Specialty Fashion Group Overview
Discuss about the Changing Perception of Fashion Statement.
The report presents analysis of Specialty Fashion Group. This analysis would comprise of analysis of its cash flow statement, other comprehensive income statement, as well as accounting for its corporate income taxes. Specialty Fashion Group is one of retailer forms operating numerous women-clothing brands in Australia. In other words, it is one of the specialty fashion brand owner and multi-branded apparel retailer for women. The company operates under Katies, Autograph, Rivers, Millers, City Chic and Crossroads. The company operates as specialty retailer for the women’s fashion items in New Zealand, U.S and Australia (Specialty Fashion Group 2016).
It usually indicates where a firm’s cash is being spent or is being generated over a given period (Reid & Myddelton 2017). This assists in analysing long-term solvency and liquidity of an organization. In other words, cash flow statement offer comprehensive outlook of the cash flow from financing activities, operations as well as investing activities. Basically, it shows how much amount of cash is getting out of the firms or getting in over a year or specified period (Nurnberg 2011).
Specialty Fashion Group’s cash flow statement comprise of different items. First, the statement has the receipts from customers. This item shows the total amount of cash received or collected from the clients. The receipts from the customers inclusive of the GST decreased over the period from 908,715 to 889,059 in 2017 (Specialty Fashion Group 2017). The decrease is as a result of reduction in account receivable over the period or reduction in offering its products to be paid in future. On the other hand, there is payment of suppliers, which is used in indicating the total amount of cash given out to the suppliers for supplying different resources to the company for its operations (Specialty Fashion Group 2016). Payments to the suppliers decreased over the period from 875,014 to 866,036. The reduction is attributable to decreased purchase of resources over time. The statement also comprises of interest received over the period. The amount of interest received in the past two years decreased from 99 to 79 in 2017. The decrease is attributed by decreased long-term and short-term debt financing over the period. Additionally, there is interest received as well as interest and the other financing costs paid. These expenses comprises of extra cost paid for the loans or debt acquired by the firm. Interest and the other financing costs paid decreased from 3,248 in 2016 to around 2,207 in 2017. The decrease was as a result of decreased debt financing activities over time. There are net income taxes received or paid. Such item represents amount of taxes charged for net income or amount of income taxes received as bonuses. The net income taxes received decreased from 168 in 2016 to net income taxes paid of around 327 in 2017 (Specialty Fashion Group 2017). All these items contribute to the overall cash flows from the operation activities.
Cash Flow Statement Analysis
Further, the statement comprises of payments for the PPE. Such entails the total amount paid in purchase of PPE. Amount for payments for the PPE decreased over the year from 13,487 to 12,052 in 2017. The decrease is as a result of the company reduction in purchase of other property, plant and equipment over the year. It also comprised of payments amount for the intangible assets (Specialty Fashion Group 2017). These are the amount used in purchase of the intangible assets by the company. Payments for the intangible assets increased as from 2,895 in 2016 to 3,872 in 2017. The increase is based on the notion that Specialty Fashion purchased more intangible assets over the year. Moreover, the statement has profits from the sales of the PPE. This is considered as the amount received by an organization from sales of its PPE. Incomes or earnings from the sales of PPE improved over the year moving from 335 million to 376 million in 2017. The increase is as a result of significant amount of PPE being sold over the same period. All these items results in the total cash flow used in the investing activities (Specialty Fashion Group 2017).
Besides, the cash flow statement also comprises of finance lease repayments, which is the amount used in financing its lease. Finance lease repayments decreased over the year from 204 million in 2016 to zero. This is means that the company was able to do away with lease in 2017. The statement also comprises of repayments from borrowings, which is the total amount paid for all its borrowed amounts. The amount for repayments from borrowings is found to have increased over the years moving from 2,872 in 2016 to 6,534 million in 2017. This is as a result of increased debt financing by the organization over the same period (Specialty Fashion Group 2017).
This comprises of amount of cash leaving or getting in the company is referred to as cash from the operation activities (Nurnberg 2011). It is usually the operations income plus the non-cash items like devaluation added. This is a crucial measurement since it shows analyst viability of the firm’s current business operations and plan. The total cash flow from the operations activities over the last three years experienced asymmetric trend increasing and decreasing over the period. For instance, the net cash flow from the operations increased from 5,373 in 2015 to 30,720 in 2016. Later the cash flow decreased to around 20,568 in 2017 (Specialty Fashion Group 2017). This trend is a clear sign that the company has been experiencing some ups and downs over the last three years of its operations.
Receipts from Customers
This amount comprises of cash outflow for the long-term assets like buildings, land, equipment and so forth and inflows from sales of securities, assets or businesses (Nurnberg 2011). It shows amount of the cash an organization has spent on the capital expenses like new equipment or anything else which required in keeping its in operations (Pavlovi? & Bogdanovi? 2013). The net cash flow from the investing activities also experienced asymmetric trend over time with increasing and decreasing trend over time. In essence, Specialty Fashion net cash flow from the investing activities increased from 12,558 in 2015 to16,047 in 2016 but later decreased to 15,548 in the year 2017 (Specialty Fashion Group 2017). The trend is as a result of increased and decreased payments for PPE over the same period.
This is the amount of cash outflow to organization potential investors and stakeholders as well as cash from the sales of the bonds or the issuance of the securities (Reid & Myddelton 2017). It is evident that the company net cash flows used in the financing activities increased from 2,794 in 2015 to 2,872 in 2016. The trend is found to have continued with a significant increase being recorded in 2017 at 6,534 (Specialty Fashion Group 2017). The increased trend in cash outflow used in the financing activities was due to increased trend in organization’s repayments from its borrowings.
The other comprehensive income entails those expenses, losses, gains or revenue under the GAAP and the IFRS omitted from the net income. This implies that such are usually registered or recorded after the net profit on organization’s income statement instead (Accounting Tools 2017).
Under Specialty Fashion Group some of the items reported in other comprehensive incomes section include variation in fair values of the cash outflow borders which is derived from the equity, the income tax expenses linking the constituents of the other comprehensive income as well as the exchange rate variances on the conversion of the overseas setups. The section also records the total comprehensive income which is said to be attributable to the SFH’s owners (Specialty Fashion Group 2017).
Variation in the fair values which are taken to the equity entails that amount of the cash inflow which is yet to be realized over time and that require is yet to be accounted for (Mitra & Hossain 2009). Income tax expenses connecting the constituents of the other comprehensive income entails the amount of tax charged on the unrealized amount or transactions within an organization. Exchange rate variances on conversion of the foreign operations comprises of that foreign transaction which is yet to be realized over time (Accounting Tools 2017). This entails the amount involved in selling its products overseas.
Payment to Suppliers
These components are reported in the other comprehensive incomes’ section instead of the income statement since they are yet to be realized. In fact, Rees and Shane (2012) argued that something should be realized when underling transactions are completed like when an investment has been sold. Therefore, in case Specialty Fashion Group has invested in the bonds, and value of the bonds varies, it has to recognize difference as loss or gain in the other comprehensive income. Nonetheless, once the bonds are sold, it means the company has realized the loss or gains linked with these bonds and therefore could shift them from the other comprehensive income section to income statement (Jones & Smith 2011).
Tax expenses, it the amount of tax paid by an organization to the general government (Deegan 2012). In this case, Specialty Fashion’s tax expense in its latest financial statements was $1,915,000 (Specialty Fashion Group 2017).
The amount is similar to the firms tax rate times the organization accounting income. This is based on the fact that tax expense for any organization is usually gotten by multiplying company’s tax rates by firm’s accounting income over the same period (Deegan 2012).
Deferred taxes assets represent an increase in the income taxes over time while deferred taxes liabilities represent a decrease in income taxes (Deegan 2012). From the company balance sheet statement, deferred tax asset of around 4,901 was recorded in 2017 compared to a deferred tax asset of 5,764 recorded in 2016. The amount was recorded to represent a significant increase in its income tax increase over time.
In the balance sheet there is income tax payable which are recorded by the form. Income tax payable is not similar to income tax expenses since income tax payable represent real sum which the firm has a loan from in the taxes on bases of the rules of tax code while income tax expenses represent what is computed that the company is said to owe in the taxes based on the standard business accounting principles (Deegan 2012).
The income tax expenses is not the same as income tax paid indicated in the cash flow statement. The reason for the difference is that income tax expenses recorded in the income statement is based on accounting rules to be followed when reporting the result where a company is required to pay based on the reported profit while in the cash flow statement income tax paid is based on the organization accounting standard and is not necessarily based on the reported profit (Kari, Karikallio & Pirttilä 2008).
The most interesting part while analysing treatment of taxes in an organization’s financial statement is the notion that income tax expenses recorded in profit/loss accounts differed from the one recorded in statement of cash flow. In this case, I have gained some new insights that income tax expenses differ from the total sum of the income taxes paid reported in the cash flows owing to the notion that income tax expenses is mostly on basis of the reported sum of profit unlike the income tax paid which is reported in statement of cash flow.
References
Accounting Tools (2017), other comprehensive income: Available from: https://www.accountingtools.com/articles/what-is-other-comprehensive-income.html [Accessed at 25th May 2018]
Deegan, C (2012), Australian financial accounting. McGraw-Hill Education Australia.
Jones, DA, & Smith, KJ (2011), ‘Comparing the value relevance, predictive value, and persistence of other comprehensive income and special items,’ The Accounting Review, 86(6), 2047-2073.
Kari, S, Karikallio, H & Pirttilä, J (2008), ‘Anticipating tax changes: Evidence from the Finnish corporate income tax reform of 2005,’ Fiscal Studies, 29(2), 167-196.
Mitra, S & Hossain, M (2009), ‘Value-relevance of pension transition adjustments and other comprehensive income components in the adoption year of SFAS No. 158,’ Review of Quantitative Finance and Accounting, 33(3), 279-301.
Nurnberg, H (2011), Cash Flow Statement. John Wiley & Sons, Ltd.
Pavlovi?, M & Bogdanovi?, J (2013), ‘Cash flow statement,’ Škola biznisa, (3-4), 129-147.
Rees, LL & Shane, PB (2012), ‘Academic research and standard-setting: The case of other comprehensive income,’ Accounting Horizons, 26(4), 789-815.
Reid, W & Myddelton, DR (2017), ‘Cash flow statement,’ In The Meaning of Company Accounts (pp. 16-16). Routledge.
Specialty Fashion Group (2016), Changing the perception of fashion; Specialty Fashion Group 2016 annual report: Available from: https://www.specialtyfashiongroup.com.au/index.php/component/docman/doc_download/189-annual-report-2016?Itemid= [Accessed at 25th May 2018]
Specialty Fashion Group (2017), Changing the perception of fashion; Specialty Fashion Group 2017 annual report: Available from: https://www.specialtyfashiongroup.com.au/index.php/component/docman/doc_download/217-annual-report-2017?ItemCash flow from the investing activitiesid= [Accessed at 25th May 2018]
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