Comprehensive Income Statement, Owners’ Equity And Cash Flow Statement Comparison

• Coca-Cola Amatil Limited

Questions

 Farm Pride Foods Limited

The share capital is money invested by the shareholders in a company. It is considered a source of long-term finance. There is no change in the share capital of Coca-Cola Amatil Limited in 2015- 2016 whereas it has decreased to 15% in 2016-2017. The company might have redeemed the shares. There is no change in the share capital of Farm Pride Foods Limited. The reserves are identified as the profits which are kept by companies for a specific purpose (Weil, et. al., 2013). The reserves of Farm Pride Foods Limited in 2015- 2016 were decreased to 100%. The reserves of Coca-Cola Amatil Limited in 2015-2016 were increased to 21.52% whereas the reserves were declined to 33% in 2016-2017. The company might have used the reserves for the reasons these were created.

The retained earnings are the profits earned by the companies after distributing the dividends to the shareholders and making other payments to the investors. The retained earnings of Coca-Cola Amatil Limited in 2015- 2016 have increased to 46% and decreased to 13% in 2016-2017 This may be due to less profitability. The retained earnings of Farm Pride Foods Limited is increased to 1790% in 2015-2016 and increased by 98% in 2016 -2017 (Farm Pride Foods Limited, 2017). This may be due to earning more profits by the companies.

• Coca-Cola Amatil Limited

 Farm Pride Foods Limited

The total liabilities of the company Coca-Cola Amatil Limited in 2015 was 4,257,600 which has decreased to 4,201,100 in the year 2016 and again decreased to 4,176,600 in the year 2017 (Coca-Cola Amatil Limited, 2017). The total liabilities of Farm Pride Foods Limited was 20,834 in 2015 which was decreased to 17,077 in 2016 and then again declined to 15,643 in the year 2017. The total equity of Coca-Cola Amatil Limited in 2015 was 2,409,800 which was declined to 2,274,200 in the year 2016 and decreased to 1,880,300 in the year 2017. The total equity of Farm Pride Foods Limited was 29,942 in 2015 which has increased to 38,159 and then increased to 46,640 in the year 2017. The debt on equity ratio of Farm Pride Foods Limited in 2015 was 0.69 which was decreased in the year 2016 to 0.44 and again declined to 0.33 in the year 2017 (Farm Pride Foods Limited, 2017). The debt on equity ratio of Coca-Cola Amatil Limited in 2015 was 1.76 which was increased to 1.84 in the year 2016 and again increased to 2.22 in the year 2017. Hence, from the above ratio it can be concluded that Farm Pride Foods Limited has the better debt and equity position in comparison to the Coca-Cola Amatil Limited because the high debt-equity ratio indicates that the company will not be able to pay off its debts whereas the low debt-equity ratio shows that the company is not taking enough advantage of increased profits which the financial leverage can bring.

• Coca-Cola Amatil Limited

The cash receipts determine the inflow of cash transactions. The cash receipts of Coca-Cola Amatil Limited was increased to 2.21% in 2015-2016 and decreased to 5.21% in 2016-2017. The cash receipts of Farm Pride Foods Limited were increased to 2.87% in 2015-2016 and 2.72% in 2016-2017. The increase may be due to the enhancement in the sale of the company. The cash payments are referred to the payments which are made in cash by the company. There was a rise in the cash payment of Coca-Cola Amatil Limited of 0.45% in 2015-2016 and fall of 3.08% in 2016-2017. There was a fall of 4.81% in the cash payments of Farm Pride Foods Limited and rise of 9.68% in 2016-2017 (May, 2013). The reason could be that the company might have made the transactions using any other source. The cash taxes paid represents the taxed pain in cash by the company.

Answer

The cash taxes of Coca-Cola Amatil Limited has decreased to 2.15% in 2015-2016 and increased to 19.58% in the year 2016-2017. There was a rise of 361% in the cash taxes paid for Farm Pride Foods Limited whereas there was a rise of 43.62% in 2016-2017. The company might be paying more taxes in the following years. The cash interest paid refers to the sum all the interest expenses paid in cash by the companies over a period of time. There was a fall of 13.60% in 2015-2016 in the cash interest paid of Coca-Cola Amatil Limited whereas there was an increase of 0.61% in 2016-2017. There was a fall of 56.84% in 2015-2016 in the cash interest paid of Farm Pride Foods Limited whereas there was a fall of 63.41% in 2016-2017. The company might have paid the less interest (Henderson, et. al., 2015). The change in working capital is concerned with eliminating the current liabilities from the current assets. There change in working capital of Coca-Cola Amatil Limited is rising by 93.51% in 2015-2016 whereas it is increasing 7.41% in 2016-2017. There is a rise of 600% in the working capital of Farm Pride Foods Limited in the year 2016-2017. The capital expenditure is the money invested by the company in fixed assets. There is the rise of 13.89% in the capital expenditure of Coca-Cola Amatil Limited in 2015 -2016 and rose 2.96% in 2016-2017. The capital expenditure of Farm Pride Foods Limited has increased to 952.45% in 2015-2016 and decreased by 64.33% in 2016-2017. The increase may be to the more investment in the capital expenditure and decrease may be due to the more expenditure on the fixed assets.

The other investing cash flow items of Coca-Cola Amatil Limited has decreased to 305.43% in 2015-2016 and increased to 14.28% in 2016-2017. There are not other investing cash flow items of Farm Pride Foods Limited. There was no change in the financing cash flow item of Coca-Cola Amatil Limited. The total cash dividends of Coca-Cola Amatil Limited were increased to 5.9% in 2015-2016 and 1.70% in the year 2016 -2017. There were no cash dividends paid in the case of Farm Pride Foods Limited. There was no change in the issuance (retirement) of stock, net of Coca-Cola Amatil Limited and there were no issuance (retirement) of stock, net of Farm Pride Foods Limited (Brealey, et. al., 2012). The issuance (retirement) of debt, net of Coca-Cola Amatil Limited was decreased to 51.64% in 2015-2016 and decreased to 112.69% in 2016-2017. The issuance (retirement) of debt, net of Farm Pride Foods Limited were decreased to 48.72% in 2015-2016 and 82.12% in 2016-2017. The foreign exchange effects of Coca-Cola Amatil Limited was decreased to 204.54% in 2015-2016 and increased to 810.14% in 2016-2017.

• Coca-Cola Amatil Limited

Farm Pride Foods Limited

The cash from operating activities of Coca-Cola Amatil Limited has increased to 23.61% from 2015-2016 and decreased to 23.95% in 2016-2017. The cash from operating activities of Farm Pride Foods Limited was increased to 48.32% and decreased to 44.04% in 2016-2017. The cash from investing activities of Coca-Cola Amatil Limited has decreased to 40.94% from 2015 to 2016 and decreased by 3.79% in 2016- 2017. The cash from investing activities of Farm Pride Foods Limited was increased to 1088.88% in 2015-2016 and decreased by 64.64% in the year 2016-2017 (Francis, et. al., 2013). The cash from financing activities of Coca-Cola Amatil Limited was decreased by 458.25% in 2015-2016 and increased by 56.10% in 2016-2017. The cash from financing activities of Farm Pride Foods Limited was decreased by 48.72% in 2015-2016 and decreased by 82.12% in 2016-2017. Hence, there was a decrease of 67.86% in net cash of Coca-Cola Amatil Limited in 2015-2016 and 344.05% decrease in 2016-2017. The net cash of Farm Pride Foods Limited was increased by 3462.5% in 2015-2016 and again increased by 61.40% in 2016-2017.

• The financial position of Farm Pride Foods Limited is better than the financial position of Coca-Cola Amatil Limited as the net cash change of Farm Pride Foods Limited was increased by 3462.5% in 2015-2016 and again increased by 61.40% in 2016-2017 whereas there was a decrease of 67.86% in net cash of Coca-Cola Amatil Limited in 2015-2016 and 344.05% decrease in 2016-2017 (Fazzini, 2018).

• The items which are included in the comprehensive income statement of Coca-Cola Amatil Limited are as follows:

Owners’ Equity

Foreign exchange differences on translation of foreign operations

There are no items reported in the comprehensive income statement of Farm Pride Foods Limited for the year 2017.

• These items have not been reported in the income statement or profit and loss statements as according to the matching concept of accounting, the companies should write off their expenses in the same year. The main aim of matching concept is that it avoids the misstating of earnings for a particular period (Joshi & Li, 2016). The concept of matching principle directs the companies for reporting expenses on their income statements in the same year as related revenues.

Foreign exchange differences on translation of foreign operations: The exchange difference refers to the result of translation of given number of units of one particular currency into another currency on the basis of diverse exchange rates (Hilton & Platt, 2013). The Foreign exchange differences on translation of foreign operations of Coca-Cola Amatil Limited are $ 141.4 million in the year 2017 and there were no Foreign exchange differences on translation of foreign operations reported in the case of Farm Pride Foods Limited for the year 2017.

Cash flow hedges: The cash flow hedges are arranged to manage the risks of changes in the cash flow statement that are associated with recognized liability or asset or a forecast transaction. The cash flow hedges of Coca-Cola Amatil Limited in the year 2017 are $ 34.3 million. There were no cash flow hedges reported in the comprehensive income statement of Farm Pride Foods Limited for the year 2017.

Other reserves movements: This reflects the movement of the different reserves in a year that is held by the authority. There are usable and unusable reserves. The usable reserves are those which can be applied to the fund expenditure or reducing the local taxation (Higgins, 2012). The Other reserves movements of Coca-Cola Amatil Limited in the year 2017 are $ 1.6 million and there were no other reserves movements reported in the case of Farm Pride Foods Limited for the year 2017.

Actuarial valuation reserve: The actuarial reserve is considered as the liability equal to the actuarial present value of the future cash flow of any contingent event (Faulkender, et. al., 2012). The actuarial valuation reserve of Coca-Cola Amatil Limited is $1.7 million in year 2017and there was no actuarial valuation reserve reported in case of Farm Pride Foods Limited for the year 2017.

Hence, the income statement will reflect the financial position of the company from time to time due to which the management will be become enable to estimate the losses and profits.

No, the comprehensive income statement should not be involved in evaluating the performances of managers of the company (Bhandari & Iyer, 2013). This is because the managers do not have the direct control over the transactions and items which are recorded in the comprehensive income statement. For instance, if there is any change in the other reserves movements, then the manager might not be able to find the expenditure of funds. As a result, the company will become unable to maintain enough reserves and to face the future liabilities.

The tax expense of Coca-Cola Amatil Limited is $148.6 million in 2017 and the tax expenses of Farm Pride Foods Limited $ 3,751,000 in 2017.

The table below shows the effective tax rate of both the companies

The table above shows that the effective tax rate of Farm Pride Food LTD is higher than Coca-cola Amatil LTD.

Cash Flow Statement

The Coca-cola Amatil LTD has reported deferred tax liabilities of $28300000 during the year and Farm Pride Food LTD has reported deferred tax assets during the year of$859000 (Rego and Wilson, 2012). The reason for reporting these items in the balance sheet is due to the calculation of the profit is different as per income tax regulation and corporation act regulation.

The Coca-cola Amatil LTD has a decrease in deferred tax liabilities by$ 19400000.The Farm Pride Food LTD had an increase in deferred tax liabilities by $82000.

The cash tax of the company can be calculated by adding an increase in deferred tax liabilities in book tax and a decreasing increase in deferred tax assets.

Coca-cola Amatil LTD

= $148.6 + $5.1+$19.6 = $173.3

The Farm Pride Food LTD

=$3751 + $82 +$1006 =$ 4,839

The cash tax rate can be calculated by dividing cash tax with EBIT.

Cash tax rate = cash tax/EBIT

Coca-cola Amatil LTD

= ($173.3 / $609.6)*100 = 28.42% 

The Farm Pride Food LTD

= ($4839 / $12232)*100 = 39.56%

The difference in cash tax rate and book tax rate is due to the adjustment of excess/ less income tax paid during the previous year (Edgerton, 2012). This difference is due to the difference in the timing of recording tax and payment of tax.

Conclusion 

From the report, it can be concluded that financial statements play a major role in representing the financial position of the company. The balance sheet, income statement and other relates financial statements provide a base to the company for determining its profits and losses. The report has provided the information about owners’ equity, cash flow statement and income tax of both the companies that are Coca-Cola Amatil Limited and Farm Pride Foods Limited.

References

Bhandari, S.B. and Iyer, R., (2013). Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), pp.667-676.

Brealey, R.A., Myers, S.C. and Marcus, A.J., (2012). Fundamentals of corporate finance. McGraw-Hill/Irwin,.

Coca-Cola Amatil Limited, (2017). Annual Report [Online] Available at: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-Report-2017.ashx [Accessed 19 September 2018].

Edgerton, J., (2012). Investment, accounting, and the salience of the corporate income tax (No. w18472). National Bureau of Economic Research.

Faulkender, M., Flannery, M.J., Hankins, K.W. and Smith, J.M., (2012). Cash flows and leverage adjustments. Journal of Financial Economics, 103(3), pp.632-646.

Fazzini, M., (2018). Financial Statement Analysis. In Business Valuation (pp. 39-76). Palgrave Macmillan, Cham.

Francis, J.R., Pinnuck, M.L. and Watanabe, O., (2013). Auditor style and financial statement comparability. The Accounting Review, 89(2), pp.605-633.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., (2015). Issues in financial accounting. Pearson Higher Education AU.

Higgins, R.C., (2012). Analysis for financial management. McGraw-Hill/Irwin.

Hilton, R.W. and Platt, D.E., (2013). Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., (2012). Financial accounting. Pearson Higher Education AU.

May, G.O., (2013). Financial accounting. Read Books Ltd.

Rego, S.O. and Wilson, R., (2012). Equity risk incentives and corporate tax aggressiveness. Journal of Accounting Research, 50(3), pp.775-810.

Weil, R.L., Schipper, K. and Francis, J., (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Farm Pride Foods Limited, (2017).Annual Report [Online] Available at: https://www.farmpride.com.au/wp-content/uploads/2017/09/2017-Farm-Pride-Foods-Ltd-Annual-Report.pdf [Accessed 19 September 2018].

Joshi, S. and Li, Y., (2016). What is corporate sustainability and how do firms practice it? A management accounting research perspective. Journal of Management Accounting Research, 28(2), pp.1-11.

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