Financial Performance Analysis Of Orica Ltd: Annual Report 2017

Cash Flows and Investing Activities

The company that has been selected for the discussion is the Orica Ltd  which is said to be one of the renowned companies in the commercial blasting system. The company works globally and is said to have links with other continents also. The annual financial report states that the company has earned a profit of $386 million. Therefore the financial statements have been properly evaluated and the report has been discussed in the answers below.

1. The main discussion is in relation to the profit and loss account where the form has evaluated the net income. The net income consists of various expenses and incomes that are a part of the balance sheet and does even noncash items are required to be reduced why did if any of the transactions have been noted earlier. If adjustments are over the net income which is recorded in the financial statement then the changes as needed to be made in the assets of the organization. Net income of the financial statement then the changes is needed to be made in the Assets of the organization. After all the adjustments in the net income, the changes in the position of assets help to determine the cash position of the company. The transactions of operating nature that affect the transactions in relation to the position of assets are also being influenced. The transactions of operating nature that affect the transactions in relation to the position of assets are also being influenced does making it necessary to deduct the interest paid from the operating income. It has been noticed that the non controlling interest which is part of the equity statement of the company does not contain the subsidiaries (Melville, 2013). Therefore any kind of payment which is being made in relation to the non controlling interest holders should be subtracted from the operating income or operating expense as it forms a part of it. Even the tax which is being paid should be deducted from the operating income. It is the normal nature of tax to get increased every year but it was observed that the year 2017 had reduced rate of interest which was a major help to increase the sales at a great amount.

The net cash that is generated by the operating activities conducted by the organization is said to be $466.4 million while it was USD 777.9 in 2016. The cash flow that has been generated from the investing activities has been observed to see a lot of pride judgments in relation to the links to PPE and other intangible assets of the firm. The investment that was made in PPE amounted to $254.8 million in the year 2017. Also, there were many assets that were being sold in the year 2017 itself. The proceeds from the sales were recorded to be $5039 million in 2017 as compared to USD 5092 in 2016 and USD 5653 in 2015. There was also sale of many types of investments that amounted to USD 4.8 in 2017 and USD 16.7 in 2016 . Almost all the asset that is being owned by the company has very liquid in nature and can help the company if there is any certain need for cash. All the purchases that have been made by the company are highlighted in the financial statements but the sales are kept restricted in nature. They were huge sales made and also some PPE and other intangible assets were also observed to be sold.

The net cash which was being invested in the activities amounted to USD 255 million in 2017 while USD 176 was used in 2016 and USD 265 was received in 2015. The financing activities of the company are those which help the organization in order to conduct the business and the operating activities on daily basis (Melville, 2013). Also because of the high huge profit that had been earned by the firm, the firm should announce a dividend for the shareholders. The dividends amounted to USD 157.9 and 213.4 million in 2016 and 2017 (Orica Ltd, 2017).

1. After analyzing the annual report of the company for past years it can be evaluated that how the company has been performing in the market. The cash flows which are being made for the operations are adjusted as cash and noncash operating income expenses and profits so that the income generated can be transferred to the cash flows. $466.4million was set to appear as the cash flow from the operating income for the current year also this figure was observed to increase from the last year’s figure. Because of the fewer borrowings in the current year, the expense of the interest was reduced. Also, the profit that has been advanced for this year was not relevant to the data of the past 3 years. The only reason which has affected the cash flow operations of the Year 2017 was the decline in sales and operation conducted by the company (Orica Ltd, 2017).

The investing activities can be defined as the activities which have been used to enhance the funds of the company. The operating income is derived from various other tasks such as investment and financing also keeping the other activities in mind.

The financing activities of the Year 2017 had an outflow of $2.3 million. In the year 2016 huge difference was noticed where the figure was USD 501 million. Also because of the high sales and return the company has paid a dividend to the shareholders and the dividend amounts lower than the dividend which was paid in the last fiscal year (Orica Ltd, 2017). There were no borrowings made by the firm and also the repayment was made in relation to the last year borrowings.

• Other comprehensive income can be understood as the revenue expenses gains and losses which are not present in the income statement and are maintained under the system of IFRS. All these expenses gains and losses are to be and listed in the income statement of the organization. The revenues expenses and losses should also appear in the comprehensive income if they have not been the realized till the current year. There still exist many transactions that are needed to be realized so that complete account can be maintained also the accrual concept of accounting is to be used in order to realize and compensate the accounts. The accrual basis of accounting clearly states that the transaction is recorded in the books of account at the time of evaluation of the contract and not at the time at which the cash is collected for the sales. It is a very different type of concept as there is no outflow-inflow of the cash from the organization. In order to clearly understand the concept of accrual basis of accounting, we can take the example of the company ABC Limited. Let ABC Limited has a business of selling automobiles and services relating to them. If ABC Limited has type to make a transaction with the customer then the proceeds of the sales will be recognized at the time when the delivery will be made and thereafter the organization has no relation to any kind of risk that may prevail on the product it has sold. All these statements are clearly mentioned in the contacts of the organization. There may be cases in which the customer may not pay the cash in relation to the transaction till the end of the year, so the comprehensive income will be presented in the accounts of the next fiscal year in order to maintain properly all the accounts of the organization.

1. iv) The difference between the pension payments expected by the employee and that what the company actually pays them amounts the actuarial gains and losses. If the amount that is paid to the employee is greater than what they have expected it accounts to actuarial losses while if the amount expected by the employee is greater than the amount received by the employee amounts to actuarial gains. Factors affecting the pension amount of the employee are like his tenure in the organization, average salary, age, a rate of pay, etc. These factors are required to be taken into due consideration by the company so as to legitimately evaluate the pension amount for the employees. In the books of Orica Ltd, it is noticed that there is no accounting of matters concerning gains and losses arising from such adjustments (Orica Ltd, 2017).
2. v) It is required for Orica Ltdto convert all its foreign currencies into functional currency in a systematic way before accounting it into its financial statements for the purpose of undertaking various foreign transactions (Orica Ltd, 2017). In order to maintain the accounts in a proper manner, it is required for the company to provide the alterations that have been made in its balance sheet regarding transferring its foreign currencies into functional currencies. The translation of the adjustment is necessary to be highlighted in order to record the gains or losses on account of the ever-changing currencies only when the functional currency varies from its foreign currency (Williams, 2012). It can be further said that the foreign currencies serve as a huge derivative of instrument that may arise losses or gains in an organization and make it tough on the management part to perform systematically (Bodie et. al, 2014).

1. As per the current financial statements it has been observed that Orica Ltdhas paid taxes less as was compared to the previous year. The actual amount of tax paid by Orica Ltdthis year is USD 164 million (Orica Ltd, 2017).

vii.  As per the accounted income of the company the amount of tax paid that is reflected in the financial statements is not accurate. It was mentioned that on account of some adjustments that has been provided in its books of accounts as well the tax rate was 34.5% the during the current year (Northington, 2011).

viii. In 2017 the organization paid deferred tax liability for about $ 88.5 million. Deferred tax liability is a kind of a tax that is assessed in the current year but has not yet been paid. It is a timing difference between when the tax arises and when it is paid.

1. Deferred tax assets maintained by Orica Ltdwere mentioned and reported above. The company paid tax expenses that accounted to be around $ 164  million in the current year. The income tax expense paid by the organization is always confused with its income taxes. Both are different aspects altogether and are required to be separately projected in the financial statements (Northington, 2011).
2. The income statement of Orica Ltdmight reflect taxes that accrued to the organization in the current year. The income statement is reduced by the accrued tax while the cash flow statement reflects tax as an outflow. The advance tax is reportedly paid while such taxes are due in the previous year. Once the TDS payment is deducted the actual amount of tax is calculated and is reported before making the final payment.
3. For the purpose of taxation process, it is required for the company to adhere to corporate governance principles and such other principles of general disclosures. This will encourage smoothness in the process of taxation systems (Arnold, 2011). It is noticed in the Orica Ltd financial statements that the tax elements of the parents and subsidiaries are projected systematically both in combinations and separately as well. It facilitates the end users as they find ease and comfort in understanding and evaluating the required information regarding tax analysis in the financial statements of the company and make legitimate decisions with regards to investment (Orica Ltd, 2017).

References

Arnold, G. (2010) The Financial Times Guide to Investing. Prentice Hall.

Bodie, Z, Kane, A. and  Marcus, A. J. (2014)  Investments.  McGraw Hill

Melville, A. (2013)  International Financial Reporting – A Practical Guide. Pearson, Education Limited, UK

Northington, S. (2011)  Finance. New York, NY: Ferguson’s.

Orica Ltd. (2017)  Orica Ltd Annual Report and accounts 2017 [online]. Available from: file:///C:/Users/HP/Documents/Academic%20writing/2018/Nerdy/may/743711/AR17_Orica_Annual_Report_WEB.PDF  [Accessed 19 May 2018]

Williams, J. (2012)  Financial accounting. New York: McGraw-Hill/Irwin.