ERM Power Limited Financial Report Analysis

Company Overview

The report emphasizes upon the financial factors and the financial recording system if the company. It measures that how the company is recording all the financial transaction of the company and what are the accenting standards and accounting regulations which are followed by the company. This report focuses on the final financial statement of the company to measure the accounting process and the accounting system of the company. It majorly focuses on the taxation recording system of the company, cash flow statement and the comprehensive income statement of the company.

Company overview:

ERM power limited is an Australian energy company which operates it activities and the business in electricity sales and the generation capability of the business. The company has been founded in 1980 and headquarter of the company is in Australia itself. The company is second largest company in Australian market in context with selling the energy. The company mainly focuses on the selling the electricity to the business customers only. The company is operating its business through various subsidiary companies (Home, 2018).

Cash flow statement analysis:

Cash flow statement measures about the changes in the total cash of the company. It measures the total cash outflow and inflow of an organization in a particular period and identify about the cash management position of the company. The cash flow position of ERM power limited has been evaluated and it has been measured that the cash position of the company has been altered from last year in current year. The changes explain about the positive performance of the company.

(Morningstar, 2018)

The above table explains that the investment into the property, plant and equipment has been enhanced by the company which has lead to high cash outflow to the company. However, the acquisition has managed the cash inflow of the company and due to it; the total investing cash outflow of the company has been lowered. In addition, it has been found that the debt repayment capability of the company has also been lowered and the company has reduced the capital structure (Tran, 2015). In addition, it has been measured that the financing cash flows of the company explains about the negative changes due to buy back of shares, debts and huge dividend amount.

The analysis explains about the total changes into the cash flow of the company from last year. It measures the performance of the company and concludes that the positive changes have occurred into the cash flow statement of the company from last year.

Cash Flow Statement Analysis

Comparative analysis:

The cash flow statement of the company has been compared from the historical data of the company to measure the performance of the company. On the basis of the comparative analysis of the company, it has been measures that the cash flow position of ERM power limited has been changed from 2015 in 2017.  

(Annual report, 2018)

The operating cash flow position of the comapny explains that the operating cash flows of the company has been lowered due to less revenues and higher cost of revenue of the company. In addition, it has been found investing activities and financial activities cash flow of the company has also been changed. The main reasons behind decrement in the investing cash flows is property, plant and equipment whereas the financial cash flows of the company has been lower due to higher dividend payout amount and reduction in the debt amount of the company.

Comprehensive income statement:

Comprehensive income statement explains about those items which are related to the operating and non operating performance of the company but cannot be shown in the final financial statement of the company because of disclosure policies and the materiality policies.

In ERM power limited, Items that may be reclassified subsequently to profit and loss such as Changes in the fair value of cash flow hedges, Exchange differences on translation of foreign subsidiaries, Other comprehensive income arising from discontinued operations and Items that will not be reclassified subsequently to profit and loss such as Changes in the fair value of financial assets at fair value etc has been  added and it has been found that the total comprehensive income of the company is $ 115090000 which has been lowered from last year due to changes in the fair value of the company’s assets (Shantapriyan et al, 2014).

Understanding about comprehensive income statement:

The figure 1 briefs about the various factors of comprehensive income. On the basis of the study over all the factors of comprehensive income statement, it has been evaluated that the items are those items which cannot be shown by the company in its final financial statement directly. These factors explain about the profitability position of the company but it does not related to the operating and financial factors of the company (Pawsey, 2016). Thus, these items are shown in other statement by the company which is called consolidated statement of comprehensive income.

Comparative Analysis

Reasons:

The main reasons behind not showing the above stated items into the income statement of the company is accounting concepts and the AASB rules which states that the book value must be reported in the accounting statement of the company unless the item when the company is planning for the liquidation or merger. Thus, these items are shown by the company in other statement (Glasson, Therivel and Chadwick, 2013). However, disclosure policy briefs that these factors must be shown in the annual report of the company.

Tax expenses:

Tax expenses explain about ERM power limited’s liability towards the governance of the country and the society. Tax amount is paid by every company on the basis of the total accounting profit which has been generated by the company in an accounting period. The tax expenses of the company explains that the total income tax expense of the company in the year of 2017 are $ 51675 thousand which has been lower form the total income tax expenses of the company of last years (Garrett, Hoitash and Prawitt, 2014).

(FT, 2018)

The income tax expenses of the company explains that the tax expenses of the company has been lower due to the effective tax planning of the company and the revenue factor has also affected the total tax expenses of the company.

Accounting income and taxation amount:

In addition, annual report (2017) of the company explains that the accounting profit of the company was $ 52,695,000 in 2017. And the taxation regulations explain that the company has to pay 30% of total accounting profit to the government as tax amount. It explains that the total taxation amount of the company should be $ 15,798,000. However, the annual report (2017) explains that the income tax expenses of the company are $ 51,675. It explains about the huge difference among the taxation amount of the company (Daly and Farley, 2011).

The difference among both the values of taxation has been occurred due to the non operating operations of the company and the other activities of the company which has affected the position of the company.

Deferred tax assets and liabilities:

In addition, the deferred tax assets and deferred tax liabilities of ERM power limited has been identified. Deferred tax assets and the liabilities are recorded in the balance sheet of the company and it explains about the total difference among the tax amount paid and the actual tax amount of the company (Cheung and James, 2017). If the company has paid extra amount then it is when as deferred tax assets of the company vice versa.

Comprehensive Income Statement

On the basis of the above table, it has been identified that the deferred tax assets as well as deferred tax liabilities of the company has been improved from last year in current year. This amount has been recorded by the company in the annual report due to the different amount than the actual taxation amount which has been paid to the government.

Income tax payable:

In addition, the current tax assets and current tax liabilities of the company has been measured to identify the performance of the company and the taxation system of the company. The below table explains that the current tax assets of the company is none in current year. However, the current tax liabilities of the company have been enhanced in 2017 by $ 18088000 and explain that the company has to pay this amount to the government in short term.

Income tax amount in final statements:

The income tax amount in the income statement and the cash flow statement has been measured to identify that how much amount has been generated in the current year of the company of taxation and how much amount has been paid by the company. On the basis of the reports, it has been found that the tax amount in the income statement of the company is $ 51.70.

The cash flow statement explains that the total tax amount which has been paid by the company is $ 14,405,000.

It explains that the taxation amount which has been paid by the company is lower than the actual tax expenses of the company. It briefs that the company has to pay higher amount of dividend to the government (Brigham and Ehrhardt, 2013).

Tax treatment factors:

On the basis of the evaluation on the annual report, taxation recording, various taxation figures, it has been found that study was:

Surprising as how could an accountant measure and record that much amount of taxation at different places. It has been found that the taxation of the company has been recorded on the basis of the AASB regulations and the ASSB 112 rule has been followed by the company.

Interesting as various learning, knowledge and idea about the taxation recording has been gained from the report and it has been found that how could the taxation recording and the annual report of an organization attract and how could it manipulate the non accounting person.

Confusing as there are various elements of taxation such as current tax liabilities, current tax assets, deferred liabilities, deferred assets etc of an organization. It has been little confused at the staring of the report to measure and identify the different figures of the taxation on the basis of the items.

And difficult part of the report was identifying the exact value of all the items in the balance sheet. However, there are various tools in a system to identify all the figures of taxation easily.

Conclusion:

It explains that the company has followed the taxation rules and regulation in the basis of the AASB 112 and IFRS rules. It explains that the company has recorded all the figures and items of the taxations in a proper way in annual report of the company.

References:

Annual report. 2017. ERM power limited. [online]. Available at: https://www.ermpower.com.au/wp-content/uploads/2017/09/ERM-Annual-Report-2017_WEB.pdf (accessed 23/5/2018).

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory and practice. Cengage Learning.

Cheung, E. and James L. 2017. “Readability of Notes to the Financial Statements and the Adoption of IFRS.” Australian Accounting Review 26.2 (2016): 162-176.

Daly, H. E., and Farley, J., 2011. Ecological economics: principles andapplications. Islandpress.

FT 2018. ERM power limited. [online]. Available at: https://markets.ft.com/data/equities/tearsheet/forecasts?s=EPW:ASX (accessed 23/5/2018).

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Glasson, J., Therivel, R., and Chadwick, A., 2013. Introduction to environmental impact assessment. Routledge.

Home. 2018. ERM power limited. [online]. Available at: https://www.ermpower.com.au/ (accessed 23/5/2018).

Morningstar. 2018. ERM power limited. [online]. Available at https://financials.morningstar.com/cash-flow/cf.html?t=EPW&region=aus&culture=en-US (accessed 23/5/2018).

Pawsey, N., 2016. Project: Review of IFRS adoption in Australia. Accounting Journal.

Shantapriyan, P., O’Donnell, K., Streeter, J. and Hicks, B., 2014. Getting it Right: Directors’ Assessment of Information.

Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.

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