The report aims to provide a complete assessment of financial standing of three ASX listed entities which are operating in the sector of oil, gass and energy industry of Australia. For the purpose of the study, the three entities selected are 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited. The overall assessment will provide a vivid description of analysis pertaining to financial areas such as corporate income tax, corporate cash tax, cash flow statement and balance sheet.
3D Oil is recognised to combine corporate strategy of both technical and commercial importance in the segment of oil exploration in “Gippsland and Otway Basins of South East Australia”. The exploration in this area has been recognised with an award-winning T/49P exploration permit. 3D Oil also holds more than 24.9% high prospective VIC/P57 exploration permit for Sea Lion prospect which consists of resources worth 11 million barrels of oil (3Doil.com.au 2019).
Hawkley Oil and Gas Limited made its debut on an ASX on 29 June 2010 after takeover from Incitive Limited which is identified as the former biotechnology company. In the same year the company drilled its first well as per the license of Sorochynska. Eventually, Sorochynska-201 was successful and was seen to be in production from February 2011 until December 2014. On September 2012, Hawkley Oil and Gas completed its second well named Sorochynska-202 (Hawkleyoilandgas.com 2019).
Helios Energy Limited is a service company which provides end-to-end solution to the clients for providing clean energy solutions. The main goal of the company is based on optimising clean energy, thereby assisting the companies to reduce energy expenses and minimise carbon footprint. The full services offered includes conducting audit on current energy consumption, defining energy goals and implementation of solar energy, LED and smart energy solutions in a workplace (Helios Energy 2019).
It can be clearly seen that individual companies have provided specific information under equity section in the balance sheet.
It can be clearly seen from the balance sheet of 3D Oil Limited, equity comprises of elements such as “issued capital, share based payments reserve and accumulated losses”. The total amount of issued capital remained same during 2018, 2017 and 2016. However, the share-based payments reserve significantly improved from $ 66,178 in 2016 to $ 44470 in 2017 and $ 44470 to $ 53222 in 2018. The main reason for the decreasing total equity from $ 8,422,482 in 2017 to $ 7,291,301 in 2018 due to increasing accumulated losses (3Doil.com.au 2019).
In a similar manner, as per the balance sheet of Hawkley Oil and Gas Limited, equity comprises of three basic elements such as “issued capital, reserves and accumulated losses”. It needs to be identified that while they should share capital remained same in 2018, 2017 and 2016, the reserves shown slight improvements with an increase of $ 4,043,067 in 2017 to $ 4,058,055 in 2018. However, the reserves got significantly decreased from 2016 2017. This is evident with reserves reducing from $ 16,082,759 in 2016 to 4,043,067 in 2017. On the other hand, the total equity was stabilised during the bold 16 to 2017. This is evident with total equity increasing from (1,194,935) in 2016 to (42,949,645) in 2017. Despite of this, accumulated losses worsened the equity position of the company as it further decreased to $ (42,949,645) in 2017 to $ (43,171,139) in 2018 (Hawkleyoilandgas.com 2019).
As per the annual report of Helios Energy Limited published in 2017 it can be clearly identified that the equity comprises of elements such as “contributed equity, reserves and accumulated losses”. However, for the changes brought in the equity section in the report of 2018 and be clearly identified with the inclusion of “optimum premium reserve and share-based payments reserve”. The overall changes in contributed equity is recognised to increase from $ 20,372,705 in 2016 to $ 37,644,468 in 2017. The contributed equity further increased from $ 37,644,468 in 2017 to $ 49,097,486 in 2018. The company suffered significant setback in terms of reserve which is evident with the decrees of $ 2,166,104 in 2016 to $ 24,386 in 2017. However, the total equity dividend improved from 2016 to 2017. Due to the inclusion of optimum premium reserve in 2018, the total equity further increased from 2017 2018 (Helios Energy 2019).
Based on the depictions made from financial statement of 3D Oil Limited the items listed under current liability can be seen with employee benefits, trade and other payables. Similarly, the employee benefits are also accounted under non-current liabilities. The overall trend of liabilities can be seen with the decreasing trend from 2016 to 2018. This is mainly due to the fact that company has reduced liabilities borne by employee benefits (3Doil.com.au 2019).
As per the evaluation of financial statement published by Hawkley Oil and Gas Limited the current liability includes items such as borrowings, trade and other payables. The non-current liabilities include provisions which was only observed during 2016 amounting to $ 181,847. The overall changes in the total liabilities can be seen with an increasing trend, which is mainly driven by increasing liability of trade and other payables (Hawkleyoilandgas.com 2019).
As per the evaluation of financial statement published by Helios Energy Limited the only current liability borne by the company is identified with trade and other payables. The changes in the total liability is identified to be increasing over the last three years (Helios Energy 2019).
Debt equity ratio is defined as the total capability of the company to finance its equity share capital with that capital. The computation of such a ratio is done by division of total liabilities from total shareholders’ equity. This ratio is conducive in assessment of financial leverage.
The table shown above clearly signifies that among the three companies, the best debt equity ratio is maintained by Helios Energy Limited. However, it needs to be noted that despite of increasing liability over the years the total equity has shown significant improvements which has led to such a positive result for the company. On the other hand, the debt equity ranking of 3D Oil can be recognised as second. Despite of reducing amount of total liabilities, the total equity has also dropped over the last three years which has led to slightly hard at it with a ratio in compared to Helios Energy Limited. On the other hand, Hawkley Oil and Gas can be recognised with the worst equity ratio among other two companies.
It can be clearly seen from the statement of cash flows of 3D Oil Limited that the company maintains its cash flows from operating activities, investing activities and financing activities. The main items comprised under cash flows from operating activities can be identified with Receipts from customers (inclusive of GST), Payments to suppliers and employees (inclusive of GST), interest received an interest paid. The cash flows from investing activities includes various types of payments made for intangibles, PPE, term deposit, exploration and evaluation. Additionally, the cash from financing activities includes significant subdivisions such as net cash from financing activities, changes in cash and cash equivalent and effect of exchange rate changes based on cash and cash equivalents. The company has undergone significant changes from 2016 to 2018 in terms of cash from investing activities. This section of the cash flow statement has shown significant improvement from $ (5,312,255) in 2016 to $ 685,794 in 2018 (3Doil.com.au 2019).
As per the evaluations made from the statement of cash flows of Hawkley Oil and Gas Limited that the cash from operating activities consist of items such as receipt from customers, payments to suppliers and employees and interest received. Similarly, cash from investing activities comprises of proceeds from sale of assets, proceeds from sale deposit and proceed from sale of foreign operations. In addition to this, the financing activities cash flow includes item such as proceed from share issue, interest paid, share issue cost, repayment of borrowings and proceed from borrowings. Similarly, the considerable change in the cash flow statement over the years is evident with net decreasing amount of cash pertaining to financing activities from $ 474,203 in 2016 to 200,000 in 2018. This has led to overall decrease in cash and cash equivalents from $ 238809 in 2016 to $ 181,941 in 2018 (Hawkleyoilandgas.com 2019).
The depictions made from the cash flow statement of Helios Energy Limited shows that cash flow from operating activities includes items such as interest received, payments to suppliers and employees. Additionally, the cash flows from investing activities consist of items such as payments for exploration and evaluation activities. The items included under financing activities are seen with proceeds from the issue of shares and cost associated with capital raising. The main changes can be seen with net cash outflow from operations which have significantly increased from $ (200,632) in 2016 to $ (1,565,965) in 2017. However, the cash pertaining to financing activities have significantly increased by $ 2,808,079 in 2018 which has led to the overall increase in cash and cash equivalents (Helios Energy 2019).
The graphical representation of the data clearly shows that 3D Oil Limited has witnessed a significant increase in terms of net cash from investing activities over the last three years. However, a subsequent decrease can be identified in all other categories of cash flow item such as net cash from operating activities and financing activities. The highest decrease of the cash flow item can be seen with net cash used in financing activity (3Doil.com.au 2019)..
The graphical depictions of Hawkley Oil and Gas show significant improvement in the areas of net cash used in investing activities. There is also some sign of positive increase in terms of net cash used in financing activities in the last three years. Despite of a linear increase of cash generated from individual heads of cash, it is important to note that the company has struggled to maintain a positive net cash from operating activities (Hawkleyoilandgas.com 2019).
It is clearly discerned from the comparison of Cash flows of Helios Energy Limited that there has been a significant improvement in terms of net cash used in financing activities. However, the company has not been able to maintain the increasing trend cash from financing activities during 2017 to 2018. The company have shown a decreasing trend of cash used in investing activities. This shows that Helios Energy Limited ambitiously invested high amount of cash for conducting future projects (Helios Energy 2019).
The comparative analysis of cash flow statement for 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited, shows that Hawkley Oil and Gas has been able to maintain the highest cash from operating activities in compared to the other two companies. In terms of cash used in investing activities 3D Oil Limited has maintained the highest amount still 2018. In terms of net cash used in financing activities Helios Energy Limited is a leading among the other two entities (Zhao 2015).
The statement of comprehensive income for 3D Oil Limited is derived after deducting expenses such as corporate, administrative, employment, occupancy, exploration cost, share best payments, finance cost and impairment of assets. The total comprehensive income of 3D Oil Limited increased from $ (10,291,156) in 2016 to $ (1,839,978) in 2017. The other comprehensive income showed significant improvement in 2018 as it increased to $ (1,154,810). It to be also noted that the company recognises other comprehensive income which are a result of income generated through foreign currency reserve (3Doil.com.au 2019).
The other comprehensive income for Hawkley Oil and Gas includes items which were classified to profit or loss after certain conditions were fulfilled. These items are recognised in form of foreign exchange differences in case specific conditions were met. In addition to this, the foreign exchange differences reclassified into profit and loss disposal is also considered under such an income. The total other comprehensive income increased from $ (1,194,935) in 2016 to $ 756,542 in 2017.
In case of Helios Energy Limited, the other comprehensive income can be determined with the exchange difference on translation. The overall depictions show that the other comprehensive income for the company increased from $ (708) in 2016 to in 2017 $ 457,267 (Hawkleyoilandgas.com 2019).
The reason for not including such items in the income statement is due to the fact that other comprehensive income is extraordinary in nature and not always put to use in daily business operations. At the time of recording the items of conference of income this is used for disclosure of several types of business activities in a particular financial year. Due to this, the companies have not included these items in the statement of comprehensive income.
The difference between comprehensive income disclosure among the three entities can be identified with nature of items which were classified to profit or loss after certain conditions were fulfilled. For instance, 3D Oil Limited included items which were result of income generated through foreign currency reserve. On the other hand, Hawkley Oil and Gas computed other comprehensive income in terms of foreign exchange differences in case specific conditions were met. Helios Energy Limited determined other comprehensive income through exchange difference on translation. The comparison of the values for such an income was seen to be highest for Helios Energy Limited (3Doil.com.au 2019).
In case these items were included in the profit or loss statement, there may be a significant impact on net income of the business. In case of Hawkley Oil and Gas and 3D Oil Limited the inclusion of such an income may lead to a significant decrease in profitability of the business.
Based on the analysis of financial statements of the company, it is recommended for any business to not depend on the items considered under comprehensive income due to their characteristics in the annual statement. In addition to this, as the nature of such items are extraordinary nature the reliance on such items can be unpredictable. Due to such unfavourable circumstances, it is to be ensured by the company’s management to not include such an income into business as it can cause significant hurdle in decision-making.
It is to be seen that the combination of effective tax rate has been included with income tax expenses and earnings before tax. Based on the depiction of annual report published by 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited neither companies have been able to make profit in the last three years. By considering particular focus on the latest annual report it needs to be said that the company are not generating taxable income. The taxation law of Australia recognises the companies with the possibility of incurring business losses. This allows such business entities to carry forward and recoup the losses for taxation purpose against subsequent profits. The business and continuity of ownership test is able to provide the guidance for integrity of lost rules. The taxable income may be reduced to certain amount in the accounting profit. However, in the following case, due to the nature of losses incurred by 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited, neither of the companies need to pay corporate income tax (Ato.gov.au 2019).
The estimation of the effective tax rate for 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited is listed as follows:
As evident from the table it can be clearly observed that the EBIT standing of all the three entities are negative. Therefore, there will be no effective tax rate applicable to such entities.
It needs to be understood that DTA and DTL plays a pivotal role in financial reporting of any business entity. It is important for the businesses to report such assets and liabilities in their financial statements. The annual report of 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited clearly shows the disclosure of such an information in the explanatory notes section. All the three companies recognise application of DTA and DTL attributable with temporary differences pertaining to a net tax losses and adjustments which were identified prior to commencement of a financial period. The main reason for including such assets and liabilities is identified with carrying forward the values in present period of financial year from previous financial year (Wang, Butterfield and Campbell 2016).
It can be clearly identified from the disclosure of the financial statements about DTA and DTL there is no cash tax paid by the companies in the last financial year. Moreover, the DTA and DTL are same for all the companies. It needs to be seen that the DTA of 3D Oil was $ 1,58,46,704, Hawkley Oil and Gas was $ 2,133 and Helios Energy Limited was $ 50,34,137 (Floyd 2018).
It can be said that in case the companies start earning profit 3D Oil Limited will have to pay the highest tax amount.
Cash tax rate and the book tax rate differs in terms of projection of cash rate in the present financial year. On the other hand, book tax rate estimation is done with future and current years earnings. The estimation of book tax rate does not require any special attention towards DTA and DTL unlike cash tax rate (Warren and Jones 2018).
Conclusion:
The overall assessment of income statement and statement of cash flows for 3D Oil Limited, Hawkley Oil and Gas Limited and Helios Energy Limited is seen to be reporting highest debt capital. This implies that all the aforementioned companies are relying on external source of funding for increasing capital. The overall analysis also shows it is not important to include items such as other comprehensive income as they hardly have any link to the business activities. However, in case the companies start to earn profit it is important to pay an augmented focus in determining the cash tax rate.
References
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