to the government of the company in order to manage the cash flow level and reduce the liabilities of the business.

The cash tax and book tax rate of both the companies are as follows:

Calculation of book and cash tax rate
	THE A2 MILK CO LTD	Dairy farmers
AUD in thousands	2017-06	2017-06
Book tax rate	30.91%	17.86%
Cash tax rate	31.94%	-2.34%

The table explains that the book tax rate of a2m is 30.91% and the cash tax rate is 31.94%. These changes have occurred into the business because of higher deferred tax assets. On the other hand, book tax rate of dairy farmers is 17.86% and the cash tax rate is -2.34%. These changes have occurred into the business because of higher deferred tax liabilities. The business are required to pay the tax amount in order to reduce the liabilities (Tran, 2015).

Conclusion:

To conclude, the corporate accounting plays an important role in each of the company. It makes t easier for the company to record and present the data and on the other hand, the users and readers of the annual report also easily understand the figures mentioned in the report. The comparative analysis on both the companies lead to the conclusion that the performance of a2m is better and dairy farmers are required to make changes into few strategies to improve the accounting performance in the industry.

References:

Annual report. 2016. Dairy farmers limited. [online]. Available at: https://www.dairyfarmgroup.com/DairyFarm/media/Dairy-Farm/Investors/Financial-Reports/ar2016.pdf [accessed 13/9/18].

Annual report. 2017. A2 milk company. [online]. Available at: https://thea2milkcompany.com/wp-content/uploads/The-a2-Milk-2016-2017-Annual-Report-spreads.pdf [accessed 13/9/18].

Annual report. 2017. A2 milk company. [online]. Available at: https://thea2milkcompany.com/wp-content/uploads/A2M-Annual-Report-FY18.pdf [accessed 13/9/18].

Annual report. 2017. Dairy farmers limited. [online]. Available at: https://www.dairyfarmgroup.com/DairyFarm/media/Dairy-Farm/Investors/Financial-Reports/ar2017.pdf [accessed 13/9/18].

Bradley, S., 2017. Inattention to Deferred Increases in Tax Bases: How Michigan Home Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-66.

Gorry, A., Hassett, K.A., Hubbard, R.G. and Mathur, A., 2017. The response of deferred executive compensation to changes in tax rates. Journal of Public Economics, 151 (2), pp.28-40.

Ho, A.T., 2017. Tax-deferred saving accounts: Heterogeneity and policy reforms. European Economic Review, 97 (1), pp.26-41.

Home. 2018. A2 milk company. [online]. Available at: https://thea2milkcompany.com/ [accessed 13/9/18].

Home. 2018. Dairy farmers limited. [online]. Available at: https://www.dairyfarmers.com.au/ [accessed 13/9/18].

Morningstar. 2018. A2 milk company. [online]. Available at: https://financials.morningstar.com/income-statement/is.html?t=0P00015NU3&culture=en-US&ops=clear [accessed 13/9/18].

Morningstar. 2018. Dairy farmers limited. [online]. Available at: https://financials.morningstar.com/income-statement/is.html?t=0P0000A60B&culture=en&ops=clear [accessed 13/9/18].

Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB’s Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.

Nobes, C., Parker, R.B. and Parker, R.H., 2008. Comparative international accounting. Pearson Education.

Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.