Assessment task: Part A Review the existing literature to critically examine the relative...

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Assessment task: Part A Review the existing literature to critically examine the relative information content of the income statement and the statement of cash flows. Why do investors find both income statement and statement of cash flows useful?  Part B Download the annual financial reports of BHP Ltd, Santos Ltd, and Funtastic Ltd for the year 2019, 2018 and 2017. Examine the consolidated Cash Flow Statements for each companies across three years. Answer the following questions about each of the three cash-flow statements. 1. For each companies [except mentioned otherwise as in c), g) and i) below], across three years on the Statement of Cash Flows discuss: a) What are the major sources of cash for each firm? What are the major uses of cash for each firm? b) What was the trend in cash flow from (continuing) operations for each firm? c) Compare and contrast the cash flow from operations with the net profit after tax in income statement. Explain in detail the major reasons for the difference between these two figures. (Answer this question using only the Cash flow statement for BHP Limited). d) Was the firm able to generate enough cash from operations to pay for all of its capital expenditures? e) Did the cash flow from operations cover the dividend payment made by the firm (if any)? f) If the firm has generated excess cash from operations, how did the firm invest the excess cash? If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends? g) Did the firm use the working capital (current asset and current liability) accounts other than cash and cash equivalents as sources of cash, or uses of cash? (Answer this question using only the Cash flow statement for BHP Limited). h) What other major items affected cash flows for each firm? i) What was the trend in capital expenditures for each firm? j) What was the trend in dividends (if any) for each firm? k) What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for each firm? l) What was the trend in working capital accounts? (Answer this question using only the Cash flow statement for BHP Limited). Page 3 of 11 HI5020 Corporate Accounting Individual Assignment 2 2020 2. Critically evaluate the financial strength of each of the three companies based on the evidence presented in the Statement of Cash Flows, and your answers in (1) above. 3. If you are asked to evaluate these three companies for lending purposes, which of the three companies you will select for lending? Explain Why. Assignment Structure should be as the following: Abstract - One paragraph List of Content Introduction Body of the assignment with detailed answer on each of the required tasks Summary/Conclusion List of references

Angel K · Accepted Answer

CORPORATE ACCOUNTING
ISSUES IN CASH FLOW
1. EXECUTIVE SUMMARY
This report intends to create a collective knowledge on the use of income statements and cash flow statements of three different companies over three different period of time. Moreover the main motive of the report is to analyze why investors finds that both income statement and cash flows important for taking investment related decisions. The comparison of cash flow statements over different periods using various components of the cash flow and the three classifications of cash flows makes the project more intense and helps to make conclusions on various facts. The  report ends by making a conclusion on the financial strength of the companies and choice of the company that the investors would be more interested in.
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY
2. INTRODUCTION
3. USE OF INCOME STATEMENT AND CASH FLOW STATEMENT TO INVESTORS
4. INTRODUCTION TO BHP LTD., FUNTASTIC LTD. AND SANTOS LTD.
5. EXAMINATION OF CASH FLOW STATEMENT
6. EVALUATION OF FINANCIAL STRENGTH OF COMPANIES
7. SELECTION OF BEST COMPANY FOR FUNDING
8. CONCLUSION 
9. REFERENCE
2. INTRODUCTION
A company prepares the financial statements with an objective to provide information about the financial position of an enterprise that is very useful to different users of financial statement. The users of financial statement include investors, potential investors, government, buyers, creditors, financial institutions etc. An investor and a potential investor uses the financial reports for taking decisions regarding their investing plans in the companies or to assess the return of their investments.
The financial statements includes Profit & Loss or Income Statement, Balance Sheet, Cash Flow statements, Statement of Equity and Notes to Accounts. These 5 sets of reports provide complete information regarding an entity’s functioning and also its future plans.
In this project we could make an analysis of why investors are interested in both income statement and cash flow statement and also differences between the two reports. This project also covers a critical examination of 3 different entities over the last 3 financial years and a conclusion on their financial positions in an investor’s point of view.
 
3. USE OF INCOME STATEMENT AND CASH FLOW STATEMENT TO INVESTORS
A statement that provides an overview of the revenue and expenditure of a company is termed as income statement. It classifies the revenue earned and expenses incurred by the company under different heads and show the net result, i.e. the profit or loss of the relevant financial year. The cash flow statement shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis into three different heads (a) Operating activity, (b) Investing activity and (c) Financing activity (Vivien 2015).
A cash flow statement bridges the gap between income statement and balance sheet by showing a clear picture of how much cash is generated or sent on various heads.
An investor finds a cash flow statement very useful as it shows how much cash is actually generated by a company. Income statement always includes non-cash incomes and revenues, which the statement of cash flow excludes (Chen 2019). A cash flow statement depicts a company’s financial health as more the cash that’s available for business operations, the better. A most important statement in a financial report is cash flow as it focuses solely on the changes in cash inflows and outflows.
An income statement is also useful to an investor as it helps to determine the profitability of the business over time. Investors can search for trends in company spending and earning because the statement provides break down for every individual revenue and expenses. Another important feature is that the income statement also provides information of Earning per Share (EPS) to the investors.
From this analysis it is evident that both the income statement and the cash flow statement are equally useful for an investor for taking decisions regarding a business.
4. INTRODUCTION TO BHP LTD., FUNTASTIC LTD. AND SANTOS LTD.
BHP Ltd., formerly known as BHP Billiton is a trading entity with BHP Group as its parent company. It is an Anglo- Australian multinational company having major area of business in mining, minerals and petroleum. The headquarters is in Melbourne Australia. The company was established in 1885. It has a reported revenue of 4428 crores USD during the last reported period.
Funtastic Ltd is an Australian based public company. It deals in development and distribution of toys confectionery, sporting and lifestyle products across the world. The company was founded in 1994. KP International Pty Ltd, Australia Pty Ld. Are some of its subsidiaries. It has reported a sales revenue of 2987 crores of USD in its last annual report issued.
Santos Ltd is Australian based energy company. It is the country’s second largest independent oil and gas producer. It has its headquarters in Adelaide Australia and was founded in 1954. Santos WA Energy Ltd, Santos Finance Ltd are some of its subsidiary companies. It has reported revenue of 366 crores of USD as per the last reports.
These are the companies chosen for analysis of cash flow statement on basis of various factors.
5. EXAMINATION OF CASH FLOW STATEMENT
a) What are the major sources of cash for each firm? What are the major uses of cash for each firm?

Assessment task: Part A Review the existing literature to critically examine the relative information content of the income statement and the statement of cash flows. Why do investors find both income...

Answer To: Assessment task: Part A Review the existing literature to critically examine the relative...

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