Financing statement: conversion to cash basis Spanish companies include a ‘financing statement’ in their published accounts in place of a cash flow statement. It shows the sources and uses of the company’s funds in the period, where the term

‘funds’ indicates working capital (current assets less current liabilities) rather than cash. The statement can be converted to a cash basis. However, the resulting cash flow statement is approximate since key cash flow numbers (e.g. changes in working capital excluding the effects of acquisitions and disposals of businesses in the year) are not disclosed.

Compañía Logística de Hidrocarburos (CLH) is a company providing logistics services – mainly transport and storage of oil products – in mainland Spain and the Balearic Islands. Key operating data for the 1998–2001 period are given below:

In Bm 2001 2000 1999 1998 Operating revenues 541 517 479 468 Net income 163 124 125 103 The company undertook a financial restructuring in 2001, replacing equity capital with debt.

The aim, according to the company, was to increase returns on equity and thereby attract new shareholders.

CLH includes a financing statement in its 2001 accounts (see Exhibit 18.14). It describes it in the English-language version of the accounts as a ‘statement of changes in financial position’.

Required

(a) Convert CLH’s 2001 statement of changes in financial position to a cash basis. Analyse cash flows by operating, financing and investing activities. Use the ‘Funds obtained from operations’

figure as the starting point of the ‘Operating activities’ section. This figure is the sum of profit, depreciation and other long-term accruals.

(b) The company reported a major change in its financial balances in 2001 – from net cash of A153.3 million at the end of 2000 to net debt of A161 million a year later.

At 31 December 2001 2000 Short-term financial investments 1.4 152.3 Cash 22.4 2.7

– Long-term debt (183.4) (1.0)

– Short-term debt (1.4) (0.7)

Net cash/(debt) (161.0) 153.3 Using the information in the cash flow statement you prepared in (a), explain the main reasons for the A314.3 million change in CLH’s net financial position in 2001.

Check figure:

(a) Cash flow impact from change (A000)

in operating working capital +71,698.AppenedixLO1

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Exhibit 18.14 CLH: consolidated statement of changes in financial position, 2001 In 000 2001 Application of funds Tangible fixed asset additions 96,507 Dividends 506,745 Repayment, or transfer to short-term, of long-term debt 388 Provisions for contingencies and expenses 20,442 Total funds applled 624,082 Source of funds Funds obtained from operations Fixed asset disposals Tangible fixed assets Long-term financial investments Long-term debt Reduction in working capital Total funds obtained 151,786 85,808 29,288 56,520 182,879 203,609 624,082 Variation in working capital Inventories (11,422) Accounts receivable 74,588 Accounts payable (135,331) (657) Short-term debt Short-term financial investments Cash Accrual accounts Total variation in working capital (150,906) 19,652 467 (203,609) Funds obtained from operations Income for the year Add: Period depreciation and amortization Provision for contingencies and expenses Deferred corporate income tax asset Less: Provisions transferred to income Capital subsidies transferred to income Gain on fixed asset disposals Deferred corporate income tax liability Total funds 163,162 61,988 19,726 473 453 4,653 62,227 26,230 151,786