Financial Statement Analysis Of A Public Limited Company Listed On ASX

Analysis of the Cash flow statement

With the ramified economic changes and complex business structure, each and every company is operating in the international market are following international financial reporting framework. As this International rules and regulation has very complex structure which require from company or entity to establish a separate compliance function like internal audit department or audit committee and foam a policy to define role and responsibility of such function or department.  This report focuses on the analysing the cash flow statement and recording of accounts as per the accounting rules and taxation rules. It is a listed company operating in the international field which make it obligated to compliance with domestic as well as international financial reporting framework.

1.

Cash flow statement show the flow of the cash whether it is inflow or outflow , It   include the cash flow of current year as well as cash flow of the year as well as cash flow of the year which is not related to relevant previous year. Cash flow statement classifies its activity in three phases:-

Operating Activity which includes the flows of the cash which generate from operational activity.

Investment activity includes the flow of cash from sale or purchases of any Immovable property.

Financial activity includes the cash flow from financial activity like loan taken or repayment, issue of security or redemption of debenture etc.

The non- cash items if company is AUD $ 34 million which have increased by 22% since last one year.

The company has also acquired the new machinery and assets   of AUD $886 million which has been shown in investment activity.

The cash outflow from the financial activities have reflected the cash outflow of AUD $ 396 in 2017 that is 12% higher as compared to last year data.

 The company has also declared the dividend on its share capital which is AUD$119 million .It is 10% higher than the previous year.

After assessing the cash flow of JB HI-FI Company it is concluded that company has increased its free cash flow to AUD$ 21 million. Since last years.

2.

JB HI FI LTD  (JBH) Statement of  CASH FLOW
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Net cash provided by operating activities	191	185	180	41	156
Net cash used for investing activities	-886	-52	-44	-38	-38
Net cash provided by (used for) financing activities	716	-131	-130	-28	-91
Free cash flow	142	133	137	5	121

As company is operating on a large scale so it is reasonable to have higher amount of operating activity therefore all of its free cash flow is accompanied with the increasing and decreasing of cash. Company is having positive cash flow in the business as reflect from free cash flow amounting AUD $ 142 million. If company want to sustain its capital for long run than it needs to focus on increasing the value of its business then they needs to increase the overall output and efficiency of the business.

3.

The income statement includes that item which is revenue in nature. It include revenue, cost of goods sold gross profit, net profit, nonrecurring item, extra-ordinary item etc.

JB HI FI LTD  (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per share data.	2017-06	2016-06	2015-06	2014-06	2013-06
Revenue	5628	3954	3652	3484	3308
Cost of revenue	4398	3089	2854	2745	2610
Gross profit	1230	865	798	739	699
Operating expenses
Sales, General and administrative	1434	1006	931	884	839
Other operating expenses	-472	-361	-334	-336	-318
Total operating expenses	963	644	597	548	521
Operating income	268	221	201	191	178
Interest Expense	11	4	6	9	10
Other income (expense)	2	1	1	0	1
Income before income taxes	259	218	196	183	168
Provision for income taxes	87	66	59	54	51

The provision for depreciation ,doubtful debts warranty or third party claim  or provision for tax etc. are the non-cash items which cannot be shown in cash flow statement . These non-cash item are only requiring adjusting in income statement to calculate net profit of the year (Brigham, and Ehrhardt, 2013).

Comparative analysis of the all three main flow of activities

4.

As from my analysis  I have understood that the cash flow statement cover only those  item which are related to cash flow irrespective of the fact that they belong to current year or not . But when it comes to income statement it considers only those items which belong to current year and adjustment to calculate net profit (Brigham, and Ehrhardt, 2013).

It is observed that the income statement of the JB Hi-Fi Company covers only those items which have direct and indirect impact on the present year profit. It includes all the provisions and taxes which will be required to pay or provisions for the income tax made. The cash flwo statement covers all the tax payment of company in the present year.

5.

Income statement is prepared to calculate net profit available for shareholder after considering revenue item relented to relevant previous year. Advance made to sappier or advance received from customer will not be shown to income statement as it does not belong to relevant previous year. This is done to show the true and fair view of income statement so that the economic decision of user of such statement does not affect.   The true and fair view of the income statement is based on the recording framework and accounting rules for identifying the profit and loss of Company. 

6.

Tax payment is required to be paid as tax obligation by Company. This amount of tax calculate as per the rules and regulation related to income tax act applicable to the company in the country in which it is operating. AUD $ 65.65  has been paid by the company in current year as compared to last year data which shows the payment of tax AUD $ 86.8 (Brigham, and Ehrhardt, 2013).

Particular(AUD $ in million)	2016	2017
Income tax expenses	86.8	65.6

However, company is having high financial leverage due to which it reduces the amount of tax. The higher interest expenses payment in the books of account will be used by JB Hi-Fi Company to reduce the tax payment on long term basis. It is ideally used as tax planning of the organization.

7.

 It is analyzed that the tax amount paid by company is done by following the taxation rules and standards. The income tax rate computed based on the accounting income differ from the tax paid by company in its books of accounts.  

The income tax payment made by company is AUD $ 65.6 million in 2017 .The tax rate applicable to the company is 30 %.

It would be around 259*30%. 

The amount of tax should be 77.7 million. 

• The accounting profit is calculated on the basis of financial reporting framework but the profit for taxation matter is calculated on the basis of income tax rule after considering the relevant provision and deferred tax arise due to timing difference between accounting profit or income tax profit .

• Two reason for the changes in this tax payment

1. Some expenditure is not allowed as per income tax rule but this expenditure is deductible as per accounting standard so that it will lead to temporary difference.
2. Rate applicable to fixed assets for the purpose of calculation of depreciation are applied as per company act rather than the rate as per income tax rule.

8.

The deferred tax liabilities recorded is amounting to $ 8.2 million. It is evaluated that JB Hi-Fi Company could recognize and carried forward its deferred tax libiliteis to the extent to which it could set off with its tax payment.  It has deferred tax liabilities in its books of account  t (Brigham, and Ehrhardt, 2013).

It is evaluated that the recording of the tax payment in the books of account is different as per the accounting rules and regulation and taxation rules and regulation given under AASB 112.

Items reported in other comprehensive income statement

Recording of the deferred tax assets is done when the tax payment is higher as compared too accounting taxation rules  (Robinson, Stomberg, & Towery, 2015).

On the other hand, tax payment is lower as per the computation made under the income tax rules and regulation as compared to the tax computed as per the accounting rules then the higher tax will be considered as deferred tax assets (JB HI-FI, 2017).

The deferred tax liabilities in the books of accounts shown are given below given table (Towery, 2017).

Particular (AUD $ million)	2017	2016
Deferred tax liabilities	8.2	0

9.

Income tax payable and current tax assets as recorded by the company disclose as follows:-

 JB HI Fi Company Had paid AUD $ 4.9 million in the year 2016 which have gone up to AUD $ 9 million in 2017 (JB HI-FI, 2017).

Income tax paid by the company has been calculated as per accounting profit but this amount should be calculated on the basis of income tax provision and rule.

AUD $ 8.5 million has been shown as deferred tax payment by JB Hi-Fi Company  (Mullinova, &Simonyants, 2016).

Particular(AUD $ in million)	2016	2017
Income tax payable	4.9	9

It is evaluated that the income tax payment shown in the books of account is the amount of tax charged on the profit earned by the company. It is considered that thee the income tax payable is the total amount of tax including outstanding of the previous years (Watson, 2018).

The recording of the income tax payment is done in the profit and loss accounts and the recording of the income tax payment is done in the liabilities side of the balance sheet (Reinstein, & Ahlers, 2018).

10.

It is evaluated that the cash flow statement is accompanied with the inflow and outflow of the cash in the business (Farrell, Greig, and Hamoudi2018).

The cash flow statement shows the amount of tax payment which company made in the present year i.e. $98.5 million. It covers all the tax payment.  

The income tax recorded in the profit and loss account is not equal to the amount of the tax payment shown in the cash flow statement of company (Ayers,., Call, & Schwab, 2018).

Reason

The cash flow statement covers all the tax payment in the present year whether it relates to present year or not. The tax payment is charged on the current year profit and recorded as tax amount charged as well.

On the other hand, tax charged on the profit is shown in the profit and loss account as per the AASB 112 (Phillips, et al. , 2014).

11.

Treatment of the Tax

Interesting thing

The tax payment as per the AASB 112 is not certain so it blocks high amount of cash or capital in business.

Surprising thing

Company can never has deferred tax assets and deferred tax libiliteis in the books of accounts at the same time (Akomeah, Kong., &  Antwi, 2018).

Difficulty in recorded the entire tax amount

The main difficulty in the recording of the tax amount arise due to the change in the taxation rules and difference between the accounting rules and taxation rules and regulations (Brabete, Dr?gan., & Dindiri, 2018).

Conclusion

After analysing all the details and taxation rules, it could be inferred that the deferred tax asset and deferred tax liabilities is recorded in the balance sheet which reflects the excess tax payment and short amount of tax payment made by the company.  After analysing all the facts, it could be inferred that the computation of the tax amount is done by following proper taxation rules and regulations. if in case the tax payment is higher as compared to accounting rules and regulation then the same will be recorded as deferred tax assets in the books of account of company. 

References

Akomeah, M.O., Kong, Y. and Antwi, H.A., (2018). Effect of Tax-Deferred Assets on Mutual Fund Strategies of the Mutual Funds. European Journal of Contemporary Research, 7(1).

Ayers, B.C., Call, A.C. & Schwab, C.M., (2018). Do Analysts’ Cash Flow Forecasts Encourage Managers to Improve the Firm’s Cash Flows? Evidence from Tax Planning. Contemporary Accounting Research.

Brabete, V., Dr?gan, C. & Dindiri, C.M., (2018). Public Interest Satisfaction and Accounting’s Assuming of Social Responsibility. Accounting Data on Profit Tax in the Context of Corporate Social Responsibility. In Current Issues in Corporate Social Responsibility (pp. 217-235). Springer, Cham.

Brigham, E.F. & Ehrhardt, M.C., (2013). Financial management: Theory and practice. Cengage Learning.

Farrell, D., Greig, F. and Hamoudi, A., (2018). Deferred Care: How Tax Refunds Enable Healthcare Spending.

JB HI-FI, (2017). Annual report., [Online]., retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf

Mullinova, S. & Simonyants, N., (2016). Reflection of a deferred tax liability in the credit union reporting according to IFRS (IAS) 12″ Income taxes”. Modern European Researches, (1), pp.83-88.

Phillips, J.D., Pincus, M., Rego, S.O. and Wan, H., (2014). Decomposing changes in deferred tax assets and liabilities to isolate earnings management activities. Journal of the American Taxation Association, 26(s-1), pp.43-66.

Reinstein, T., & Ahlers, A. (2018). Effective NOL Planning in Light of Tax Reform. Tax Executive, 70, 33.

Robinson, L.A., Stomberg, B. & Towery, E.M., (2015). One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Towery, E.M., (2017). Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), pp.201-226.

Watson, L., (2018). The Deferred Tax Asset Valuation Allowance and Firm Creditworthiness. The Journal of the American Taxation Association, 40(1), pp.81-85.