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HI5020 Issues in Cash Flow Statement of BHP limited, Santo Limited, and Funtastic Limited Assessment Answer

Assessment Details and Submission Guidelines
TrimesterT2 2020
Unit CodeHI5020
Unit TitleCorporate Accounting
Assessment TypeIndividual Assignment
Assessment TitleIssues in Cash Flow Statement
Purpose of the assessment (with ULO Mapping)
This assignment aims at developing a clear understanding of students about income statement and cash flows statement; and use of cash flow statement to comprehend different key business decisions taken by the management. They will have to consult relevant literature and demonstrate understanding of key concepts. As part of their assignment, they will also conduct
an empirical analysis on cash flow statement. (ULO 1, 2, 4, 5, 6)
Weight40 % of the total assessments (Written assignment 30 % + Presentation 10 percent)
Total MarksWritten assignment 30 marks + Presentation 10 marks
Word limit3,000 words ± 500 words
Submission Guidelines
  • All work must be submitted on Blackboard by the due date along with a completed Assignment Cover Page.
  • The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
  • Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style.

Assignment Specifications

Assessment task:

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:
    1. What are the major sources of cash for each firm? What are the major uses of cash for each firm?
    2. What was the trend in cash flow from (continuing) operations for each firm?
    3. 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).
    4. Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?
    5. Did the cash flow from operations cover the dividend payment made by the firm (if any)?
    6. 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?
    7. 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).
    8. What other major items affected cash flows for each firm?
    9. What was the trend in capital expenditures for each firm?
    10. What was the trend in dividends (if any) for each firm?
    11. What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for each firm?
    12. What was the trend in working capital accounts? (Answer this question using only the 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, 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.



Assessing the cash flow statement of the BHP limited, Santo Limited, and Funtastic Limited to understand the various issue

Evaluating the cash flow and its utilization by each company

Company nameGenerated cash flowCash flow used
BHP limitedIt has generated cash from the revenue and capital assets which has helped the company to increase the business (BHP LIMITED 2020)
The company has used the business fund to invest in the production capacity and repayment of the short term and long term liability (BHP LIMITED 2020).
Funtastic LimitedIt has generated the fund by selling capital assets. It has not performed well and incurred losses (Robinson, 2020). The company has not provided better profitability and it has used the fund to repay the business loan and long term liability (Funtastic Limited 2020).
Santos LimitedIt has performed well in the current years and generated cash from the revenue of the company (Santos Limited 2020).It has used the fund to expand the business capability and repayment of the long term liability. It has also provided the dividend to shareholders (Santos Limited 2020).

Assessment of the operating activity of each firm

BHP limitedThe operating cash flow of the company has been affected by the change in depreciation, debtors, and creditors. It has also been affected by the purchase of the new plant and machinery (BHP LIMITED 2020).
Funtastic Limited
It has not generated any cash flow from the business activity of the business and performed poorly from a financial perspective (Funtastic Limited 2020).
Santos LimitedThe company's cost has been lower by 20% and revenue has also been higher by 12% which has affected the operating activity cash flow (Santos Limited 2020).

Information analyzing of the income statement of the BHP limited

Income statement 

It provides information on all the income and expenditure that has incurred while conducting the business and helps to understand the financial status of the company in the market. It provides the financial information that can lead to conduct a ratio analysis of the company and provide competitive analysis to make the appropriate decision. It contains all the cash and non-cash transaction (Grgur, & Milojević, 2020).

Cash flow statement  

It provides information on all the cash transactions that have been incurred during the financial year for the business purpose. It also provides capital nature transactions such as buying the building, plant, and machinery. It helps to understand the cash position and profitability of the company and provide the relevant information to make the appropriate decision (Santos Limited 2020).

Analyzing the fund to use in the repayment of long term liability during the financial year

BHP limited has generated the cash flow from the revenue of the company and used this fund to repay the liability. While Santos limited has higher cash flow due to an increment of 20.50% in sales, it has used this fund to repay the liability of 2.36 million. While Funtastic Company has not used the revenue cash flow it has not generated it during the year. It has used the capital assets to generate the fund so that it can pay the liability (BHP LIMITED 2020).

Analyzing the Operating cash flow to distribute the dividend amount by each company

BHP is having a positive cash flow in 2019 due to the higher revenue of the company. It has generated a higher profit and used the cash flow to provide the dividend to its shareholders. While Santos limited has also generated a high profit during the financial year and used the fund to distribute the dividend. Fantastic company has not made any distribution of profit as it has incurred the loss (Günay, & Fatih, 2020).

Analyzing the excess cash flow from the operating activity of each company

BHP is having a strong financial position and has generated a high cash flow during 2019. It has an excess cash flow of 3.56 million which has been used by the company to increase the production capacity of the business. While Santos limited has generated the excess cash flow by 15% which has also been used in business. Fantastic company does not have any major cash from the operating activity (BHP LIMITED 2020).

Using the working capital of BHP limited as h cash flow of the company

Working capital is the fund at a lower level which is used to manage the operating activity of the business. It helps the management to increase the liquidity of the business. Working capital has been reduced by 8.63% in 2019 due to which it has been included in the cash flow of the company (Santos Limited 2020).

Analyzing the factors that can affect the cash flow of each company

BHP Company has used the cash flow to increase the business performance, repayment of liability, and dividend distribution. These factors have been affecting the cash flow by 36.23% during the financial year. Santos limited has used the fund to buy the capital assets and also distributed the profit therefore cash flow has been affected by 23% (BHP LIMITED 2020). While Funtastic Company has generated the cash flow from investment activity and 100% cash flow has been affected by it (NGUYEN, & NGUYEN, 2020).

Analyzing the trend in capita; expenditure of the companies

Capital expenditure has been shown in the investment activity of the cash flow. It discloses that BHP has used the major cash flow in investment for the plant and machinery. It has increased cash outflow by 16.45%. While Santos limited has also made higher cash outflow due to capital investment. Funtastic Company has used the cash inflow from the capital activity to repay the liability.

Trend analysis of dividend paid by the company to its shareholders

BHP Company has paid the dividend to its shareholder from the last 5 years, it has been increased by 4 times and the payout ratio has also been 50% for the shareholders. While Santos limited has paid the dividend from the last year and paid the 30% pay-out to its shareholders. Funtastic Company has not made any profit and has not made any dividend distribution (Funtastic Limited 2020).

Analyzing the borrowing capital trend in each company 

BHP Company has performed well in the financial year and generated a higher cash flow but it has increased the risk of capital structure as it has higher borrowing capital. The company has made the repayment of the borrowing capital intending to reduce such risk (BHP LIMITED 2020).  While Santos limited has also made the repayment to the outsider's liability to reduce the capital risk. Funtastic Company has also made the repayment by making the sales of capital assets (BHP LIMITED 2020).

Assessing the working capital of the BHP limited

Working capital is the difference between the current asset and current liability which can help the company to increase the liquidity of the business. The current liability of the company has been increased by 22% and current assets have also been decreased by 3% which has led to reducing the working capital by 10% during the financial year (Robinson, 2020). 

Evaluating the cash flow statement to understand the financial strength of each company

BHP Limited

From the information analysis of the CFS of BHP limited, it can be seen that, Operating cash flow has been increasing by 13% while capital investment has also been higher by 30% during 2019 as compared to previous years (BHP LIMITED 2020). It indicates that the company has used the major fund to acquire the capital sets so that it can increase the production level for the market demand. The company has also paid the dividend to its shareholder 5 times higher from the previous year. It helps to increase the brand image in the market. It has made the profit higher during the current year which led to indicate the higher financial capability of the company (BHP LIMITED 2020)

Santos Limited

It has performed better from the financial perspective of the business. It has increased the sales by 155 and provides higher profitability for the shareholders. Management of the company has also implemented the dividend policy to distribute the profit (Santos Limited 2020). It has generated the cash from revenue and also utilized it in acquiring the plant and machinery of the company o that production level can be higher in the future years. CFS has been prepared by following the IAS 7 which help to disclose all the essential factor about the business and cash transaction that can affect the decision making of users (Santos Limited 2020).

Funtastic Limited

It has a poor financial position in the market as it has not generated revenue during the current year. It has a negative profit in the income statement and negative cash inflow. Management of the company has sold the capital assets so that it can grate the cash flow to repay the long term liability of the company (Funtastic Limited 2020). The financial strength of the company is poor and does not have any financial growth. The company can liquidate at any time in the future financial year as it does not have any financial plan to grow or survive in the market (Funtastic Limited 2020).

Evaluating each company from the investors perspective to land the fund

BHP Limited

After analyzing the financial statement of the company it can be observed that BHP has performed at a higher scale from the business perspective and provided the higher return it shareholders. It has established its business successfully in the market and faced the competition to survive with a better financial outcome (BHP LIMITED 2020). It has generated a 16% higher cash inflow from the operating activity in2019 while it has also made an investment of 2.69 million in capital assets to improve the business performance. Management of the company has used the financial strategies and framework to monitor the business activity to each stage which has led to reducing fraud and error in the company (BHP LIMITED 2020)

Santos Limited

It has generated a higher profit for the shareholders and achieved the organizational goal. It is expecting the financial growth by 4.56% in the next 4 financial years which can lead to an increase in the value from the existing position. The company has invested $ 3.26 million for expansion of the production capacity which can lead to increase sales in the market. Management has also generated higher cash flow and control the cost of production in the current year. Investors always attract to those project or companies which can provide the risk-free return in the market. From the investor perspective, investors should invest in this company to earn a higher return (Santos Limited 2020).

Funtastic Limited

It has not performed well and leading to increasing the loss of the shareholders in the future. It has not prepared the plan to increase the future revenue and will not profit the return to its investor (Funtastic Limited 2020).The company should generate the cash flow and make the financial position strong so that return to investors and shareholders of the company can be generated. It can be observed that Funtastic Limited has sold out the capital assets and repaid the financial liability from such cash flow. This company can be considered as a higher risky from the financial perspective. Hence innovators should not invest in this company (Funtastic Limited 2020)

After observing the financial statement of the three companies, it can be recommended that investor should invest their fund in BHP and Santos limited to earn the higher return and they should not land the fund in Funtastic Company (Funtastic Limited 2020).

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