Hi5020 Cash Flow Statement Issues Answers

• Internal Code :
• Subject Code : HI5020
• University : Holmes Institute
• Subject Name : Accounting & Finance

Corporate Accounting

1 Abstract on Cash Flow Statement Issues

We will discuss in this article the topic of financial tax and the relevance for the business accounting of income statement and cash flow statements. An important part of the company budget is cash flood monitoring and distributions. The cash balance statement or cash flow account estimates for a given time the output and use of a company's assets. The findings measure a company's operating success for a given timeframe composed of revenues, investments, profits and losses. It is also called an annual audit. A benefit report stating whether a corporation makes a benefit and a cash balance statement shows whether a firm earns funds. A significant part of the company balance sheet are cash flow statement and dividends. The financial surplus is determined from the same number of profits inflows and outflows from a corporation for a period of time. The following are more clarifications.

Contents

1 Executive summary.

2 Introduction:

3 Part one:

4 Part 2

Part a.

Part b.

Part c.

4.1 Cash flow operation:

Part d.

Part e.

Part f.

Part g.

Part h.

Part i.

Part j

Part k.

Part k.

5 2. Critically evaluate the financial strength of each of the three companies based on the evidence presented in the Statement of Cash Flows.

6 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.

7 Conclusion:

8 References:

Introduction to Issues in Cash Flow Statement

Cash balance report displays the exact amount of cash inflows and outflows of a corporation per week, quarter and year. This overview contains current accounting reports and changes in the balance sheet, such as raises or cuts to receivables or accounts payable, and does not include non-cash costs such as depreciation or depletion. Cash flow is normally created by the sales of businesses, but the available funds can be stretched due to credit. A cash flow statement measures the company's short-term viability and longevity, in particular how successful they are to pay the sellers' bills (Avazov & Maxmudov, 2020).

Issues in Cash Flow Statement - Part A

The cash flow statement is related to the gross benefit or the net loss as the first line item of the cash flow statement. In the declaration of sales, profits and loss are used to measure cash flow from purchases. The indirect approach is known. Another technique known as the direct mode may also assemble the cash flow analysis. The money received in this case is removed from the funds invested on the calculation of the gross cash balance. A major portion of the business balance sheet was cash flow analysis and distributions. The declaration of income flow or income status measures the production and use of funds by a corporation for a specified duration. The findings measure a company's operating success for a given timeframe composed of revenues, investments, profits and losses. It is also called an annual audit. A benefit report stating whether a corporation makes a benefit and a cash balance statement shows whether a firm earns funds.

The declaration of balance sheet and cash flow is two of three financial statements of the organisation that report the profits. An annual report measures the operating performance of a corporation and the earnings viewpoint for analysts, market observers and customers. Whereas the balance sheet shows what a company owns and owes, the cash flow statement shows the person's gross sales. A balance sheet shows what an entity owns and owes in terms of asset liabilities. Furthermore, the balance sheet reveals how much the owners have paid. The financial balance report indicates the financial revenue and outflow of a business for a period of time. In other words, the balance sheet displays the assets and obligations resulting partially from the management of cash flow.

The Revenue Statement is probably the most critical financial document for most people, since it reveals the success of a business. The details in the return statement are, in practise, mostly in reasonably recent dollars and are thus realistic. The amount of the operating assets and liabilities is not therefore reported so that its implications are not directly associated with the cash flows that the company has generated. Indeed, the authenticity of this paper may be questionable, since cash is used for taxes. Therefore, if presented by itself, the income statement may be quite misleading.

Issues in Cash Flow Statement - Part B

 a. The cash balance sheet indicates how much an organisation has gained for a given duration, such as a quarter or a year (Thaddeus & Obiorah, 2020). One may wonder why such a statement is relevant, because it sounds very similar to the statement of sales, which reveals how much income and how many expenses are expended. The distinction lies in a technical concept called accrual accounting. When selling, Accrual accounting only requires firms to record gains and losses while investing in cash. The cash flow statement helps investors to resolve this problem when it seems plain enough. In fact, it is a giant mess. The assumption on cash flow is very critical for investors because it shows a company's current sales. In comparison, non-currency benefit or loss excluded from the cash flow sheet is also part of the income statement. One of the main factors of potential acquisitions is the company's ability to collect funds (Thaddeus & Obiorah, 2020).

b. The operational cash flow (CFOs) is a volume of funds generated by a business from its everyday activities, such as the manufacture and delivery of goods or services to customers. This is the first part of a company's cash flow analysis. The recurring cash flow does not include long-term loans, land gains or expenses expenses. CFO relies primarily on the core sector which is also known as operating cash flow (OCF) or net cash operations. Cash flow is a primary criterion for the measurement of a specific corporation's financial results. The first part of the cash balance sheet involves spending money and borrowing. The company's cash money is the first. Two forms are available for representing the company's finances in a cash flow statement: an explicit way and the real form. The direct approach tracks all transactions in this period which contains some cash balances which fund outflows. It uses the direct approach to calculate all transactions on a monetary basis in a single period (Sun & Ding, 2020).

 c. Net profits are the revenue a corporation receives over a time where running costs generate cash, in part, from a company's daily activities. The starting point of the calculation is the cash generated by sales. However, a company's financial security is crucial to both. Net income is a fundamental growth measure and a driving variable for stock and bond rates. The variations in net profits cover depreciation and amortisation goods which are not income assets which can affect an organisation 's overall financial position. A company with high cash flows requires more money than outsourcing. Net benefit, however, is the least advantage a business gets, if the company is successful, it still loses revenue.

The BHP revenue figure of the company update 2017 10 K can be noted below:

Complete revenue or profits = 237 billion dollars (blue).

Complete expense of $225.68 billion (in red) plus other deductions. Complete costs include $34 billion in operating expenditures, $10.9 billion in SG&A and $19,893 trillion in investment costs accumulated over years to buy properties such as inventory, warehouses and facilities.

Net benefit = $19.8 billion (green) after the expense, expenses and taxes have been subtracted.

1.1 Cash Flow Operation

In the cash flow statement, cash generated from operation is included. The cash flow statement is equivalent to and from a company in the amount of assets and securities. The CFS checks the efficacy of a corporation's liquidity balance, showing how much it earns cash in order to satisfy its debt obligations and pay its operating expenses.

The below is the 2017 10 K declaration BHP cash flow analysis:

This net profit of 19.8 billion dollars represents the heights in the measurement in cash flow.

With a deficit of US$ 19.8 billion (blue), the cash surplus was replenished. The financial tax has been discontinued as you know it though.

For the BHP, spending cash was 30 billion dollars (red) for that year.

 d. BHP 's three-year limited operating cash flow was 10,625,000 USD in 2016, 6,04,000 USD in 2017 and 18,461 USD in 2018. Capital expenditure of the company (net) is considerably smaller than the 2016 (net), 2016 ($7,245 million), 2017 ($4161 million) and 2018 ($5921 million). This shows that BHP Limited is clearly profitable because cash from companies is necessary to fulfil investment needs for the last three years. Service cash flows are necessary to satisfy the need for resources in these years.

 e. The dividends BHP received were reduced to $4130 million in 2016, $2921 million in 2017 and $5220 million in 2018. The capital costs of the Company (Network) are slightly smaller, with a total of $7,245 million for2016, $4161 million for2017 and $5921 million for2018. Of gross currency investments of 11.375 million dollars over the last three years, 7082 million dollars in 2017, 11.141 billion dollars in 2018 and 11.375 million dollars in 2016. The 3-year operating cash flows in 2018 and 2017 were adequate to cover capex investments and payments of dividends, but those targets were not met in 2016 as expenditures exceeded OCF.

f. For compensation for procurement and capex costs, project excess cash was used. Much of it was used to fund long-term debt and acquisition by companies like BHP. Apart from financing capex primarily through cash deals, several corporations have financed capex through new equity problems and mostly new debt problems.

 g. Yes, that's true. That's true. In the calculation of working capital adjoyments, which are often modified to calculate company money, both organisations used variables such as accounts receivable, accounts payable and inventory. BHP excluded the following items, other than income and money, to quantify revenue from sales.

1. a) Trade agreements – capital balance expenditures would decrease and cash balances would grow within the organisation.
2. b) Cash balance swap with the payable swap and vice versa with payable transactions.
3. c) Inventory – Product rates reduction can decrease operating costs and maximise internal cash flows.

h. The following are categorised as big issues impacting cash flows other than the ones mentioned above:

1. a) A significant factor in the operating community was net interest expenses paid by BHP Limited.

(b) Profits and gains or losses generated by BHP through the accounting of equity are the key items for operating divisions.

1. c) over the years BHP has been a significant cash consumer with small exploratory investment.
2. d) In all three years the purchasing of stocks by ESOP trusts was a major cash item.
3. e) The key causes of cash capital and BHP utilisation are loans issued and repaid in all three years.

 i. The capital investment of BHP Limited (net) was significantly less than $7,245 million in 2016, $4161 million in 2017 and $5921 million in 2018. This means that capex has sunk to the lowest and just slightly higher in 2018 in 2016 and is now at the highest in 2017. This shows that BHP is engaged in long-term investing. BHP Limited (net) had less capital spending, including $7,245 m in 2016, $4161 m in 2017, and $5921 m for 2018. This indicates that Capex dropped to the lowest in 2016, and just marginally higher than in 2017. This shows that BHP is actively invested in long-term investments.

j. If the following table shows dividends from the three companies as listed:

BHP Limited paid a dividend in each of the last three years. The dividend paid in 2017 declined compared to 2016, however. By comparison, Santos limited paid no dividends in 2016 and 2018. Fantastic is the only company not earning any distributions over the three years. The average isn't three. In future years, as sales from metal prices decline over the next few years, BHP is therefore expected to face a rising (growing dividend) increase.

k. The below are the loans issued and reimbursed by different companies:

Wonderful small, as stated above, has net capital all years and the trend of loan amounts is diminishing. Santos Limited reported however that it did not lend much in 2016, however the overall debt accrued grew dramatically in 2017 and 2018. The case with BHP is entirely different, since all current assets and bonds were assets. Total loans after the $2,781 million reimbursement were 4,458 million, which was identical in 2017 to $5,537 million in 2016 (Deo & Liu, 2020).

l. The following changes are seen in the table in the working capital accounts of BHP limited:

Usually the company invested cash on working capital in 2016 and 2017, however, it was able to recover the same amount from its operating capital in 2018. In 2018, in order to obtain trade loans and other labilities, BHP limited continued to invest on export or commodity loans. For example, in 2016, the investment on working capital rose steadily in 2017 and 2018 as cash was added net.

2. Critically Evaluate the Financial Strength of Each of The Three Companies Based on The Evidence Presented in The Statement of Cash Flows.

Increased sales, however, have not earned enough cash to offset runner expenses. Fantastic limited. As a result of growing cash spending on investments, the business financial balance has been increasingly negative. That ensures that it depends on cash for its business to proceed with new loans and other channels. In the other hand, the BHP limited is a corporation that can earn a fair return on investments. Present surplus cash flows are available to fund both the investment and operating activities. This means that the cash sources of BHP Limited will grow to 4138 million dollars in 2016, 3047 million dollars in 2017 and 1650 million dollars in 2018, each project being collectively carried out. BHP limited the ability of management to recover a large part of their long-term commitments and cut costs (Naoum & Papanastasopoulos, 2020).

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.

Cash flows from revenues for Santos Limited were positive and strengthened over the same time. This shows that the company will collect cash money for activities. In 2016, accumulated cash raised, declined in 2017 and grew in 2018. The cash balance is relatively stable and covers spending expenses. The cash flow for BHP was positive and at the same time improved. This shows that the company will collect cash money for activities. The company's willingness to recover a considerable portion of its long-term liabilities in 2017 and 2018 and not to boost too many additional loans raised the amount of closing cash from 10.276 million USD in 2016 to 14.108 million USD in 2017 and 15.813 million in 2018. The consequence was a substantial decline in debt and the amount of interest owing (De Vito & Gomez, 2020).

4 Conclusion for Issues in Cash Flow Statement

The same is true of Fantastic and even of management issues, as both BHP Limited and Santos Limited have gradually increased their cash flows in revenue. The negative cash flows are of great concern as the method 's close cash flows were more or less similar, since operating costs were not minimised and handled by the firm. Given the current financial situation and the opportunity to create cash from sales and the fact that the capacity for cash output is strong, besides transport cash, I will not lend it to the two other companies but rather to lend it limited to BHP. BHP limited has been able to sustain a very high coverage over the three years that the research has been done, so it is perfectly reasonable to ensure that the efficiency of the financing firm is assessed against its interest paying capabilities as a money purchaser. The Revenue Statement is probably the most critical financial document for most people, since it reveals the success of a business. The details in the return statement are, in practise, mostly in reasonably recent dollars and are thus realistic. The amount of the operating assets and liabilities is not therefore reported so that its implications are not directly associated with the cash flows that the company has generated. Indeed, the authenticity of this paper may be questionable, since cash is used for taxes. Therefore, if presented by itself, the income statement may be quite misleading.

5 References for Issues in Cash Flow Statement

Avazov, N., & Maxmudov, N. (2020). Investment as a source of financing. Архив научных исследований, (24).

Caban-Garcia, M. T., Choi, H., & Kim, M. (2020). The effects of operating cash flow disclosure on earnings comparability, analysts' forecasts, and firms’ investment decisions during the Pre-IFRS era. The British Accounting Review, 100883.

Deo, P., & Liu, C. Z. (2020). Paraton outdoor life, Inc. A case study on reported cash flow and gaps in financial statements. Journal of Higher Education Theory and Practice, 20(1).

De Vito, A., & Gomez, J. P. (2020). Estimating the COVID-19 cash crunch: Global evidence and policy. Journal of Accounting and Public Policy, 106741.

Naoum, V. C., & Papanastasopoulos, G. A. (2020). The implications of cash flows for future earnings and stock returns within profit and loss firms. International Journal of Finance & Economics.

Nallareddy, S., Sethuraman, M., & Venkatachalam, M. (2020). Changes in accrual properties and operating environment: Implications for cash flow predictability. Journal of Accounting and Economics, 101313.

Sun, W., & Ding, Y. (2020). Corporate social responsibility and cash flow volatility: The curvilinear moderation of marketing capability. Journal of Business Research, 116, 48-59.

Thaddeus, U. N., & Obiorah, I. M. (2020). Evaluation of cash flow to sales and net profit margin to sales rations as a firm performance measure. A study of vitafoam company. Nigeria (1993-2015). Journal of Accounting Information and Innovation, 6(3).

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