examine the relative information content of income statement and statement of cash flows. Why do investors find both income statement and statement of cash flows useful? Part B

Appendix A, B, and C contain cash-flow statements from three companies. Each cash-flow statement has Three years of data. Examine the contents of these cash-flow statements carefully. Answer the following questions about each of the three cash-flow statements.

1. For each of the three years on the Statement of Cash Flows:

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) Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. (Answer this question using only Appendix B: 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 both the capital expenditures and the dividend payments 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 Appendix B: Cash flow statement for BHP Limited).

h) What other major items affected cash flows?

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 Appendix B: Cash flow statement for BHP Limited).

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

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.

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HI5020 Corporate Accounting Group Assignment T1 2019

Appendix A: Funtastic Limited, Consolidated Cash Flow Statement for the year ended 30 June 2018

2018

2017

2016

Cash Flows from Operating Activities

AU$000

AU$000

AU$000

Receipts from customers

46,463

61,731

94,773

Payments to suppliers and employees

(54,777)

(60,897)

(98,145)

Cash (utilised)/generated from operations

(8,314)

834

(3,372)

Income taxes refunded/(paid)

49

(25)

(163)

Interest and other costs of finance paid

(1,917)

(3,559)

(3,794)

Net cash outflow from operating activities

(10,182)

(2,750)

(7,329)

Cash flows from investing activities

Interest and other investment income received

2

439

651

Payments for plant and equipment

(145)

(888)

(884)

Payments for other intangible assets

(281)

(540)

(325)

Proceeds from sale of international subsidiary

126

-

-

Net cash outflow from investing activities

(298)

(989)

(558)

Cash flows from financing activities

Proceeds from borrowings

2,630

3,647

7,457

Repayment of commercial bills

-

-

(1,000)

Proceeds from share issue

8,355

-

1,111

Costs from share issue

(438)

-

-

Net cash inflow from financing activities

10,547

3,647

7,568

Net increase/(decrease) in Cash Held

67

(92)

(319)

Cash and cash equivalents at the beginning of the year

664

764

904

Effects of exchange rate changes on the balance of cash held in foreign currencies

(13)

(8)

179

Cash and cash equivalents at the end of the year

718

664

764

Appendix B: BHP Limited, Consolidated Cash Flow Statement for the year ended 30 June 2018

2018

US$M

2017

US$M

Restated

2016

US$M

Restated

Operating activities

Profit before taxation

14,751

11,137

1,791

Adjustments for:

Depreciation and amortisation expense

6,288

6,184

6,210

Impairments of property, plant and equipment, financial assets and intangibles

333

193

186

Net finance costs

1,245

1,417

1,013

(Profit)/loss from equity accounted investments, related impairments and expenses

(147)

(272)

2,104

Other

597

194

467

Changes in assets and liabilities:

Trade and other receivables

(662)

267

1,387

Inventories

(182)

(687)

521

Trade and other payables

719

512

(1,272)

Provisions and other assets and liabilities

7

(333)

(316)

Cash generated from operations

22,949

18,612

12,091

Page 4 of 11

HI5020 Corporate Accounting Group Assignment T1 2019

Dividends received

709

636

301

Interest received

290

164

128

Interest paid

(1,177)

(1,148)

(829)

Settlement of cash management related instruments

(292)

(140)

Net income tax and royalty-related taxation refunded

17

337

435

Net income tax and royalty-related taxation paid

(4,935)

(2,585)

(2,286)

Net operating cash flows from Continuing operations

17,561

15,876

9,840

Net operating cash flows from Discontinued operations

900

928

785

Net operating cash flows

18,461

16,804

10,625

Investing activities

Purchases of property, plant and equipment

(4,979)

(3,697)

(5,707)

Exploration expenditure

(874)

(966)

(752)

Exploration expenditure expensed and included in operating cash flows

641

610

419

Net investment and funding of equity accounted investments

204

(234)

(217)

Proceeds from sale of assets

89

529

93

Proceeds from divestment of subsidiaries, operations and joint operations, net of their cash

34

187

166

Other investing

(141)

(153)

(20)

Net investing cash flows from Continuing operations

(5,060)

(3,724)

(6,018)

Net investing cash flows from Discontinued operations

(861)

(437)

(1,227)

Net investing cash flows

(5,921)

(4,161)

(7,245)

Financing activities

Proceeds from interest bearing liabilities

528

1,577

7,239

(Settlements)/proceeds from debt related instruments

(218)

36

156

Repayment of interest bearing liabilities

(4,188)

(7,114)

(2,781)

Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts

(171)

(108)

(106)

Dividends paid

(5,220)

(2,921)

(4,130)

Dividends paid to non-controlling interests

(1,582)

(575)

(62)

Net financing cash flows from Continuing operations

(10,851)

(9,105)

316

Net financing cash flows from Discontinued operations

(40)

(28)

(32)

Net financing cash flows

(10,891)

(9,133)

284

Net increase in cash and cash equivalents from Continuing operations

1,650

3,047

4,138

Net (decrease)/increase in cash and cash equivalents from Discontinued operations

(1)

463

(474)

Cash and cash equivalents, net of overdrafts, at the beginning of the financial year

14,108

10,276

6,613

Foreign currency exchange rate changes on cash and cash equivalents

56

322

(1)

Cash and cash equivalents, net of overdrafts, at the end of the financial year

15,813

14,108

10,276

Appendix C: Santos Limited, Consolidated Cash Flow Statement for the year ended 31 December 2018

2018

US$M

2017

US$M

2016

US$M

Cash flows from operating activities

Receipts from customers

3,740

3,217

2,708

Dividends received

6

12

12

Pipeline tariffs and other receipts

106

66

60

Payments to suppliers and employees

(1,816)

(1,611)

(1,600)

Restoration expenditure

(36)

(37)

(17)

Exploration and evaluation seismic and studies

(98)

(71)

(68)

Royalty and excise paid

(85)

(57)

(34)

Borrowing costs paid

(194)

(254)

(226)

Income taxes paid

(69)

(28)

(17)

Royalty-related taxes paid

(13)

(15)

(4)

Other operating activities

37

26

26

Net cash provided by operating activities

1,578

1,248

840

Cash flows from investing activities

Exploration and evaluation assets

(66)

(146)

(128)

Oil and gas assets

(490)

(483)

(500)

Other land, buildings, plant and equipment

(10)

(5)

(4)

Acquisitions of oil and gas assets

(10)

(49)

(18)

Proceeds from disposal of non-current assets

26

145

447

Acquisition of subsidiary, net of cash acquired

(1,933)

-

-

Costs associated with acquisition of subsidiaries

(10)

-

-

Proceeds from disposal of subsidiaries

126

-

Borrowing costs paid

(6)

(6)

(20)

Other investing activities

-

10

18

Net cash used in investing activities

(2,373)

(534)

(205)

Cash flows from financing activities

Dividends paid

(73)

-

(43)

Drawdown of borrowings

1,193

783

-

Repayment of borrowings

(220)

(2,442)

(147)

Net proceeds from issues of ordinary shares

-

149

733

Purchase of shares on-market (Treasury shares)

(10)

(8)

Net cash provided by/(used in) financing activities

890

(1,518)

543

Net increase/(decrease) in cash and cash equivalents

95

(804)

1,178

Cash and cash equivalents at the beginning of the period

1,231

2,026

839

Effects of exchange rate changes on the balances of cash held in foreign currencies

(10)

9

9

Cash and cash equivalents at the end of the period

1,316

1,231

2,026