The critical aspects in relation to operational cash flows are highlighted below.
Besides the above, the company also receives other operating income and also interest income. Consequently, the cost involved in terms of borrowing has also been considered. Additionally, another pivotal element is the amount of tax paid by the company on the operational profits generated which has seen major jump in FY2017 to the extent of 40% over FY2016.
With regards to cash flow arising from investing activities, there are three elements that need to be discussed. The most pivotal is the payment that the company has done for acquiring PP&E in a given year which has seen about 20% increase in FY2017 as compared to FY2016. Another pivotal element is the amount that the company pays for acquisition of intangible assets which has seen a 10% increase in FY2017 over the previous year. A key cash inflow would comprise of the proceeds derived on sale of PP&E which has dipped in FY2017 compared to FY2016 (Orica, 2017).
The critical aspects in relation to financing cash flows are highlighted below.
The key observations which emerge from the table above are indicated as follows (Lasher, 2017)
The above deviation is on the basis of the reconciliation that has been performed so that using the accounting pre-tax income as the base the computation for the tax payable in accordance with the income tax provisions can be performed. The following note to account highlights the same (Orica, 2017).
It is apparent from the above notes to account that requisite adjustments have been made to highlight the differences in provisions related to tax and also accounting income. Also, certain adjustments are also prompted owing to tax being paid abroad owing to foreign operations where the tax rate is different from that prevalent in Australia. Also, some portion of the tax may have been held as part of the withholding tax.
Compared to the previous year i.e. FY2016, the deferred tax assets have witnessed a decline as the corresponding level that existed as on June 30, 2016 was $408.3 million. Further, the different components of deferred tax assets coupled with changes in this regards are summarised below (Orica, 2017).
Based on the above, it is apparent that these assets tend to attribute their existence to the temporary differences that tend to arise for the above items. Further, the implication of a deferred tax asset is that in the future owing to the present transaction, the company would save taxes or experience a tax refund (Petty et. al., 2015).
Deferred Tax Liabilities (FY2017) = $ 274.6 million
Compared to the previous year i.e. FY2016, the deferred tax liabilities have witnessed a increase as the corresponding level that existed as on June 30, 2016 was $267.2 million. Further, the different components of deferred tax liabilities coupled with changes in this regards are summarised below (Orica, 2017).
Based on the above, it is apparent that these liabilities tend to attribute their existence to the temporary differences that tend to arise for the above items. Further, the implication of a deferred tax liability is that in the future owing to the present transaction, the company would pay more taxes or experience a tax outflow (Petty et. al., 2015).
The payable income tax highlights the amount of income tax for a given period which has not been still paid based on essentially two parameters i.e. the tax paid and the tax expense. Considering that tax expense highlights the total amount that the company ought to pay the tax authorities for the given year, the tax payable would be derived by subtracting the tax paid from the tax expense. Further, it is unlikely that the tax payable and tax expense would be the same since some portion of current year tax expense would already have been paid (Parrino and Kidwell, 2014).
References
Brealey, R. A., Myers, S. C., & Allen, F. (2014) Principles of corporate finance, 2nd ed. New York: McGraw-Hill Inc.
Damodaran, A. (2015). Applied corporate finance: A user’s manual 3rd ed. New York: Wiley, John & Sons.
Lasher, W. R., (2017) Practical Financial Management 5th ed. London: South- Western College Publisher.
Northington, S. (2015) Finance, 4th ed. New York: Ferguson
Parrino, R. and Kidwell, D. (2014) Fundamentals of Corporate Finance, 3rd ed. London: Wiley Publications
Orica (2017) Orica Annual Report FY2017, [online] available at https://www.orica.com/Investors/Annual-Report/downloads#.Wwiiqe6FPIU (Accessed May 25, 2018)
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